Opportunities for Foreigners to Invest into the Real Estate Sector in India

Opportunities for Foreigners to Invest into the Real Estate Sector in India

Introduction

The Indian real estate market is a prominent market to invest as it contributes to about 6 to 8% to the Indian gross domestic product (GDP) and is expected to contribute about 13 per cent by 2025.

The real estate market in India has become a part of many successful investment portfolios over the years both for those resident in the country as well as non-residents, on account of various factors such as the high rate of investment which surpasses the inflation rate offering profits to the investors, a rapid growth rate, as the real estate market is expected to grow from Rs. 12,000 crores to Rs. 65,000 crores by 2040 and it is also considered to be a safe option as the investor is guaranteed a return on their investments.

Procedure

DP Group Recap | May 2023

While buying a property in India, there are certain rules and regulations to be followed and certain precautionary measures to be considered while purchasing real estate in India.

As per such rules, the process of buying real estate is different for residents in India and Non-Residents and Foreign Nationals not being of Indian Origin.

Indian National residents in India can purchase residential and commercial properties, including agricultural land, plantation and farm land without any prior permission or approval needed.

Non Residential Indians (NRIs) wishing to purchasing a property can do so without needing any special permission from the government authorities. A payment is however required to be made in the NRE account under the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India (RBI) regulations. NRIs can buy all types of immovable properties in India, however, to purchase agricultural land, farm house and plantation property in India, they have to get approval from the RBI and the government.

Foreign Nationals, of non-Indian origin residing outside of India, are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who is resident in India.

However, Foreign Nationals who are of non-Indian origin but are residing in India are permitted to acquire immovable property in India (excluding agricultural land, plantation property and farmhouses) but are required to obtain prior approval of the Reserve Bank of India and fulfill certain terms and conditions as stipulated in the Foreign Exchange Management Act, 1999 (FEMA) as well as other such requirements, if any, prescribed by other authorities, such as, the State Government concerned, etc.

For the purpose of considering whether the Foreign National is resident or not, under FEMA, foreigners should follow the two conditions to be considered as a “resident of India” and to be able to buy property in India. The Foreign National must reside in India for more than five months (182 days) during the financial year. They can stay in India continually for 182 days as an employer or doing business or enjoying a vacation or any for any other purpose to prove their intention to reside in India. The onus to prove his/her residential status is on the individual as per the existing FEMA provisions, if required by any authority.

It is important to note that citizens from Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan cannot purchase immovable property in India.

A Foreign National resident outside of India can invest in immovable property via a branch office or another place of business (excluding a liaison office) in India provided the foreign company is established with requisite approval whenever necessary. The entity or the concerned person is required to file a declaration under Regulation 5 of Notification No. FEMA 21/2000-RB viz. Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India), Regulations, 2000 dated May 3, 2000, in Form IPI with the Reserve Bank of India within 90 days of acquisition. On winding up of the business, the sales proceeds of such property can be repatriated only with prior approval of the Reserve Bank of India. The most well established option for a foreign entity to invest into the real estate sector in India is via a joint venture or collaboration with a legal Indian entity in India.

Conclusion

At the time of investing into the real estate sector, a foreign entity or a foreign national are required to scrutinize various documents such as the title deed, building sanction plans, certificate of commencement, certificate of occupancy, receipts paid for tax, certificate of encumbrance, documents of mutation etc. Therefore, it is essential that the Foreign National meets all of the conditions and acquires resident status under FEMA to be able to purchase immovable property in India, failing to do so result in facing legal penalties including monetary fines.

Bosky Tanmay Gokani Bosky Tanmay Gokani

Bosky Tanmay Gokani

Legal Advisor
Bosky Gokani, a qualified Indian lawyer, is currently based in Shanghai.
Veronica Gianola Veronica Gianola

Veronica Gianola

Senior Associate
Veronica Gianola, an accomplished Italian lawyer, is a member of the Milan Bar Association.

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