Nina Varghese for IndiaProperty.com | Moneycontrol.com
Will the 2016 retrenchments in the e-commerce space impact home finance? This is a question on many minds especially in a place like Bangalore where a large number of e-commerce companies are headquartered.
In recent times there has been disturbing news in the daily broadsheets about the pink slips in the e-commerce space. Of course, as many would say this was a bubble that was waiting to burst, mainly because of the proliferation of e-commerce companies offering a variety of services and yet there has been no corresponding rise in internet penetration; in other words, an increase in net users.
In addition to this, the other bad news from the Middle East, where a large number of Indians work, is that companies are retrenching staff to combat the declining oil prices and the squeezed profit margins.
It is likely that a majority of the people who have lost their jobs this year would be paying equated monthly installments (EMIs) on homes, cars and other household items, and EMIs will be impacted.
The impact on the home loan EMI may not be immediate but it is likely in the next two quarters. This seems to be a persistent worry for the real estate sector, especially as surveys show that home sales in major metros are improving and a number of new launches are going up.
So how do you service the home loan if you have lost your job? At this point you must be aware that banks have the provision to restructure loans and that there are a number of ways to do this; all depending on the type of loan that you have taken.
The first option would be to extend the tenure of the loan; wherein your EMI reduces and makes it easier to manage. The bank, however, has to be convinced that the reason for restructuring the loan is a genuine one. The second option is foreclosure; where the borrower can sell the house which is most likely the collateral, to settle.
However, in most cities in India, the housing market is tight and it might be difficult to sell at this point. If you show undue haste, it is likely you will not get the price you desire. It is very important that you talk to the bank in question and remember that running away and defaulting on this loan and other financial commitments is not a wise choice. Most bankers understand if there is a serious issue such as a loss of employment and it is imperative that you make yourself open to them.
Let’s take a look at which companies are doling out the pink slips this year. According to newspaper reports, Flipkart, the e-retailer laid off 1000 employees pan India, in July. In September, Twitter, the online social networking services sent 20 people home, in Bangalore while OLA the online cab service sent out 700 pink slips across India, in August. ASKME’s 4000 employees lost their jobs when the company shut shop, in July, after their investor exited. GROFERS, the online grocery delivery service, laid off 150 to 200 employees and revoked 65 job offers, in September.
In the first quarter of 2017, CISCO, the e-commerce shopping list firm, is likely to lay off 14,000 people worldwide with 7000 of them likely to be engineers in the company’s Research & Development centre, in India.
According to the Middle East news service MEED, Abu Dhabi National Gas Co (ADNOC) plans to cut 5000 jobs by the end of the year while 2000 layoffs have already been announced. Similarly, many companies in the oil and gas industry in the United Arab Emirates have cut flab in a bid to reduce operational costs. The job cuts have affected mainly engineers and those on contracts. These job cuts are likely to have a domino effect on the hospitality and retail industries too.
The banking sector in the UAE has also been impacted by the declining oil prices. The Emirates Islamic, the Sharia compliant lending arm of the Emirates NBD, sacked 100 people because of the diminished growth in the second half of this year. Those laid off were mainly from the sales force.
Newspaper reports from Qatar said that many large multinational oil companies were downsizing because they were suspending or cancelling projects.
So it’s the right time to sit tight and fasten the belts tighter.
Niranjan Gidwani, the deputy chief executive of Eros Group, says ‘my rationale for saving is to balance out investments between here and in India’.
Rebecca Bundhun | Updated: November 21, 2015 01:45 PM | TheNational.ae
Despite living in Dubai for 25 years, Niranjan Gidwani still feels more comfortable keeping a portion of his wealth in India.
And the favoured investment of choice in recent years for the deputy chief executive of Eros Group, an electronics retailer, has been mutual funds.
“I started investing in mutual funds about eight to 10 years ago when my father was handling my savings for me,” says Mr Gidwani, 56, who is from Pune, in the west of India. “I invest in five to six separate funds and, on the whole, as an asset class, mutual funds have performed well for me.”
Mr Gidwani says the main advantage is the lack of capital gains tax for any equity funds held for more than a year. But the executive’s portfolio also includes fixed deposits and property in India because he feels it is important to have a basket of investments to spread any risk.
“My rationale for saving is to balance out investments between here and in India,” Mr Gidwani says. “This is linked to the fact that in the case of the principal bread-earner’s demise here, the process of getting assets released to next of kin in this part of the world is still not simplified and takes a lot of time.”
Mutual funds pool money from investors, which is then allocated to securities such as stocks and bonds by the fund manager. The investor is effectively buying shares in the mutual fund. In the case of an equity mutual fund scheme, the fund manager will pick and invest in a range of stocks to deliver returns to the investor.
There are more than 40 mutual funds in India, which grew at a compounded annual growth rate of 15 per cent between 2007 and 2013, according to a report by KPMG.
Raghvendra Nath, the managing director of Ladderup Wealth Management, based in Mumbai, says he has noticed growing interest among non-resident Indians (NRIs) based in the UAE wanting to invest in mutual funds.
He attributes the increase to the optimism surrounding India’s economic prospects compared to many other emerging market countries, and says the funds are a “safe vehicle” for expats because they are managed by professionals and are diversified.
However, he stresses that NRIs still only make up a small proportion of the investors in these investment vehicles.
“One reason for this is a lack of understanding and another reason is that a lot of NRI money was going into real estate in India,” Mr Nath says. “Obviously if somebody is investing a large amount of money in a property then their other risk investments take a back seat. That is changing now because the property market in India has been kind of subdued and other investments, such as equity investments, are going to take preference.”
Mutual funds in India are available for a range of risk appetites says Mr Nath, who advises clients to select a product based on their time horizon for accessing the money.
“For somebody who has a low-risk profile, I would advise them to invest in a fixed-income fund, so it could be a short-term bond fund or a corporate debt fund if it’s for a longer horizon,” he says.
Experts say NRIs should consider a well-managed mutual fund over investing directly into equities as the fund manager can dedicate time to research and pick stocks. Expats, on the other hand, are often too busy to do this themselves and may not have the same level of knowledge about the markets.
Diversified large cap funds in India have delivered returns of 100 per cent over the past five years, Mr Nath says.
But he adds that with such a wide range of funds available in India, choosing the right product can be daunting. He recommends NRIs consult experts such as a bank’s wealth manager or an independent financial planner and should beware of the pitfalls of investing.
What some NRIs fail to realise is that while the value of a mutual fund investment can go up, it can also decrease and there is an element of risk involved.
And anyone signing up for a new investment product must find out the management costs and fees involved and beware of unscrupulous fund agents or advisers pushing unsuitable products to secure a quick commission.
Ashish Mehta, a lawyer based in Dubai and founder of his own firm, Ashish Mehta Associates, experienced this for himself.
After investing in several funds for the past few years, he says he has “had enough” and is now “waiting for them to come up [to increase in value] so I can sell and exit”. “These funds have a large component of cost built in, so the fund manager earns money and charges a fee whether you gain or you lose,” he adds. “You don’t necessarily know how much the fund manager is siphoning out. If you buy bonds from banks or Indian state entities, you get a fixed return.”
While Mr Gidwani believes it is important to get professional advice before investing, he urges NRIs to tread carefully.
“I have been seeking professional advice from consultants who are good at this business,” he says.
“The key here is not just the functional expertise of the consultant, but also a little bit of research to be done to assess the honesty and integrity of the consultant or the consultancy firm. Some of my family, including my father, have been swindled by reputed consultants with very good knowledge but very low ethics.”
For those unsure if the mutual fund they have chosen is best for them, Jimeet Modi, the chief executive of Samco Securities, says NRIs should assess the track record of the fund manager.
“Mutual funds as an institution are well regulated by the Securities and Exchange Board of India. They have high-calibre professional fund managers who track and research stocks to invest in the best interest of the investors.
Such level of dedication is practically not possible for an NRI staying abroad, Mr Modi says, adding that investing in mutual funds, and India in general, is a good long-term play for NRIs given the county’s economic growth and prospects.
“The best solution for them would be to invest through mutual funds which have good track records. In the long term, equity investments outperform all other asset classes, and the best way to participate in the equities is through low-cost index funds for long-term inflation adjusted superior returns.”
Mr Modi tips growth-oriented or large cap mutual funds as attractive options. “Good funds” have delivered compound annual growth rate returns upwards of 17 per cent over the past 10 years, he says.
“Equity investments for the long term can be started any time in mutual funds without waiting for the so-called ‘right time’,” he adds.
“The best way is to invest fixed amounts systematically every month. However, in the current scenario, subject to risk profile and age of the investor, one should invest 50 per cent of savings in index equity funds and the balance of the amount to be staggered and invested over a period of the next six months.”
He also recommends restricting the investment spread to two or three funds.
“No purpose would be served with too much diversification as by nature the mutual fund schemes inherently have sufficient diversification and risk management,” Mr Modi adds.
A guide to investing in mutual funds
There is a vast array of different mutual funds, from domestic stock funds to sector funds, bond funds and blended funds. Choosing which is best for your individual needs can be difficult so here are some pointers to consider before you part with your hard-earned dirhams:
Assess why you are investing
Investors should consider what the money they are investing is ultimately for and when will they need it. Is it for their child’s education or part of a nest egg for retirement? This will help to determine which mutual fund might be most suitable.
Assess your risk profile
Mutual funds carry various elements of risk, with equity funds considered to be far riskier than fixed-income funds. Sector funds, which invest in a particular industry, such as technology or pharmaceuticals, are considered even riskier. These can deliver soaring returns or sharp losses, while a lower risk fund is designed to deliver steady returns. The risk level of the fund will normally be specified in the basic literature on the product.
The fund’s track record
Investors must assess the track record of the fund. What kind of returns has it delivered over the past few years? Remember though, a fund’s past performance is by no means a guarantee of its future performance so it is essential do careful research or seek the advice of a professional.
Open-ended funds can be bought and sold on a continuous basis, although there may be a fee to pay if you exit within a year. Close-ended funds have a maturity period, for example five years, and investors subscribe at the launch period.
How much to pay in
Investors can either pay a lump sump investment or most mutual fund schemes also offer the opportunity to invest on a monthly or quarterly basis, through what is known as a systematic investment plan. The minimum instalment amount is typically 500 rupees (Dh28). For a lump sum, the minimum would be 5,000 rupees.
Understanding the costs of any investment is crucial. For mutual funds, there are annual management fees and commission to be paid. For example, in the case of equity mutual funds schemes bought through ICICI Bank’s, upfront brokerage charges can go up to 3.25 per cent of the amount invested, while there is an annual management fee of up to 1 per cent.
How to invest
NRIs based in the UAE can invest through Indian banks, with the option to do this online, as well as through brokerages and fund companies. For example, at major Indian banks such as HDFC, existing customers who register can invest in mutual funds through the net banking service. The online portal FundIndia.com also allows users to invest in a wide range of mutual funds online. NRIs have to register by filling in a form and sending copies of various ID documents such as proof of address to the firm in Chennai.
Turn to a reliable financial adviser or do your research online. Websites such as Moneycontrol.com have useful tools for comparing the performance, fees and other details of mutual funds side by side. Experts generally advise investors against putting all their eggs in one basket and say that investing in two or more mutual funds can help to spread the risk.
GURUMURTHY K | Published on November 15, 2015 | Hindu Business Line
One of the most sought-after investments for Non-Resident Indians (NRIs) is buying property back home. At a time when the Indian rupee is weakening against the US dollar, taking a home loan in India could be a good option for the NRIs rather than using up all the money earned in the foreign currency. Are NRIs allowed to take a home loan in India? Yes, they have. “NRI Home Loans” are offered both by banks and Non-Banking Financial Companies (NBFCs). Here we take a look at what is required to avail this loan and how it differs from a normal loan taken by a resident Indian.
Eligibility and documents required
An NRI should meet the criteria on minimum age and minimum years of work experience abroad. The criteria vary across institutions. In State Bank of India (SBI) the minimum age limit is 18 years and the number of years a NRI should have worked should be 2 years. But if you intend to take a loan from ICICI bank, then it is enough if you had worked for one year abroad, but your minimum age should be 25 years. If you are a self-employed, then you should have stayed abroad for at least 3 years.
Banks like ICICI Bank and Axis Bank even have a minimum salary per month as one of the eligibility criteria. If you work in any of the Gulf Cooperation Council (GCC) countries then you need to have a minimum monthly income of 5,000 AED (United Arab Emirates Dirham) and for working in US and other countries $3,000 per month is the minimum salary to be earned if you want to take a NRI home loan in Axis Bank.
For the documentation process, a copy of your passport, visa and employment related documents such as your three to six month salary slips, appointment letter, employment contract if any and address proof, are mandatory. These documents can be submitted to the overseas bank branch located the closest to you, in the country where you reside. The documents are then sent to the Indian branch for processing. Note that the overseas branch just acts as an intermediary for colleting and sending the documents to India. The verification process happens only in the Indian branch.
Loan tenor and interest rate
Earlier there were differences in the interest rate charged for a NRI home loan and for the ones offered to resident Indians. But now the rates are the same. “The interest rate and other charges like processing fee for NRI home loans are the same as offered to resident Indian. Also, loans to NRI are of larger average size of ₹40 lakh when compared to an average size of ₹23.5 lakh for a resident Indian home loans. The processing fee is 0.5 per cent of the loan amount but capped at ₹10,000”, says the spokesperson for HDFC. A ceiling on the processing fee gives NRIs more leeway on taking a bigger loan.
When it comes to loan tenor, institutions and banks like HDFC and SBI offer longer periods of 20 to 30 years – the same as offered to a resident Indian. But in some cases the loan tenor is restricted to 10 or 15 years. For example, Bank of Baroda limits the loan tenor for NRIs to 15 years. LIC Housing Finance Ltd offers a 15 year home loan to NRIs with professional qualification, but for others the loan tenor is just 10 year.
The repayment of a NRI loan is due only in Indian rupees and not the foreign currency. Satish Kotian, Chief Operating Officer, Aspire Home Finance Corporation Ltd (A Motilal Oswal Group Company) clarifies that – “Under the RBI regulations, the repayment of the housing loan by NRIs can only be made by remittances from abroad through normal banking channels or through a Non Resident Rupee (NRE) or a Non Resident Ordinary Rupee account (NRO)”.
Prepayment of loan is permitted for NRIs and there is usually no charge for prepayments. But there are some exemptions. For instance ICICI Bank levies a 2 per cent pre-closure charge on the outstanding amount and the amount pre-paid in the last 12 months, if the home loan is prepaid in full.
On a home loan, a resident Indian can avail a tax benefit on repayment of up to ₹1.5 lakh on the principal component and ₹2 lakh on the interest component. Can the NRI who repays the home loan also avail of tax benefits? Most of the NRIs who are currently serving their home loans are not aware of the tax implications on their loan repayment. They just earn their incomes abroad and repay their loan.
Tapati Ghose, Partner, Deloitte Haskins & Sells LLP says, “if the salary earned abroad is the only source of income, a NRI does not have an opportunity to claim tax exemption on home loan repayment, since he is not taxable in India. But, in case if a NRI earns an additional taxable income from India apart from the salary earned abroad, then he is eligible to claim tax exemption for the home loan repayment”.
Features of NRI loans
Loan tenor restricted to 10-15 years in some cases
No difference in interest rate offered to residents and non-residents
Repayments made through NRE/NRO accounts
Loan repayment is eligible for tax exemption only if an additional taxable income earned from India
Source : http://goo.gl/Z5CQbN
by Moiz Mannan | December 14, 2014 – 1:33:12 am | The Peninsula, Qatar
The continuing growth in financial investments of non-resident Indians (NRIs) in their home country shows not just the kind of faith they have in the Indian economy, but also that they are wise enough to keep all options open.
While it is prudent to save and invest a part of the foreign earnings in India, the NRIs also need to understand taxes so that they can make the most of their money. Those who have recently moved out of India need to be aware of the tax implications.
The income earned by NRIs abroad is not subject to tax in India, but they are liable to pay tax for any income that is earned or accrued in India. If any income from business transactions and also income generated from assets and investments in India crosses the basic exemption limit of Rs.200,000 they are required to file their returns. Unfortunately, the higher exemption limit for women and senior citizens who are resident do not apply to non-residents in these two categories.
Now, how and where can they possibly earn Rs.200,000 or more in India? Recent data show that the end of March 2014, NRI deposits in India were estimated at $104bn. Between June 2013 and June 2014, the NRI deposits in commercial banks in Kerala alone shot up by 24 percent.
Other than interest on deposits, the NRIs have also been buying commercial and housing property for the sake of investment. The rental income from property in India adds to their taxable income here. In this area too there is an apparent discrimination against NRIs. The rental income earned in India by non resident Indians are subject to tax withholding at the rate of 30 percent as opposed to 10 percent for resident Indians.
In case an NRI has only one property in India and it is vacant, a rental value cannot be attributed to the same. However, if he owns two properties and both are vacant, he has to pay income tax on one of the properties as if the same was rented. In case of more than one property, the NRI would also have to pay wealth tax at the rate of one per cent on the value if it is in excess of Rs.1.5 m.
Similarly, there is the issue of taxation on capital gains for those NRIs who have been booking profits from equity investments.
Thus, even middle income NRIs who have invested wisely and are enjoying recurring income rather than notional long term gains, face the prospect of being taxed. In such cases, income tax returns have to be filed if the income exceeds the taxable limit, or to claim refund if the tax deducted at source is more than the tax payable, or to claim the amount set off against capital losses.
The Indian authorities have been trying to make taxation simpler for NRIs. Already, interest earned by an NRI on the balance in an NRE account is exempt from income tax. The Income Tax Department last year lowered the limit to mandatorily e-file tax returns from Rs.1m to Rs.500,000.
In certain cases where investments are made in specified assets such as savings certificates, capital gains on transfer of foreign exchange assets is not charged. Incomes of NRIs are exempt from income tax interest on various specified securities or bonds.
NRIs who pay health insurance premium in India for dependents can claim a deduction under section 80D. Deductions under section 80G are also available to NRIs donating to an approved charitable institution.
Some short and long term capital gains from sale of investments or assets are taxed in the case of NRIs even if the total income is below the basic exemption limit. These include short term capital gains on equity shares and equity mutual funds where tax rate is 15 percent and long term capital gains on securities and assets where tax rate is either 20 percent or 10 percent without indexation.
Source : http://goo.gl/kaY6vv
BY A. E. JAMES | SEPTEMBER 14, 2014 , 6 : 37 PM GST | Times of Oman
Ramesh Krishnamurthy, head, Middle East and Africa Region, Sundaram Asset Management Company, said that the close-ended scheme is open for subscription from September 10 to 24 and QBG Geojit Securities will assist NRIs interested in applying for the scheme from Oman.
Muscat: Sundaram Asset Management Company has launched a close-ended mutual fund scheme, which is available for non-resident Indian (NRI) investors based in Oman.
The new mutual fund — Select Micro Cap Series VI — is for a 42-month period and as much as 75 per cent of the corpus fund will be invested in Indian growth stocks. `
The fund will focus on capital appreciation by investing predominantly in equity/equity-related instruments of companies that can be termed as micro-caps.
A company whose market capitalisation is equal to or lower than that of the 301st stock by market cap on the National Stock Exchange (NSE) at the time of investment will be considered to be in micro-cap category, said Ramesh Krishnamurthy, head, Middle East and Africa Region, Sundaram Asset Management Company, while making a presentation on the mutual fund scheme as well as the economic outlook of India, which was organised by QBG Geojit Securities recently.
Investing in equities
The close-ended scheme is open for subscription from September 10 to 24 and QBG Geojit Securities will assist NRIs interested in applying for the scheme from the Sultanates of Oman.
As far as the asset allocation is concerned, Krishnamurthy said a minimum of 65 per cent will be invested in micro-cap companies, 35 per cent in other equity and equity-related securities, fixed income securities and money market instruments.
Krishnamurthy said the investor-friendly policies of the new Indian government, which completed more than three months, have already started generating results. The government is focused on developing infrastructure, which will support growth.
He said the uncertainties that haunted the market in the past are not there. “Japan, France and China are keen to invest in India. Rest of the world is rushing to India and we should also be part of the growth process.”
The fund’s corpus money will be invested in industries that are going to benefit from these investments.
The recent easing of crude oil prices is beneficial for Indian economy, he said, adding that the deficit in balance sheet will come down as the country imports 75 per cent of its local demand.
Ramesh Krishnamurthy also noted that the promising industries of India include tyre, paint and auto ancillaries.
MEERA SIVA | August 9, 2013 | Business Line
The falling rupee and the lull in the property market in many cities are attracting Indians settled abroad to consider property investments in India. Non-resident Indians are allowed to purchase residential or commercial property in India but not agricultural land / plantation property / farm house, says Amarpal S. Chadha, Tax Partner, EY. There are no upper limits for inward remittances and normal banking channels and NRE, NRO or FCNR accounts can be used.
NRIs can also take interest-free loans from close relatives who are resident in India. The lender is subject to the FEMA limit of $200,000 per financial year under the Liberalised Remittance Scheme. NRIs are also subject to TDS withholding (at the rate of 1 per cent) for property purchases over Rs 50 lakh.
We look at the tax implications for a non-resident Indian when buying, selling or renting property.
How would the rent received from the property be treated?
Rent received is taxable in India and NRI has to file a tax return in India in case the rent received along with other income exceeds the threshold limit.
The rent may be additionally taxed in the NRI’s country of tax residence. There may be some tax relief available under the Double Tax Avoidance Agreement (DTAA) for NRIs who are tax residents in certain countries. This may allow one to get credit for Indian taxes paid.
What are the deductions one can get against the property?
It is the same as for residents. Municipal taxes paid during the year and housing loan interest payment are deductible. Standard deduction of 30 per cent of the net rent (gross rent less municipal taxes) can be obtained for repair and maintenance, irrespective of actual expenditure.
Housing loan principal repayment, stamp duty and registration charges are allowed as deduction from one’s gross income under the overall limit of Rs 1 lakh per year, under Section 80C.
How does one handle a vacant property?
Again, treatment here is similar to a resident. A property which is not rented out is treated as a self-occupied property and the taxable value is NIL. The only deduction available against such property is interest on housing loan up to Rs 1.5 lakh per year. When there are more than one property that is not rented, then the owner can choose one property as self-occupied and all the other un-rented properties shall bedeemed to be let out, even if not actually let out. For these, the rent that the property would likely fetch is considered as gross rent and all other deductions as applicable for a rented property will be allowed.
Deduction for principal repayment on housing loan can be obtained on all property, whether it is rented, self-occupied or deemed to be let out.
How is wealth tax applicable for NRIs?
An NRI is exempt from wealth tax on a property that has been rented for more than 300 days. Also, one vacant house property can be declared as self-occupied property and is exempt from wealth tax. The value (net of outstanding loans) of second and subsequent vacant properties would be subject to wealth tax, at the rate of 1 per cent on the value in excess of Rs 30 lakh, says Parizad Sirwalla, Practicing Chartered Accountant, KPMG.
What are the tax payments to consider during a sale?
NRIs are subject to capital gains tax in India, similar to what is applied to residents. They can get long-term capital gains rate for property held for over 36 months and can claim exemption by investing in another house property or specified bonds. Capital gains may also be taxable in the NRI’s country of residence. Relief may be available in the form of credit for Indian taxes paid, in case the NRI is a tax resident of a country with which India has a DTAA.
Are there any limits on the amount that can be repatriated?
Limits and conditions for repatriation are different based on the funds used for buying property. If the property was acquired as per the foreign exchange laws, the amount of repatriation is restricted to the extent of the initial purchase cost of the property. For example, assume the purchase price was $100,000 (Rs 40 lakh, with an exchange rate of Rs 40) and the sale price was Rs 75 lakh. Assuming the prevailing exchange rate at the time of sale is Rs 60, one can repatriate Rs 60 lakh ($100,000).
Gains made on foreign source funded properties (Rs 15 lakh in the example above) as well as all proceeds from property purchased with rupee sources, can be repatriated under the general limit of Rs 10 lakh per financial year.
NRIs are not allowed to purchase agricultural land here.
Tania Kishore Jaleel | Mon, Mar 04 2013. 07 37 PM IST | LiveMint.com
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.