options for creating liquidity for NRIs

Options for creating liquidity for NRIs having Real estate in India

If You are a NRI and have got Real estate property in India then you have got some options for creating liquidity.

Option 1: Loan against Property: If the NRI is looking for use of funds in India this option can be explored.

Option 2: Lease rental discounting: This option can be used only if the NRI/PIO has commercial properties in a company and are leased out. The interest rate in LRD is more competitive than the interest rate in the first option. The limitation is that the funds obtained through the LRD can be used only in India.

Option 3: If the property is in a Pvt ltd company then this option can be obtained subject to certain conditions. As per the relevant circulars of RBI this option can be explored. The assets in the Indian company can be pledged to a Bank and the bank than issues a SBLC or comfort letter to its overseas branch. The overseas branch of the Bank then basis this comfort letter or SBLC gives a loan to the company outside India.

Option 4: Selling out the property and then remitting the funds out of India. Based on the source of money (NRE/NRO or inheritance) the quantum and the mechanism of remittance can be worked out.

  1. In case the property was bought with NRE funds then the entire sale proceeds can be remitted out without any limitation
  2. In case the property was bought through NRO then there are restrictions on the remittance. Amount upto USD 1 MM p.a per person can be remitted under automatic route under FEMA guidelines
  3. For remitting any amount above USD 1MM a specific permission has to be taken from RBI and the permission is given based on the facts of the case.

Option 5: Sale and buy back of the property with a private financiers or private NBFC. The property is sold to the NBFC on paper with a pre-agreed buy back price with the NBFC. The IRR is built in the price differential.  The NBFC who do these transactions are small promoter driven private NBFC where NBFC is owned by a single family or couple of friends. The price on which it is sold to the NBFC is normally a discounted value then the current market price of the property as they build the IRR and some cushion in the sale price. The money received in this manner can then be remitted. One of the limitations in this kind of transaction is that NRI would have to plan to bring the amount back in next 3-5 years.

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