Buying A House Overseas Easier Now

Buying a house overseas, which used to be the preserve of the super rich, has now become a lot easier for wealthy Indians with the Reserve Bank of India doubling the foreign exchange remittance limit to $250,000 per individual per year. In other words, a family of four can remit $1 million (equivalent of Rs 6.2 crore) every year to purchase assets overseas.

With this move, the rupee has become almost fully convertible for most Indians. The funds remitted overseas can be used for almost any activity barring a few such as speculation in exchanges, funding terror groups or for remittances to Bhutan,Nepal, Mauritius and Pakistan.

According to Bank of India chairperson V R Iyer, the increase in the liberalized remittance scheme to $2.5 lakh reflects the confidence of the regulator in consistency in foreign inflows.

RBI governor Raghuram Rajan said on Tuesday the foreign currency remittance limit was relaxed following a review of the external sector outlook and as a further exercise in macro prudential management.

The central bank also said that it will ask the government to subsume under this limit various remittances that an individual is allowed under the Foreign Exchange Management Act, which include donations, gift remittances and exchange facilities for those seeking employment overseas and for maintenance of close relatives abroad.

Until now, this facility was in addition to remittance limits already available for private travel, business travel, studies, medical treatment, etc as described in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000.

An improvement in the country’s foreign exchange reserves has emboldened the RBI to increase the limit. Announcing his policy, Rajan said the following the drop in oil prices the current account deficit has been comfortably financed by net capital inflows, mainly in the form of buoyant portfolio flows and supported by foreign direct investment inflows and external commercial borrowings. “Accordingly, there was accretion to India’s foreign exchange reserves to the tune of $6.8 billion in Q3,” said Rajan. Source: Times of India; 04 Feb, 2015

 

Real Estate will be affected by internal problems not global issues: DLF

KP Singh, Chairman of realty major DLF recently said that the Indian real estate will be seriously affected if lending rates for home loans continue to rise unabated. “He said that real estate sector will be affected no because of the current global issues but because of our internal problem which is rising interest rate” Singh told reporters when asked about the impact of financial crisis in US on the domestic real estate sector.

Key policy rates (repo rate and reverse repo rates) have been enhanced 11 times by RBI since last March to control inflation which has forced banks to increase the lending rate sharply on home loan as well as loans to developers.

He was of the view that if the interest rates keep going up the way they are going, the real estate sector is going to suffer. He further observed “Now, the focus is to contain inflation which is right but too much emphasis on inflation is not good for growth,”.

Addressing the company’s shareholders at the annual general meeting last week, he had said: “A sustained level of high inflation and interest rates…Have impacted economic growth and moderated the growth in our industry as well.” On the proposed central draft Land Acquisition Bill, he said it is good as it takes into account the compensation and the rehabilitation of land owners. However, he said the “government must retain the power to acquire land for public purposes.”

RBI’s Move to Raise Repo Rates by 50 bps is Shocking: CREDAI

The Reserve Bank of India’s move to raise repo rate by 50 basis points comes as a shock for the real industry as the burden on account of increased rates of interest will hit the developers as well as home buyers, says Lalit Kumar Jain, National President CREDAI. “The cost of funding is going be higher as banks are bound to increase their lending rates,” Jain, who is also the chairman and managing director of Mumbai-Pune realty firm Kumar Urban development (KUL), said. The industry, he said, is facing a crunch and the fund gap over the next five years alone would be as high as USD 70 billion. “The RBI announcement, therefore, could be detrimental to the growth of the industry and economy,” he added.

Estimates are that the housing that is required in the current five-year Plan is 24.6 million and it is 37 million in the next five-year Plan and the country would need USD 3.2 trillion for this. Funding gap in housing will be around USD 70 billion in the next five years among the existing developers alone. The material costs have already gone up by over 35% and the wages have doubled over the past three years. “Any increase in the rate of interest will, thus, be counterproductive and my fear is that it will give rise to inflation instead of curbing it,” Jain pointed out. The multiple effect of this is that buyers would continue to be wary of fulfilling their dream houses and developers would find it difficult to tap funds at reasonable rates of interest.

Jain appealed to the RBI Governor to see the reality of the day that both buyers and developers are under a tremendous stress and they need immediate relief. With the ever increasing cost of inputs, couple with the rise in cost funding, would make affordable housing and the much touted “housing for all” a far cry, he added. He called for a close coordination among various government departments such as finance, housing, urban development, commerce and environment to ensure that the real industry that supports over 200 other industries comes back into full swing to restore the speedy growth of the economy. He drew the government’s attention to the reforms suggested by CREDAI that are aimed at bringing down prices and increasing GDP growth. He warned of an economic disaster and chaotic urban explosion, if corrective measures are not taken.

RBI Implements Strict & Tedious Rules for Banks Lending to Property Sector

The Reserve Bank of India has laid out strict and tedious due diligence standards for banks in sanctioning loans to the real estate sector after inspections found that most frauds were due to document forgeries even after certified by lawyers and chartered accountants. The central bank has said banks should leave no stone unturned to verify the documents, including cross verification with the local administration, to ensure that frauds are eliminated. “In case of loan against the security of land, banks may also seek reports from local revenue authorities regarding the title deeds before sanction of loan,” RBI said in a notice to the chairmen and chief executives of banks. “Wherever documents of title are submitted as security for loans, there should be a system where documents of title are subject to verification regarding their genuineness, especially for large-value loans.”

RBI’s directive may be a fallout of the series of arrests the Central Bureau of Investigation made last year, including the top executives at the LIC Housing Finance and the Bank of India for alleged fraud. About eight executives were charged with bribery in what was called the ‘loans-for-bribes’ scandal. But that did not cause any trouble in the system. But the latest ruling by the central bank could delay loan sanctions at all levels and may lead a further blow to the real estate sector that is witnessing slowing sales and rising losses. “The additional due diligence could lead to delay in sanction of large-value loans,” a banking analyst said. RBI has also asked banks to independently verify the authenticity of chartered accountant certificate, property valuation certificate, legal certificate, guarantee/line of credit or any other third-party certification submitted by the borrower.

The reason for failure of the concurrent auditors was attributed to complex nature of financial products or transactions. Additionally RBI also observed that banks had assigned audit responsibility to their own staff without ensuring that they are suitably trained. For this, banks would have to directly communicate with the concerned authority issuing the certificate. Banks would also have to seek an indirect confirmation indicating to the issuer that in case there is no response by a certain deadline, it would be assumed that the certificate is genuine. “In cases it is established that the certification given by a chartered accountant, lawyer, registered property valuer, or such third party is wrong, the Indian Banks’ Association should put in place a process to issue a ‘Caution List’ regarding the certifier to all banks,” the central bank added. To prevent frauds, bank would also have to ensure that internal discipline, staff rotation, checks and balances are in place.

Increase in Interest Rates May Result in 10-15% Hike in Property Prices

Housing prices may rise by 5-10 per cent in the next 3-6 months as the cost of funds for developers is expected to increase following the Reserve Bank of India’s decision to raise key policy rates by 25 basis points. “Property prices are bound to go up in next 3-6 months by 5-10 per cent across the country,” Confederation of Real Estate Developers’ Associations of India (CREDAI) Chairman Pradeep Jain told PTI.Jain, who is also the Chairman of Parsvnath Developers , said the hike in repo and reverse repo rates would result in an increase in interest rates for builders and the same would be passed on to home buyers.

He, however, said demand would not be hit despite the expected rise in interest rates on home loans. “People will continue to buy knowing that housing prices would go up further,” he said. Instead of demand, Jain said supply would be affected, as the increase in interest rates would impact the liquidity situation of small developers. Asked about impact of the hike in repo and reverse repo rates on the realty sector, DLF Group Executive Director Rajeev Talwar said, “The constant increase in interest rates over the last one year would definitely have an impact”, and suggested that the government initiate reforms to boost the supply of housing. The Reserve Bank, for the tenth time since March, 2010, raised the repo rate by 25 basis points to 7.5 per cent and the reverse repo rate by a similar margin to 6.5 per cent today.

Echoing similar views, Credai President Lalit Kumar Jain said, “Any increase in the rate of interest will be counter- productive and my fear is that it will give rise to inflation instead of curbing it.” “… The cost of funding from the developers’ point of view would also shoot up. This will be passed on to the customer, who is already under stress,” Jain, who heads Mumbai-based Kumar Urban Development Ltd , said. Raheja Developers Chairman and Managing Director Naveen Raheja said: “As the cost of money goes up, the cost of construction and production will also go up. This will lead to further inflationary pressures.” The need is to increase supply so that demand pressures can be eased and consequently, the prices are curtailed, he added.