NRI Real Estate and Property Investment in India
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Banks Lure NRIs into Real Estate with Attractive Schemes
Saturday, December 22, 2007

The mushrooming Indian real estate market in the country has encouraged industry players to come up with a range of innovative products for people interested to pay. Whether it be real estate developers, real estate fund managers, banks or housing finance companies, all are taking full advantage of the situation. But behind those ecstatic times, some banks, with branches in India and other countries are offering innovative products to non-resident Indians (NRIs), which could turn tricky in case Indian real estate market falls into a trough, according to sources.

It involves the foreign and Indian operations of the same bank, the NRI and his friends, relatives and associates based in India. Banks are providing loans to NRIs to buy land in India if an NRI establishes an Indian company that could do business in the real estate sector.

On the other hand, the NRI keeps a fixed deposit with the wealth management division or private banking arm of the same bank's overseas operation. Unofficially, the foreign branch of the bank, with FD in its books, stands guarantee to the loan given by the bank's Indian operation to the company set up by the associates of the NRI. But the same is not officially shown as a guarantee in the books of the two branches involved.

According to the current FDI rules in real estate, any residential project in which foreign money in invested, should be on a land measuring 25 acres or more. For commercial properties, the minimum stipulated area should be 50,000 square meters.

But because of the booming real estate market, NRIs find it quite difficult to buy land at market rate, as per market experts. The seller demands prices higher than the market rate when he comes to know that foreign investment is involved in the transaction. The rates go up further when sellers get to know that the buyer wants adjoining plots which should aggregate at least 25 acres.

In the given scenario, the company established by the associates of NRI buys smaller plots of adjoining land without raising the rates much or even raising suspicion of the sellers that an aggregation is on play or even foreign money is involved. Once enough number of plots are bought, those are aggregated (to at least 25 acres) and the company then transfers the same to the NRI to comply with FDI rule. While the NRI pays back the bank in India, his FD kept in the bank overseas is also released at the same time.



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