Banks Lure NRIs into Real Estate with Attractive Schemes

The mushrooming Indian real estate market in the country has encouraged
industry players to come up with a range of innovative products for
people interested to pay. Whether it be real estate developers, real
estate fund managers, banks or housing finance companies, all are taking
full advantage of the situation. But behind those ecstatic times, some
banks, with branches in India and other countries are offering innovative
products to non-resident Indians (NRIs), which could turn tricky in
case Indian real estate market falls into a trough, according to sources.

It involves the foreign and Indian operations of the same bank, the
NRI and his friends, relatives and associates based in India. Banks
are providing loans to NRIs to buy land in India if an NRI establishes
an Indian company that could do business in the real estate sector.

On the other hand, the NRI keeps a fixed deposit with the wealth management
division or private banking arm of the same bank’s overseas operation.
Unofficially, the foreign branch of the bank, with FD in its books,
stands guarantee to the loan given by the bank’s Indian operation to
the company set up by the associates of the NRI. But the same is not
officially shown as a guarantee in the books of the two branches involved.

According to the current FDI rules in real estate, any residential
project in which foreign money in invested, should be on a land measuring
25 acres or more. For commercial properties, the minimum stipulated
area should be 50,000 square meters.

But because of the booming real estate market, NRIs find it quite difficult
to buy land at market rate, as per market experts. The seller demands
prices higher than the market rate when he comes to know that foreign
investment is involved in the transaction. The rates go up further when
sellers get to know that the buyer wants adjoining plots which should
aggregate at least 25 acres.

In the given scenario, the company established by the associates of
NRI buys smaller plots of adjoining land without raising the rates much
or even raising suspicion of the sellers that an aggregation is on play
or even foreign money is involved. Once enough number of plots are bought,
those are aggregated (to at least 25 acres) and the company then transfers
the same to the NRI to comply with FDI rule. While the NRI pays back
the bank in India, his FD kept in the bank overseas is also released
at the same time.

Photo: Mumbai Sky-line from Atal Setu by KalkiRaj, licensed under CC BY-SA 4.0, via Wikimedia Commons.