Who can invest in real estate in India ?

Apart from Indian citizens and corporate's, investment in real estate is permitted, under specific conditions, to the following:

Non-Resident Indians (NRI's)

Persons of Indian origin or citizens of India not presently residing in India due to reason of employment outside India or carrying on a business outside India. Persons of Indian origin include those persons who at any time have held an Indian passport or who have at least one parent or grandparent who were citizens of India. A spouse of an Indian citizen is also treated as a person of Indian origin. NRI's require general or special permission of the RBI to purchase and hold immovable property in India.

Overseas Corporate Bodies (OCB's)

OCB's are overseas companies, partnership firms, societies and other corporate bodies predominantly owned by NRI's, directly or indirectly, to the extent of at least 60%. This includes any overseas trust in which not less than 60% beneficial interest is held by NRI's, directly or indirectly but irrevocably. OCB's are permitted to invest up to 100% in six specific areas of real estate development.

Foreign Companies And Foreign Nationals

Foreign companies and foreign nationals are required to obtain permission of the RBI to acquire, hold, transfer, or dispose of in any manner (except by way of lease for a period not exceeding 5 years) any immovable property in India.

What forms of real estate investment can foreign nationals and companies invest in?

Foreign companies and foreign nationals are required to obtain permission of the RBI to acquire, hold, transfer, or dispose of in any manner (except by way of lease for a period not exceeding 5 years) any immovable property in India.

NRI's and OCB's are permitted to invest in residential property in India, however, it must be for bona fide use. The property may be rented out if it is not immediately required for the purchaser's own residential use. NRI's (and OCB's) are also permitted to invest up to 100% in a new issue of equity shares or convertible debentures of Indian companies engaged in the following areas:

• Development of serviced plots and construction of built up residential premises.
• Real estate covering construction of residential and commercial premises including business centers and offices.
• Development of townships.
• City and region level urban infrastructure including roads an bridges.
• Manufacturing of building materials.
• Financing of housing developments.

By its notification (No. FERA 133/93 date April 26 1993), the RBI has granted general permission to foreign companies (other than banking companies), which are not incorporated under any law in force in India, to acquire or hold immovable property which is necessary for or incidental to any activity permitted by the RBI under section 28 or 29 of FERA. This general permission is not applicable to foreign companies which have been permitted to open liaison offices or post representatives in India.

The acquisition, sale, etc. of immovable properties in India by foreign banks operating in India is governed by section 9 of the Banking Registration Act, 1949 which states that "no banking company shall hold any immovable property howsoever acquired, except such as is required for its own use, for any period exceeding seven years".

Foreign citizens (whether resident in India or not) and foreign companies are permitted to acquire residential property in India upon specific application to the RBI provided that the consideration for purchase of the property is met out of foreign exchange remitted from abroad in any convertible currency through normal banking channels.

Neither foreign nationals or companies nor NRI's and OCB's are permitted to invest in agricultural land, farmhouses and plantation property in India.

Are specific approvals required prior to investing in real estate?

As mentioned earlier, NRI's (and OCB's) require general or special permission of the RBI to purchase and. hold immovable property in India. Applications by NRI's a and OCB's for the purpose of making investments through purchase of shares/debentures are to be made to the RBI.

Although the RBI has granted general permission to foreign companies to acquire and hold immovable property, (under its notification No. FERA 133/93) a declaration must be made in Form IPI 5 to the RBI within 90 days from the date of the acquisition of the immovable property, except where acquisition is made by way of lease for a period not exceeding 5 years.

Specific applications under section 31 (1) of FERA for purchase of immovable property in India by foreign nationals/companies have to be in Form IPI 1 along with the requisite documents to the RBI. As mentioned earlier, the consideration for purchase of the property is met out of foreign exchange remitted from abroad in any convertible currency through normal banking channels.

According to the Income Tax Act 1991 any property sold for a value in excess of a specified limit (US$31,750) cannot be transferred without the vendor first submitting Form 37 (1) to the Income Tax Authorities.