Monday, December 24, 2007

Banks offers innovative products to lure NRI into real estate

Currently there is a boom in the real estate market in the country so the industry players are trying to allure people by offering a slew of innovative products to people who are willing to pay the price. If the deal gets stuck on the right point then from real estate developers to real estate fund managers, from banks to housing finance companies it will be a party time for all.

According to sources behind those exhilarated 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.

This process in turn involves the foreign and Indian operations of the same bank, the NRI and his friends, relatives and associates based in India. To begin with, NRI, with the help of his friends and others, establishes an Indian company that could do business in the real estate sector. The bank in India gives some loan to the company to buy land in India.

However, 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 record, gives guarantee for 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 records of the two branches involved.

But as per current FDI rules in real estate, on any residential project foreign money can be invested, on a land measuring 25 acres or more. For commercial properties, the minimum stipulated area should be 50,000 square metres.

But, market players say with the realty boom, NRIs are still finding tough to get land at market rate because whenever the seller gets to know foreign money is involved, they demand prices higher than the market rates. If the buyer wants to buy adjoining plots which should aggregate at least 25 acres the rates are increased further.

In such a situation, the the associates of NRI buys smaller plots of adjoining land to establish the company without raising the rates much or even raising suspicion of the sellers that an aggregation is on play or even foreign money is involved. Like this NRI is able to get the plots at market rate and 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.

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