In a recently released circular, the Reserve Bank of India (RBI) has added Hong Kong and Macau to the list of the countries whose citizens need to take prior permission of RBI before acquiring or transferring immovable property in India. The addition is in line with RBI’s earlier circular and cannot be called a surprise, as it is observed that Beijing continues to have a significant say in their political framework and Macau and Hong Kong are the two Special Administrative Regions of China which have been on the list since 2000. The original list also includes neighbouring countries like Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Nepal and Bhutan.
Why this restriction?
The RBI’s primary goal is to have control over capital moving into and out of India; real estate has always been a sector which can consume sizable sums. There is a probability that funds coming into the country via real estate transactions might get used for unwarranted purposes. Considering the current geopolitical scenario, the move is proactive and apt.
Does this rule apply to everyone residing in the countries on the list?
The rule does not apply to Indian citizens resident outside India, who can acquire or transfer any immovable property other than agricultural or plantation properties or farmhouses. In case of transfer, the transferee needs to be either a citizen of India or a person of Indian origin (PIO) resident outside India.
Persons of Indian origin resident outside India get the same exclusion as citizen of India, with a set of conditions that the buyer or transferee has to be either an Indian citizen or person of India origin. Also, the funds must be received in India by way of inward remittance from any place outside India. PIOs can also acquire immovable property by way of gift from persons resident in India, or Indian citizens resident outside India, or persons of Indian origin. The same rule applies to inheritance of property if the original acquirer had complied with all the foreign exchange regulations prevailing at the time of acquisition of the property.
This means that there is no change in the regulations for citizen of India staying inside or outside the country, and for person of Indian origin. They can continue to buy properties in India in the same manner as before. However, they cannot acquire or transfer any land which is related to agriculture, plantation, farmhouse or serving such a purpose.
Are there any exclusions to the list?
While residents of the mentioned countries cannot purchase or transfer immovable properties in India without prior approval of the RBI, they can definitely take up space on lease for a maximum of five years. The circular specifically highlights the two countries as additions to the earlier list of eight. This means that there is no change in rules with respect to citizens of any countries not part of the exclusion list. They can continue buying or transferring immovable properties in India by duly fulfilling the conditions laid by the RBI.
Authored by: Shobhit Agarwal, Managing Director – Capital Markets, JLL India
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