India: Guide to Buying Costs and Procedures

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Buying costs in India range from low to high

How high are realtors’ and lawyers’ fees in India? What about other property purchase costs?

How difficult is the property purchase process in India?

A foreign national of non-Indian origin resident outside India cannot buy any immovable property in India. It is illegal for foreign nationals to own property in India unless they satisfy the residency requirement of 183 days in a financial year (a tourist visa lasts for 180 days). It is also illegal to buy property on a tourist visa.

Moreover property cannot be purchased jointly in the name of one eligible person with one non-eligible person. That means a non-resident Indian (NRI) or foreign national of Indian origin (PIO) cannot buy a property jointly with a foreigner (see the excellent Reserve Bank of India FAQ http://www.rbi.org.in/scripts/FAQView.aspx?Id=33).

Company structures are not satisfactory work-arounds (see below).

However, a foreign national resident in India does not require approval of RBI to purchase any immovable property in India. This is because once he is a resident in India, he gets the rights like any other resident. This freedom is however not available to citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan.

Leases are different, too. “Ineligible persons” (e.g. foreign nationals of non-Indian origin and also citizens of certain countries specified above) can acquire residential (not commercial) accommodation on lease not exceeding five years without any RBI permission. However, much property has been ‘sold’ to foreigners, particularly in Goa, where prices are cheap and developers are plentiful, on 5 year leases. The buyers won't get title to the property until they can obtain residency, which is what most of them intend to do eventually. But they may be disappointed - increasingly new visas explicitly forbid foreigners from staying in India more than 180 days consecutively (see article in the Daily Telegraph).

There are also many stories of bribes being paid for the law to be circumvented. Currently an initial investigation into a selection of property deals has been launched by the chief minister of Goa, Pratapsingh Raoji Rane. The worst case scenario facing anyone who has not adhered to the letter of the law as stipulated in the Foreign Exchange Management Act of 1999 is the confiscation of their property assets. Some local xenophobia is being whipped up over this issue (see article in the Britishexpats.com Forum).

A foreign company which has established a Branch Office or other place of business in India, in accordance with FERA / FEMA regulations, can also acquire immovable property in India (see RBI FAQ). However it must be ‘is necessary for or incidental to carrying on his business’ and it seems increasingly that the whip is being cracked on those using this as a loophole to acquired residential property to live in or rent.

Non-Resident Indians (NRI), whether Indian citizens or foreign citizens of Indian origin, do not need permission from the Reserve Bank of India to acquire property if the seller is an Indian citizen.

A foreign national of Indian origin is “any person who or either of whose parents or any of whose grand-parents was born in India as defined in the Government of India Act, 1935” or any person who held an Indian passport at any given time.

There is no limit in the amount and/or number of properties that can be bought.

To purchase property, it is important for the buyer to hire a real estate attorney to protect his/her interests during the transaction. Once the property has been chosen, and a price has been negotiated with the seller, the attorney draws up an Agreement of Sale. Upon signing, the buyer normally pays a deposit of 10% to 20% of the purchase price. The lawyer then conducts due diligence and the buyer obtains the title documents from the seller. The title should be checked to have encumbrances.

The conveyance documents must be stamped at the Stamp Duty Office before signing. After this, the remaining balance is settled, and the deed is registered at the Sub-Registrar of Assurance Government duties are paid.

Stamp Duty varies according to where the property is located:

The registration fee at the Sub-Registrar of Assurance is usually 1% of the property value. However, it may vary in different places:

The whole process of registering property requires six procedures, which can be completed in around 67 days.

Footnotes to Transaction Costs Table

The round trip transaction costs include all costs of buying and then re-selling a property – lawyers’ fees, notaries’ fees, registration fees, taxes, agents’ fees, etc.

Currency
India uses Indian Rupee. Exchange rate is at US$1=INR46.43 as of 17th July 2006.

India - more data and information

• How landlord-friendly is the law in India?

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posted by BHARAT THAKRAN | 2007-11-11

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