The Indian real estate market is attractive for non-resident Indians (NRIs) as it is easier to earn in a stronger currency and pay in Indian rupees. Things also becomes easier as they can avail home loans from banks in India to purchase property here.
Anyone who comes under the definition of the Foreign Exchange Management Act, 1999 (FEMA) can avail a home loan in India. FEMA defines an NRI as someone who resides outside India for “employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period”. It also says that an individual will also be considered NRI if his stay in India is less than 182 days during the preceding financial year.
However, as an NRI you cannot buy more than two residential properties in India. Says Om Ahuja, CEO, residential services, Jones Lang LaSalle India, a property consultancy firm: “An NRI cannot purchase more than two properties in India. This is regardless of if you own a property in the country that you are working in and residing in. There are no such restrictions on commercial property though. However, NRIs are not allowed to purchase agricultural land here.”
This means that an NRI home loan can be availed to purchase, construct, renovate a new or existing house. You can also take home loans to purchase a plot of land for residential use.
Shyamal Saxena, general manager-retail banking products, Standard Chartered Bank, says that there is indeed a large demand for home loans by NRIs. “Demand is at its peak during the holiday season. This is the time when NRIs make their annual trips to India and have the time to visit properties and do the formalities.”
Ram Sangapure, general manager retail banking, Central Bank of India, says that a lot of the home loans that are taken are by NRIs who are from Kerala, Hyderabad and Bihar.
The procedure to avail a home loan remains more or less the same as applicable to any resident Indian. However, there are some criteria to be kept in mind.
Income and educational qualifications play an important role in deciding the maximum amount of loan available to an NRI. You need at least a graduate degree to apply for a home loan.
For instance, to get an NRI home loan from ICICI Bank Ltd, you need to have at least a diploma or a graduate degree with minimum three years of employment abroad or professional qualification with one year of employment abroad. And if you work in West Asia, you need to have a minimum salary of 36,000 dirhams a year (for loans with a tenor of upto five years) and if you are in the US then you need to earn at least $30,000 a year.
The income taken into account for calculating the home loan eligibility is the repatriable income (income abroad) plus any income in India.
Documents such as copies of passport, valid visa and work permit, contract of employment, work experience certificate, salary certificate and statements of non-resident external (NRE) or non-resident ordinary (NRO) accounts are usually required. The salary certificate should be attested from the embassy if the salary is not credited to a bank. You also need to give a local address proof and a power of attorney (PoA) to someone in India. This could be your chartered accountant or a relative. This is done as should there be any issue with repayment of the loan, the bank can reach out to the person with PoA. Details of permanent address in India are also required. This is a mandatory requirement.
Submission of documents
You needn’t have to make a trip to India to apply for a loan. Many banks have branches in places such as Dubai, Singapore, London and other cities. Some banks even offer this facility online.
But do remember to execute the PoA authority to someone in India.
Amount of loan
The amount of loan that one can avail will differ from bank to bank. For instance, ICICI Bank Ltd provides one with a home loan of between Rs.5 lakh and Rs.1 crore and Citibank will give you a home loan of upto Rs.5 crore.
Loan to value (LTV)
Simply put, LTV is the ratio of the amount that you want to borrow for a home to the actual value of the home. Banks allow an advance of 80-85% of the value of the property, subject to the gross monthly income of an individual.
For example, if the home that you plan to buy cost Rs.1 crore, you can take a loan of Rs.80-85 lakh.
While a resident can avail loans with a maximum tenor of 30 years with some banks, the tenor for NRI home loans is restricted. It is available within the range of 5-15 years. “The tenor for NRI home loans is lesser than that of a normal home loan as it is generally seen that their repayment capacity is more than resident Indians. And they do not take home loans of longer tenors”, says Sangapure.
The interest rate on NRI home loans is the same as that for a resident Indian. For instance, interest rate of home loans from Union Bank of India is 10.25-13.25% (includes both fixed and floating rate home loans).
Repayment of loan
The repayment or the equated monthly instalment of these loans can only be paid through NRE or NRO accounts with remittance from abroad. No other funds can be used for repayment of these loans. The repayment needs to be made in Indian rupees only.
The downpayment should also be done through normal banking channels or NRE or NRO account in India.
In case you are not able to repay the loan, do remember that the loan is taken against your property and the bank claim the property if you do not pay up. Saxena says that bad loans with regards to NRIs are not high as the loan is issued against the property. “The person may disappear but since the property is in India, the bank can seize it,” says Saxena.
What should NRIs do
If you have zeroed in on a house or a plot of land in India, you can fund it by taking a home loan. But do keep in mind that you need required documents and keep them ready for the know-your-client process. Also make sure that you have appointed a PoA for the loan. Do see if the bank that you are taking the loan from charges a prepayment penalty or not. Some banks, such as ICICI Bank, charge 2% on the outstanding amount and whatever has been pre-paid in the last 12 months for loans taken on fixed rate.