Banks Allure NRIS into Real Estate with New Schemes

The booming real estate market in the country has prompted industry players to introduce a slew of innovative products to people willing to pay. From real estate developers to real estate fund managers, from banks to housing finance companies, it's a party time for all. But behind those euphoric times, some banks, with operations in India and outside, are offering innovative products to non-resident Indians (NRIs), which could turn tricky in case Indian real estate market falls into a trough, sources said. It involves the foreign and Indian operations of the same bank, the NRI and his friends, relatives and associates based in India. To start with, NRI, with the help of his friends and others, establishes an Indian company that could do business in the real estate sector. Now the bank in India gives some loan to the company to buy land in India. 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. As per 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 metres. However, market players said with the realty boom, NRIs find it tough to get land at market rate. Whenever the seller gets to know foreign money is involved, they demand prices higher than the market rates. The rates go up further when sellers get to know that the buyer wants adjoining plots which should aggregate at least 25 acres. In such a situation, 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.
Source:India Realty News