Legal Issues That the Indians Who Reside Abroad Go Through During Purchasing and Selling a Property
Non Resident Indians (NRIs) have always shown keen interest in real estate investments in India. With the Indian economy increasing and urbanization on the rise, there are plenty of prospects for property buyers. But for NRIs, completing real estate transactions in India becomes a legally challenging task. This article delves into the common legal issues faced by NRIs in real estate transactions and provides practical solutions in making the navigation through these complexities easier.
What To Consider When Doing Transactions In Real Estate?
When buying, selling, or managing real estate in India, one needs to keep in mind legal requirement especially for those who do not reside in India. The differences in legal systems, distrust of policies regarding local laws, fraud are some reasons which can be problematic. It is important for the NRI’s to be aware of these problems so they do not risk everything.
1. The Way In Which One Can Verify The Title Deed Of A Property
Doing business in real estate in India can be difficult given that there is a communication barrier. As a result, title deeds for a property can often be intangible. Therefore, one of the most Recurrent legal problem shared by many NRIs when dealing in Real estate transactions is the absence of titled property. Being able to show proof of ownership is critical to avoiding shady schemes from the sellers who argue that properties with complicated titles are their property.
How to Deal With:
- Proper legal advice so that correct background checks can be done.
- Ensure there is a complete chain of ownership and check if there are any disputes related to the property or if there are encumbrances.
- Request a title search report from the registrar of the locality where the property is situated.
- Encroachment and Illegal Occupation
NRIs many times have properties that are not occupied. This mostly happens with Ancestral property and/or vacant plots. These properties are prone to encroachment or illegal possession.
How to Deal With:
- Engage property management services which can monitor such activity.
- Appoint a trusted caretaker or Power of Attorney (POA) who will make sure the property will be in good condition once the owner goes back.
- For any empty pieces of land, proper fencing should be done.
- In case of such illegal activities, initiate prompt action complying with Indian property laws.
- Inheritance and Succession Related Problems
Whenever an NRI inherits property in India, problems can escalate between the members of the family and relatives pertaining to who owns the property. Unfortunately, such problems in inheritance can increase the time required to complete a property transaction increasing the number of times a case goes to court.
How to Deal With:
- Make sure the family member who passed away had an updated will and is very precise.
- Sync up with the court to gain more information on the legal heir certificate or succession certificate.
- Get legal advice to sort out disputes whether it be through negotiations or mediation.
- Taxation Issues.
It is very essential for NRIs to be aware of taxation liabilities in context of property transactions in India. Some concerns arise because the residents are not clear in relation to their tax liabilities, such as capital gains tax, tax deducted at source (TDS) and tax on rent.
How to Address:
- Seek the help of a tax consultant who has knowledge of NRI taxation in India.
- Obtain Form 1042 S where there is an income from real estate transaction and property sales.
- Claim relief under taxation treaties and avoid double taxation in both countries.
- Regulatory Compliance Under FEMA
Real estate is governed by the FEMA rules and other regulations. Failure to comply with those rules can lead to problems such as the payment of fines.
How to Address:
- With the permission of RBI, NRIs may purchase properties that are residential, commercial, but may not buy agricultural land, plantation properties, or farmhouses.
- Trade through any NRO, NRE, or FCNR, Preventive measures should be instituted to ensure compliance.
- All financial documents/transactions and legal agreements on property should be carefully managed.
- Fraudulent Practices.
A very serious issue vexing NRIs is the fraudulent practices related to real estate. Some of the common scams are :
- Saying that a particular property is owned by a different person than the actual one.
- Selling one parcel of real estate to more than one person.
- The owner claiming a property by tampering with the documents.
How to Minimize Risks:
- Engage in due diligence by working with accredited developers as well as real estate agents.
- Research into property documents such as title deeds, encumbrance certificates, and permits.
- Endeavour only RERA registered properties and even validate the RERA registration number to save yourself from fraud.
- Issues of Delayed Portfoilio Possession
Investing in under construction property is common among NRIs because the property is cheap and it estimates a better value when the project completes.The problem, however, is that most projects get completed late, and the buy is often caught up in this gap.
How to Minimize Risks:
- Try project of delivery timeline of builders/developers whom you have made compulsory to register with RERA.
- Make sure that the RERA registration number is RERA compliant, as non-compliance will without pay-in-advance guarantee the amount of penalty that you will have to bear.
- Include penalty clauses in the property agreement to secure your interests.
- Claims or Disputes Concerning Sale or Purchase Agreements
Sale or purchase agreements often lead to conflicts because of vague terms and conditions, some hidden clauses and even incomplete documents. This brings about quarrels or at best the deal gets aborted.
How to Minimize Risks:
- As a matter of routine, they should seek legal advice for completion of any property agreements whenever any drafts are made.
- The Agreement should earnestly encompass all the decisive elements, including the payment schedule, possession schedule, and penalty clauses.
- Send the agreement to the notary and have it filed with the local authorities for registration.
- Issues in Power of Attorney (POA)
In the absence of NRIs, a POA is often considered an effective solution for real estate dealings. However, agents or relatives misusing POAs is a prevalent trend that causes unwarranted dealings to take place.
How to Fix It:
- Only issue a POA to someone whom you fully trust.
- Limit the authority of the agent by issuing a specific POA instead of a general one.
- For more precautions, consider putting in a power of attorney at the relevant Sub-Registrar’s office.
- Zoning and Land Use Restrictions
Investing in land or buying a property for NRIs is comparatively easier and comes with many incentives, however, issues concerning zoning restrictions of a certain area are also encountered. Breaking these rules can lead to fines or legal battles.
How to Fix It:
- Institutionally verify zoning regulations with local authorities before buying the property.
- Verify if the building codes and the land use policies of the area are in order before purchase.
- Get any required permits ready such as conversion certificates for the agricultural land.
- Preventive Measures for NRIs in Real Estate Transactions
From a legal perspective NRI’s should take the following measures to avoid getting into complexities relating to law:
- Seek Legal Counsel: Get a property attorney that has experience in dealing with NRI property transactions for carrying out the due diligence and documentation.
- Keep Relevant Documents: Make sure that copies of tax receipts, agreements and any other property approvals of the house are retained.
- Regularly Monitor Property: Schedule site visits or use a property management company to ensure that the property is taken care of and that it is not at risk.
- Stay Updated on Laws: If you are not Indian, always make it a point to understand the property laws in India, especially RERA, FEMA, and tax related laws.
- Invest Through Reliable Channels: Avoid the risks of fraud by only engaging with reputable developers, brokers and platforms.
Conclusion
The real estate sector in India has a lot to offer non-resident Indians, but it also has its set of complications. But if one knows the issues most legal issues that crop up remain and are able to keep a combative attitude, understanding that such issues in a way protect one’s investments, then the NRI in question will have no difficulties in comprehending such complexities, eventually protecting one’s investments.
We, RK Legal Advisors India LLP, focus only in providing the NRI community a holistic legal service with respect to real estate transactions in India. We have a team of seasoned property lawyers assuring you of secured and worry-free investments when it comes to your properties allowing peace of mind even from distance.
Make wise investments and allow yourself to take advantage of the new and world class real estate market of India!
