Last week, Mint reported that India is on top in remittance flow with $55 billion (Rs 2.45 trillion) expected to come in the country in 2010 alone, according to World Bank’s report titled Migration and Remittance Factbook 2011. A part of this non-resident Indian (NRI) money is going into real estate investments, especially since they have the facility of taking a home loan in India.
The Reserve Bank of India permits NRIs and persons of Indian origin (PIO) to buy residential and commercial property in India through a home loan.
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What you can buy with the loan
You can take a loan to purchase a plot, flat, house (ready as well as under construction) or to get a house constructed yourself. You can also take a loan for extension and renovation of an existing house. Since NRIs and PIOs cannot purchase agricultural land, plantation property or a farm house in India, there is no loan for these categories.
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Where you can buy: Technically, you can buy a property anywhere in the country. Most banks that are public sector units (PSU) such as State Bank of India (SBI) offer a loan for a property anywhere in India. A few private banks limit your choices. For instance, Citibank India offers NRI home loans only on properties in Delhi-National Capital Region, Chennai, Bangalore, Hyderabad, Mumbai, Pune and Kolkata.
How much loan
The loan amount can range between a few lakhs to a few crores, depending on your eligibility. For instance, SBI offers a minimum of Rs 3 lakh, while Standard Chartered Bank’s loan amount can go up to Rs 10 crore. Some lenders such as HDFC Ltd do not have any specific upper limit, subject to its eligibility criteria.
Also, just like normal home loans, most banks fund only 75-85% of the property’s cost even for NRIs.
What’s the eligibility
Basic criteria: Most banks require you to be at least 18 years old, but a few ask for 21 years. Also, you need to be employed abroad for a certain number of years. Some banks even ask for a minimum educational qualification.
Income: The income limit may differ depending on the country of residence. For instance, if you want a loan from Citibank and you are based in the US, you need to have a minimum salary of $36,000 per annum; in Canada, you need to earn Canadian $48,000 per annum; while those based in the UK should earn £40,000 per annum.
The minimum gross income may also vary as per the loan tenor you choose. For instance, Kotak Mahindra Bank Ltd’s requirement for a loan tenor up to five years for NRIs staying in the US, the UK and other countries, excluding the Gulf, is $30,000 per annum, while that for a loan tenor of 6-10 years, it is $42,000 per annum.
In joint loans, some banks allow you to club incomes to increase eligibility. For instance, Union Bank of India allows you to do so, but Kotak Mahindra Bank considers the income of the principal borrower only.
Credit report: Just because you are living abroad does not mean the bank will not check your credit history. Says Harsh Roongta, chief executive office, Apnapaisa.com, a loan portal, “This is not a well-known fact, but banks usually pull out credit reports of borrowers from their resident country.” Even your credit report in India can be pulled out, if banks think it’s necessary.
Roongta adds, “The loan for NRIs employed in certain countries will be an issue. Especially, at times in African countries, a part of the salary may be given in African currency, while the remaining in pounds. Also proving your income can be difficult, especially for people with contract jobs.”
Power of attorney
Some lenders ask for a guarantor on the loan. Many banks insist you have a co-applicant, power of attorney (PoA) holder for the loan. A PoA is a document stating that you have given someone else (usually a relative or friend) the authority to make certain decisions and act on your behalf. Says Adhil Shetty, chief executive officer, Bankbazaar.com, “An additional complexity for NRI home loan is the need for a PoA. A PoA is a local contact point for all your activities regarding the loan.”
You don’t need to visit India to get a loan
You no longer have to be physically present in India to make a loan application thanks to the PoA clause. A PoA is required basically to make the loan process easier. Says Renu Sud Karnad, managing director, HDFC Ltd, “It is possible to do the loan processing without their physical presence. However, the application form will have to be signed by them and the PoA could then step in. However, in exceptional cases, the physical presence of the NRI customer may be required.”
Many lenders have set up branches in countries where a large number of NRIs are based. Kamlesh Rao, executive vice-president (mortgages), Kotak Mahindra Bank, says, “We have set branches in Dubai, where borrowers can walk in and make the loan application. You can also make an application using online and telephonic banking channels.”
Typically, the loan is available for seven years and a maximum 25 years, depends on the lender. “Usually, NRI home loans have a short term since they (NRIs) have relatively higher incomes (than Indian citizens) and can pay off the loan sooner,” says Roongta.
Some banks may decide the loan tenor according to your profession. Says Karnad, “For professionals such as doctors, chartered accountants, lawyers and architects, the term can extend up to 20 years.”
Banks even look at your age. In SBI, borrowers up to 35 years get a 25 years tenor, while those above 35 but below 45 years get 20 years and those who are 45 years and above get 15 years to pay off the loan.
Interest rates: The interest rates are usually similar to regular home loans. Lenders offer loans at fixed and floating rates of interest. Teaser loans are also available for NRIs. But not all lenders offer all three types. For instance, HDFC offers only fixed rate loans, while HSBC Ltd offers only floating rate loans to NRIs.
Some banks such as StanChart may permit you to move from a fixed to a floating regime or vice-versa, provided you pay 1.5% of the principal outstanding at the time of exercising the option.
Processing fees: Like most loans, here, too, you will need to pay a fee to get the loan processed. It is usually 0.5-1.50% of the loan amount.
Some banks may charge a fixed sum, usually up to Rs 15,000. For some reason, if your loan does not get sanctioned, the bank may refund a part of the processing fee, usually Rs 2,000.
Prepayment/pre-closure: You can prepay at a fee. Karnad says, “In HDFC, if any prepayment is made within three years of the first disbursement, an early redemption charge of 2% is charged on the amount being prepaid in excess of 25% of the opening balance. (There are) no prepayment charges if it is done after three years of the loan, if it is from your own savings. In case of commercial refinance, early redemption charge of 2% is payable.”
For preclosure, lenders usually charge up to 2.5 % on the principal outstanding amount. A few PSU banks such as SBI may not even charge a prepayment or pre-closure penalty as long as you use your own resources and prove so.
Mode of repayment
Repayments are to be done through equated monthly instalments through a non-resident ordinary account or non-resident external account.