How do India’s internal policies affect me as an NRI Buyer or Seller?
#RERA #BenamiAct #REIT #Demonitization #GST
2017 is almost over and, although it’s been a prosperous year for India’s real estate market, many NRI’ are still worried about the Real Estate market. In India’s particular situation, where new policies are always being implemented to maintain a safe market for a demographic; one could argue that, while well-intentioned, these efforts tend to foster an aura of instability.
In Reobee we know this, and, as a part of our efforts to provide a useful center of information for both newcomers and experts; we’ve decided to craft a simple guide indicating how particular policies may affect you as an NRI.
For this we’ve considered two cases:
- You already own property in India, and you’re either thinking to sell it or are worried about how to handle new policies to stay within the law.
- You want to buy property in India, and you’d like to either get to know these policies or get updated on any new developments.
Whichever might be the case, here’s our simplified on overview on the 5 most important ones:
Summary: The Real Estate Regulation Act (RERA) establishes the creation of subdivisions that will regulate Real Estate within each state. In essence, RERA’s goal is to create a safe environment for buyers to invest in Real Estate by building regulatory institutions to take care of developments.
How does this affect NRI buyers? As it was created to benefit buyers, RERA represents a significant advance for NRI’s. To commence with, starting a project has become increasingly difficult for builders, which has left some of the most unscrupulous players out of the game. This is also great because new financial regulations establish that, to manage investors in a project, a builder needs to create a separate account where 70% of investments go to, being forced to refund the amount where they to be late on deliveries.
Along with financial security, transparency about the project with data such as the state of the development, schedules, and information both about the contractor and any intermediaries or sub-contractors is now mandatory to provide to investors and buyers.
How does this affect NRI owners/sellers? With RERA in place, prices are expected to follow an upwards tendency in investment projects. This can be a because every risk the projects entail will be transferred to their sellers, instead of the buyers. However, with project prices going up, and with online systems in place to facilitate the exchange of information between NRI’s all over the world, buying and selling properties will become increasingly attractive to investors.
Overview: The Indian Goods And Services Tax (GST) is a government effort to uniform the currently uneven taxing system among the 29 states. With a homogeneous system for taxing citizens, India expects to boost the economy while increasing fairness in all trades, including, of course, Real Estate.
How does this affect NRI buyers? When GST was announced, Ashish R Puravankara, the managing director of Puravankara, one of the most important builders in Bangalore, came forward to say this measure would be a boost for fair competition in India. This would happen, he said, because “even taxation and a single consolidated tax system would bring along more clarity, transparency and avoid double taxation.” Because of this, NRI buyers will become benefited by new practices that, along with RERA, are sure to make an investment in projects and to buy from developers a safer option for those outside of India.
How does this affect NRI owners/sellers? GST is a measure that significantly benefits buyers, which means an increased demand on the market. With the apparent consequence that specific areas where taxes were more beneficial to sellers than others will now be under the country-wide regulation, there’s a definite benefit for sellers: As investments grow, so will stability, therefore assuring more market predictability. Sellers will also have the potential ability of re-investing their profits in areas that were probably unknown to them, hence opening new markets for property owners and investors.
Overview: The Benami Transactions (Prohibition) Amendment Act of 2016 was created to eliminate the so-called “benami” (no-name) transactions. For a deal to be considered Benami, it implies that:
- The purchase was made under fictitious names.
- There are unreliable on non-traceable details of the person selling the property in India.
- The owner is unaware of ownership of the property.
- The property was purchased in a family member's or relative's name, payment for which has been made through an unknown source.
The Benami act, therefore, establishes these transactions as illegal and determines punishments for incurring in these schemes.
How does this affect NRI buyers? With this enactment in place, which has the apparent goal of establishing a more transparent market, NRI’s can, however, be sanctioned if incurring in Benami transactions, even as buyers. Because of this, buyers need to take into consideration that any property not explicitly stated to be under the seller’s name is considered to be suspicious, and should look for legal counseling. The Benami Act also says that buying estate over names that are not the same ones providing the funding is forbidden, so transactions under the name of family members, even if done for convenience, should be avoided entirely. Buying properties in rural areas is also a practice that needs to be carefully revised, as often registers in these areas are not up to date.
How does this affect NRI owners/sellers? Property owners in rural areas should attach to the same recommendations cited above for buyers. Legal counseling is also advised both while correcting any act or ownership document to stay within the margins of the law and while dealing with transactions, to make the process seamless and on the right side of authorities.
Overview: Allowing REITs (Real Estate Income Trusts) to form in India was considered a step towards the involvement of minor investors in the industry while also fostering sound investment practices. Practices such as diversification, low-risk investment and fair distribution of profit are encouraged in these institutions, where a country-pool of investors put money into a trust that’s commissioned to invest its funding in real estate, and then divide the profits from it. To join such a fund, an investor needs to contribute at least as little as Rs 2 lakhs.
How does this affect NRI in general? The establishment of REITs doesn’t, at least by itself, change NRI real estate investors in ways others than it provides an additional investment option to diversify their portfolio. However, as the market grows over the upcoming years and government policies create a more transparent market, buying actual real estate should still be encouraged for investors. In India, REIT’s take 10% of the trust profits for themselves, an amount that could be worth the time-save for minor investors; but those interested in highest investments as well as property owners should continue to look for opportunities within the market.
Overview: on November 8, 2016 (almost exactly a year ago), India’s government decided to retire from circulation all 500 Rupee and 1,000 Rupee bills, making them invalid. The total, amounting to 15.44 trillion Rupees, or 86% of bills and coins in circulation and 12% of India’s total money supply was replaced with 500 and 2,000 Rupee notes, which were not put in circulation immediately.
This radical policy, named demonetization is still being debated to this day, but was initially conceived as a move to foster the banking systems, the digital economy and eliminate fraudulent currencies.
How does this affect NRI buyers? When the demonetization took place, and because of the economic uncertainty that it carried, many NRI adopted a “wait and see” posture while prices dropped. The market, we know, has since stabilized, leaving NRI’s that bought properties at low prices that have since appreciated and that could be willing to sell, which includes luxury property. This represents an opportunity for NRI’s to try and find such individuals that may be selling properties at a discounted price since their profits are already high and they’ll be selling on a high-demand market situation.
How does this affect NRI owners/sellers? Both previous owners, and owners that bought a year ago when demonetization strike can now rest calm knowing their properties have since appreciated, and that now is a safe moment to both sell and contemplate extending ownership to increase the value of their properties, depending on where those might be.
It’s clear from what you can read here, that one of the best options to make the most out of your money or property is to do transactions with other NRI’s. Did you know Reobee.com allows you to post your property, or interact with other property owners for free? In an NRI-only system, you can find the person that’s looking just for what you have. Join in, or contact us to learn more about this revolutionary system!
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