Thursday, 6 September 2012

Buying Real Estate in Patna for NRIs – A Step by Step Guide


Buying Real Estate in Patnafor NRIs – A Step by Step Guide


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NRIs Real Estate Patna
You have worked hard, saved up, and are now looking for a good investment opportunity. Maybe your goal is to move back home to Patna to be with your family within a few years. Maybe you have considered the high return on investment potential as Bihar comes to the forefront of the India’s economy. Whatever you reason, there are many considerations to be made before you take the plunge to purchase real estate in Patna.
Many of us have heard the horror stories of people who have lost money from fraudulent developers, inexperienced brokers, and projects that have been delayed for over 6 years with no end in sight. We have also heard stories of great success: a plot of land that has appreciated 96x over 20 years; a new apartment purchase that was sold for 40% over the initial purchase price only 6 month before. How do you ensure that you become one of the success stories?
Non-Resident Indians and People of Indian Origin are allowed to purchase non-agriculture land in India with no restrictions. A Non-Resident Indian (NRI) is an Indian citizen who is abroad for business or another circumstance for an indefinite period of time. A Person of Indian Origin (PIO), is eligible to buy property if a) he/she at any time held an Indian passport; b) he/she or either of his/her parents or  grandparents was in Indian citizen; c) he/she is married to an Indian citizen or a PIO. For the purpose of simplicity, NRIs refer to both for the remainder of this article.
Depending on risk appetite, one would put money in either long or short term avenues.  In North America, equities are volatile. The average Bank of America high yield CD is currently 0.7%, and the real estate market suffered a decline of almost 11% in 2009 alone. In India, The State Bank of India is giving a 3.5% interest rate annually to NRI accounts. Conversely, real estate in Patna increased 54% in first quarter 2010 alone.
First, you should determine the purpose of this purchase.  Do you eventually want to live in Patna? Is this for a parent? Is this strictly an investment? Your answer will affect where and with which developer and site your purchase will be made.
Secondly, determine a budget. New construction properties are an excellent investment or modern, end use property, but there is more than just base sale price to consider. Reputable developers will be forthcoming with each charge associated with the purchase, including preferential location charge (PLC), external development charge (EDC), infrastructure development charge (IDC), parking, club membership fees, maintenance charges, etc.  Additionally, with any property, considerations should be taken account on charges upon possession: stamp duty, registration charges, legal fees, brokerage fees (if applicable), yearly taxes and more.
Next, focus on the city Patna. Investigate current and future infrastructure in Patna, including connectivity to national highways, airports, and public transportation. One critical factor to consider is the job growth rate and employment opportunities when determining future rental income and resale value. Also, examine convenience factors and quality of life, including access to shopping and greenery.  These factors have all generally resulting in appreciation of home value.
Additionally, when choosing a new construction property in Patna, it is crucial to research builder reputation, including ease of transaction, on-time delivery, compliance with the buyer’s agreement, quality of construction, and delivery of amenities promised. Some insight to the builder’s financial status is if banks have approved home loans to be given to buyers of the project. Based on your budget, look for the development that has the highest quality and offers modern amenities, such as clubhouse and pool. The asking price of the home should commensurate with existing marketing value of comparative properties.
One little known fact is that you can buy property in Patna without ever leaving the USA.
You are able to appoint power of attorney to someone in India to sign the papers at the time of property possession and registration which typically takes place 3-4 years from the time of buying an under construction property.
The booking amount for property is typically 10% of the base sale price, which can be made via wire transfer or INR check from established NRE/NRO accounts maintained with banks in India. Some developers give the option to pay in USD check, eliminating an additional step for many NRI buyers.
Developers typically offer two payment plans. In a down-payment plan, the buyer pays 85% of the total sale price within 30-60 days of booking, and the remaining 15% is paid at closing. The benefit to this option is that a substantial discount is offered as an incentive to pre-pay. With a construction linked plan, payments are made in instalments based on stages of construction. Over the course of about three years, instalments are made approximately every 2-3 months. The advantage to this method is that capital is not blocked due to delays in construction.
Another avenue is financing through a home loans from an Indian bank including Citi, State Bank of India, ICICI, Kotak, HDFC and more.  On average, approval takes the same amount of time as it would obtaining a US-based mortgage, as there is an established credit history system in place in the States. Generally, the borrower meets 30% of the cost of the property, and the term amount does not exceed 15 years. Currently, first year rates can be as low as 8%, but can rise to 9.75% or higher in subsequent years.
You do not need to have a PIO/OCI card at the time of purchase. You must, however, establish your NRI status. The cards are needed only at the time of sale and to repatriate funds.
NRIs can acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, provided gift tax has been paid.
The final consideration when purchasing a property in Patna while abroad is the repatriation of funds from rental income and eventual sale of the property. NRIs are currently allowed to repatriate up to $1million per person each year. If you do not have a PIO/ICO card, one can be obtained from the Indian Embassy in approximately 7 days.
At the time of sale, capital gain taxes will be applicable, and are considered long-term after 36 months of ownership, resulting in a significant tax break. If tax on capital gain is paid to India, the income is not subject to tax in the United States with proof of payment. Rental income must be credited to an NRO account, maintained by an Indian Bank. HSBC and Citi have NRI divisions in the US that can assist with options for these accounts.
One key factor is to access if the property developer has a property management arm to assist after possession. While you are sitting in the US, the property management company can manage security, maintenance, rental agreements to quality tenants, and the resale of the home.