NRI home loans on the upswing

Most Non-Resident Indians think a lot before investing in property in India and most of the time put off the plan due to the effort, the research and the planning involved.

In some instances, it is put off as they do not have enough funds. For such individuals there is always the NRI home loan.

The Reserve Bank of India defines NRI as 'an Indian citizen who holds a valid Indian passport and who stays abroad for employment or for carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a NRI'.

Purpose of the NRI home loan

The NRI loans are made available for the following purposes:

* Self-construction of a property on a plot of land.
* Finance the purchase of a plot of land allotted by a society/development authority.
* Renovate/improve an existing property in India.
* Purchase of a house either under construction or on a resale.

Non-Resident Indians are also permitted to purchase an existing house or flat. RBI has not prohibited banks from providing financing to NRIs for the purchase of a second house, but the loan on the house is for the self-occupation of the NRI upon their return to India.

Loans are also offered to NRIs against NRE (Non-Resident External) deposits. These loans can be repaid out of NRE funds but the interest would be charged at a commercial rate.

Loans to NRIs are also provided against FCNR (Foreign Currency Non-Resident) deposits.

Difference between a normal and NRI Loan

NRI home loans can be availed by any NRI with as much ease and convince as any Resident Indian would avail a home loan. However, some difference exists between the two kinds of loans, in terms of tenure, documents, repayment, etc.

Interest rate is little costlier for NRIs than Indian residents, it is 0.25 per cent to 0.50 per cent more for NRIs. The NRI gets the only 85 per cent cost of the property as a loan amount. The tenure of loan is also short: it ranges from 7 years to 15 years.

The size of the loan depends upon the borrower's repayment capacity. Up to 36 times of the gross monthly earnings of the applicant may be issued as loan. However, there is a maximum limit. Calculation of eligibility is same as that of Indians living in the country.

The repayment can be done in equated monthly instalments (EMIs) from the Non-Resident Ordinary (NRO) account or the NRE account.

For security, most banks insist that the first mortgage of the property should be in their name. If the property is under construction then adequate additional security is required such as guarantee of third party (either resident or another NRI).

Tax benefits

NRIs cannot claim tax benefits on home loans in India as they have to pay tax in the nation where they work and earn. However, they need to file tax returns to become eligible for home loans. But if they pay tax in India for income earned in India, they can claim tax rebate for the home loan.

The current scenario

An estimated 25 million NRIs living in 130 countries have remitted $52 billion so far this year (December 2009). In fact India topped the list of countries in remittance flow followed by China and Mexico, according to World Bank report on Migration and Development Brief.

The impact of global slowdown, job losses and unviable job offers has necessitated a section of NRIs to return to Indian shores.

According to housing finance companies and banks disbursing home loans to NRIs/PIOs in Dubai [ Images ], there has been a sudden surge in demand for residential property across Indian cities and particularly for Tier-II cities in the wake of the economic slowdown in the emirate.

Southern cities, particularly Bengaluru [ Images ], Chennai and Hyderabad, are driving the demand though minimal level demand exists for other cities as well. Most of the NRIs keen to invest in real estate back home are looking for home loans as they are unable to get loans locally due to the current tight liquidity situation across the United States.

What experts say?

Experts agree that despite turbulence in mature markets, the 'emotional appeal' of buying a property in India may be stronger now. However, this in turn has created a price increase in the last six months.

Popular property portals claim that the number of queries from NRIs has surged nearly 15-20 per cent over the last two-three months. However, just how many of these 'queries' translate into actual sales remains to be seen, say people behind the business.

The focus on NRIs for these portals is stronger now as many are looking to come back to India apart from those who wish to invest in properties.

Another factor that seems to favour NRIs is the foreign direct investment policy that permits up to 100% FDI from foreign/NRI investors under the automatic route has boosted NRI confidence.

Banks have attractive NRI housing schemes to accommodate the housing needs of NRIs. From the stables of housing finance companies, NRI housing finance plans with suitable repayment options are available.

Easy interest rates on housing finance and the improved lifestyle that developers have created have enabled NRIs to acquire property not only for investment, but also for personal use.

Access to NRI loans: At the door step

The response to the real estate market has been so encouraging from the overseas community that it has prompted housing finance companies to set up branches in countries where there is a high NRI concentration, as in the case of ICICI Bank

The bank has representative offices in Dubai, New York, Bahrain, Singapore and the United Kingdom to tap potential property investors there.

ICICI Bank, Sundaram Home Finance Limited, LIC Housing Finance , HDFC , CanFin Homes, Citibank and a host of other scheduled banks are vying for lending opportunities to NRIs.

However, the final decision on whether the time is right to buy a house, whether to use one's own funds or to take a loan, whether to go for an independent house or an apartment, and which home loan provider to use must be made by the NRI himself/herself after careful analysis.

What this means for the realty market

Builders are looking to make up for the huge losses in the past year or so. With growing NRI interest in Indian properties, reports suggest that the realty prices have rebounded to 2007-2008 levels, which however cannot be good news for people scouting for homes with toned down prices.

This is again an example of how a reaction in one corner of the globe can affect another. Sometime back the same scenario happened with rentals, which shot up with a lot of NRIs returning home to take up jobs in India.

There is a need for reforms in realty: KP Singh

NEW DELHI: Even as the domestic economy is showing clear signs of a pickup, the Indian real estate sector is not out of the woods yet as oversupply of residential and commercial projects will continue to haunt realtors for the next 12-18 months, DLF Limited chairman KP Singh said.

Talking to ET after being awarded the Padma Bhushan, Mr Singh said that the sector will witness consolidation and some players (fly-by-night-operators) may go down under as part of a normal business cycle. “I feel overwhelmed by a deep sense of gratitude and humility. I would like to express my heartfelt thanks to the Government of India for this great honour and for recognising my lifetime work. I consider it a tribute to all those who have supported us in the mission of building a new India. This is recognition for the entire housing and construction industry”, he said on receiving the honour.

While appreciating the government for not allowing the liberal flow of funds in the real estate sector, Mr Singh said that the government needs to give importance to this sector as it is one of the largest employment generators and is considered a major engine of growth. “For growth of India, realty is an important sector as it contributes substantially to the GDP and is also one of the biggest employment generators,” he said.

Key facts about India's property market

More than a dozen Indian real estate firms have lined up plans for initial public offers to raise about USD 6 billion, buoyed by an 81% rise in the Mumbai stock index last year and as property buyers return.

Following are key facts about India's property market.

The property market contributes 5-6% to India's gross domestic product, or about USD 50 billion annually to the USD 1 trillion economy, Asia's third largest.
Total foreign direct investment in housing and real estate in India, since investment norms were first eased in 2005, stands at USD 7.7 billion, including USD 2.2 billion in April-November 2009.

The Bombay realty index underperformed the main index last year, rising 70% after a slump in the first quarter, versus the market's 81% gain.

The major cities of Mumbai, New Delhi and Bangalore have the most expensive residential property in India, with rates comparable to New York, London and Tokyo, due to limited land and the government's push to develop its services industry. Apartment prices have risen by around a third in some parts of India since hitting a low in the 2009 first quarter.

The government, wary of an asset bubble forming, has warned that banks should be more cautious about risks in lending to property developers at low rates. However, little has been done yet to actually curb lending.

India is in need of a clearer property policy to better develop the sector, analysts said. Since 2007, the legislature has been drafting a bill to regulate the real estate market, but has met with resistance by developers and industry lobbies.

Affordable housing to play a key role in 2010, says CREDAI

Affordable housing to play a key role in 2010, says CREDAI




Affordable housing segment is set to play a key role in India's real estate sector in 2010 on the back of a significant pick up in
demand, a top industry body has said.

"Affordable housing will be a key factor in driving the sector and we have already started working on progressive solutions in this area for effective and customized implementation of such projects," Confederation of Real Estate Developers' Associations of India (CREDAI) Chairman Kumar Gera said.

An upturn in the economy and the Government's ongoing efforts to push growth in the infrastructure are expected to help the sector regain the growth trajectory, CREDAI said.

"This year will be crucial for the housing industry given the Government's concern over the massive housing needs of the people, especially in urban areas," Gera said.

Noting that the economic recovery would help India's real estate sector to return to the 2007-08 level, Gera said 2010 is expected to be a positive year for the segment.

The revival is expected to be driven by infrastructure growth, which, in turn, can accelerate real estate activities both in the residential as well as commercial spaces, he said.

2010 to be a good year for realty, says Credai

Chennai: Confederation of Real Estate Developers’ Associations of India (CREDAI) is hopeful of a positive year for the India real estate industry in 2010 and the market is expected to return to the 2007-08 level. Given the right opportunity and supportive policies, the real estate sector too would prove effective in driving the country's GDP growth. Infrastructure development is an area which will play a vital role as increased connectivity in terms of roads, rail and communication will lead to development in real estate. Development of other asset classes like warehousing, logistics, tourism and hospitality would also boost real estate activity.

Kumar Gera, chairman, CREDAI, said: “This year would be crucial for the housing industry given the government's concern over the massive housing needs of the people, especially in the urban areas. Supportive policies to encourage and aid the housing requirements of all sections are expected to propel the development in the real estate and allied sectors as well. Affordable housing would be a key factor in driving the sector and CREDAI has already started working on progressive solutions in this area for effective and customised implementation as suited to the Indian situation through NATCON 2010. Also, focus on tier II and tier III cities besides metros will help widen market and generate demand.”

Overseas Indians hesitate to take the property plunge on home turf

Even with a vast wealth base, overseas Indians are reluctant to invest in real estate in India. Despite the government having relaxed its property ownership laws for Non Resident Indians (NRIs), on Day 1 of the Pravasi Bharatiya Divas, the NRIs had some horror stories to narrate about investing in property in India.

“I waited 20 years before investing in property in Delhi. I was worried that I would get cheated. Even after taking all the requisite precautions, I quickly discovered that the previous owner of my property had sold the same property to two people at the same time. I took the case to court, where there has been no resolution for the last eight years, during which time four different judges looked into the case,” said an NRI from Washington DC.

The lackadaisical approach adopted by Indian courts came in for a lot of criticism during a day-long session titled “Property Related Issues of NRIs/PIOs” held at Vigyan Bhawan on Thursday. “After the case was filed, I flew down on three different dates from Washington to attend the hearing, but each time the defendant excused himself from the hearing by offering different excuses through his lawyer. Each time the case was adjourned,” the NRI said.

While the Indian government has advised all NRIs not to give a “general power of attorney” for their property to anyone, even relatives, those attending the conference complained that the ground reality was in conflict with such advice.

“I invested in a property in South Extension and even for something as mundane as getting a power or a water connection, my representative was asked to produce a general power of attorney. The authorities refused to accept a special power of attorney,” V K Chadda, a Hong Kong resident, said.

A presentation on the subject made by Dr Justice A R Lakshmanan, a former judge of the Supreme Court, highlighted steps that may be taken to remedy the current situation.

Chief among them was the suggestion to set up fast-track courts to deal with such cases in a time-bound manner.

A Didar Singh, secretary, Ministry of Overseas Affairs, said the government was “attempting fast track resolutions,” of such cases. He also added, “You must realise that most Indians face the same problems as you do. It is not a problem unique to NRIs. We’re a developing country and all attempts are being made to rectify the system. Having said that, a tremendous amount of investment is being made in India and it is as safe a place as any to invest.”

Addressing the gathering, Vyalar Ravi, Minister of Overseas Indian Affairs said, “As the state government property laws differ from state to state, consultation meetings have been organised with all states and all major states have responded positively by establishing individual departments or cells to deal with the NRI issues.”

Despite the assurances, the NRIs left the session as wary as ever. “It is a little patronising of the government to ask us to take precautions while investing and to consult professionals. We do that anyway, and still end up being cheated. It is a problem that needs to be addressed,” one of the NRI’s attending the conference said.

Affordable real estate will drive growth in Indian property market in 2010, experts claim

Affordable property is set to play a key role in the residential real estate sector in India in 2010 on the back of a significant pickup in demand, according to the country’s developers association.
An upturn in the economy and the Government’s ongoing efforts to push growth in the infrastructure are expected to help the sector grow this year, said Kumar Gera, chairman of the Confederation of Real Estate Developers’ Associations of India (CREDAI).
‘This year will be crucial for the housing industry given the Government’s concern over the massive housing needs of the people, especially in urban areas,’ Gera explained.

‘By the end of 2010 we expect prices in the real estate sector to roll back to at least 90% of the level prevalent in 2007/08,’ he added. CREDAI estimates that values have fallen by 20 to 35% on average across different regions in the country since August 2008.

Real estate growth expectations are based on an assessment of GDP growth by CREDAI, the global revival, domestic sentiments and on the assumption that there would be no major unforeseen fluctuations in the economy or natural calamities this year, he explained.

The real estate market in India was most hit by the downturn between August and October of 2008 when the sales almost came to a standstill.
There were some early signs of recovery in March 2009 and since then prices have stabilised and sales went on to improve considerably by the end of the year, Gera also said.

The growth of the information technology sector in different markets such as Bangalore, Pune and Kolkata will help drive the growth of housing in the regions irrespective of the national IT scenario, he said. And US economic recovery would help stabilise the situation in the IT sector and activities in the Special Economic Zones (SEZs) in the country, he added.

Infrastructure is also set to aid the property market revival on a local basis. In Mumbai prices are already rising at the prospect of the city’s second airport coming up near Khargar. According to Gulam Zia, national director for research and advisory services at Knight Frank, the Navi Mumbai area is likely to grow faster than other location.

Opening may be some six to seven years away yet, he said, but it is already a factor along with a new trans-harbour link and extensions to the metro network.
Generally it is southern cities that will see growth, according to Zia, but places like Kolkata in the east are also expected to see substantial growth, led by the IT industry.
‘Other emerging locations include Mahesh Tala and Tara Tala. Many new townships are being constructed in Tara Tala, gradually transforming it from an industrial zone to a residential township. This will be a promising area in the future,’ Zia added.

Overseas Indians face big problems when investing in Indian real estate

New Jersey-based Client is embroiled in a bitter dispute with her own family members over a 10,000 sq ft property in Gurgaon.

"I had invested in the property in 1999 and issued a limited power of attorney to my brother to oversee the construction on the site. My nephew was employed by me with a salary to help with the construction of the house. My investment is a few crores, but since 2006 my brother and his family have taken over illegal possession of my house. And because I don’t live in India they have bribed the local agencies, and I’m not able to get my property back," she says. There’s hardly anything unusual about this episode, except when you learn that Verma is a lawyer herself.

"The local police and courts have not helped me in any way even though I have approached them and since I have a law practice in the US, I can’t spend too much of time here fighting against my own family," says a desperate Verma. While it is ironic that a legal expert finds herself in this situation, many other prominent overseas Indians too encounter similar problems while investing in Indian property.

It could start with a dream to own a modest home in one’s country of origin. Or it could even be an emotional bond that a second generation person of Indian origin feels with her parents’ homeland that makes her seek transfer of title of family property willed to her in a village in Punjab. Or it could turn into a poignant court battle by an aged NRI couple which wishes to return home from the West but find that unscrupulous land-grabbers have taken possession of their apartment in Mumbai.