History of Money

In Indian National papers there have been articles discussing whether Gold is a safe haven for investors. With western countries undergoing serious financial meltdowns and banks failing – people are seriously questioning the intrinsic value of money in the form of currency. I recall about fifteen years ago Sri Sathya Sai Baba is reported to have advised students that: “In the future there will be a world financial crisis, so don’t leave your money in Banks or Trusts, decide where you want to be and make yourself as self sufficient as possible.’

In this respect Land and Property are the two items with the most intrinsic value – because with them you have a place to live and where to grow food. It certainly would be grand to have that safe haven situated here at Arunachala! Anyhow curious as to the history of gold and the financial underpinning of ‘society’, I decided to do some research:-

The history of money consists of three phases:

(1) Commodity money, in which actual valuable objects are bartered
(2) Representative money, in which paper notes (often called 'certificates') are used to represent real commodities stored elsewhere; and finally
(3) Fiat money, in which paper notes are backed only by the traders' "full faith and credit" in the government, in particular by its acceptability for payments of debts to the government (usually taxes).

Money is a crucial command post of any economy, and therefore of any society. Society rests upon a network of voluntary exchanges, also known as the "free-market economy"; these exchanges imply a division of labour in society, in which producers of eggs, nails, horses, lumber, and immaterial services such as teaching, medical care, and concerts, exchange their goods for the goods of others. At each step of the way, every participant in exchange benefits.

Direct exchange of goods and services, also known as "barter," is hopelessly unproductive beyond the most primitive level, and indeed every "primitive" tribe soon found its way to the discovery of the tremendous benefits of arriving, on the market, at one particularly marketable commodity, one in general demand, to use as a "medium" of "indirect exchange." If a particular commodity is in widespread use as a medium in a society, then that general medium of exchange is called "money."

Throughout history, two commodities have been able to out compete all other goods and be chosen on the market as money; two precious metals, gold and silver (with copper coming in when one of the other precious metals was not available). Gold and silver abounded in what we can call "moneyable" qualities, qualities that rendered them superior to all other commodities. They are in rare enough supply that their value will be stable, and of high value per unit weight; hence pieces of gold or silver will be easily portable, and usable in day-to-day transactions; they are rare enough too, so that there is little likelihood of sudden discoveries or increases in supply. They are durable so that they can last virtually forever, and so they provide a sage "store of value" for the future. And gold and silver are divisible, so that they can be divided into small pieces without losing their value; unlike diamonds, for example, they are homogeneous, so that one ounce of gold will be of equal value to any other.

But "gold bugs" are not fetishists; we don't fit the standard image of misers running their fingers through their hoard of gold coins while cackling in sinister fashion. The great thing about gold is that it, and only it, is money supplied by the free market, by the people at work. For the stark choice before us always is: gold (or silver), or government. Gold is market money, a commodity which must be supplied by being dug out of the ground and then processed; but government, on the contrary, supplies virtually costless paper money or bank checks out of thin air.

But if government manages to establish paper tickets or bank credit as money, as equivalent to gold grams or ounces, then the government, as dominant money-supplier, becomes free to create money without cost and at will. As a result, this "inflation" of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy.

To read more about finances and gold check out ‘Taking Money Back’ by Murray N. Rothbard and ‘Mundell on Gold’ based on the theories of Robert Mundell.

Prices by the Square Foot

To give a general rundown of land available for housing plots near Ramana Nagar and the more famous Tiruvannamalai Ashrams, previously the place of choice has land behind Yogi Ramsuratkumar Ashram. The area which used to be a collection of fields, is now densely packed middle-class urban housing. Sadly the whole development has proceeded randomnly, so its difficult to know how it will fare in the future and don't recommended it for anyone wishing to buy a housing plot. Four years ago the land sold for around Rs.80 a square foot, and at that time many locals and businessmen built houses for rental purposes and thats exactly what has happened. The area is popular with Western visitors and middle class Indians and rent can be as high as Rs.5,000 - Rs.8,000 per month.

Consequently land in this area is priced at anywhere from Rs.450 - Rs.800 a square foot, and I've heard of land going at even higher rates. To the south of this developed area, are agricultural fields adjacent to Vana Durga Shrine. It has been reported that land there has recently changed hands for a crore per acre (a crore = 100 Lakhs). Its not known at this time as to what realtors plan on charging once the land has been surveyed and made into individual plots. I will post photographs of all the areas I am writing about over the course of this upcoming week. So keep checking back.

However the below sequence of photographs are of a small village that I do recommend. It is close to the Hill and located on its southside. Certainly this area will get developed in the future, but I believe less randomnly and will maintain a better ethos and atmosphere. Currently prices per square foot, are a much better value than land elsewhere.

I will post more photographs of this particular area soon. But if any readers have specific questions, please email me at the email address at the top left of this page.

In answer to recent questions about current square foot land price. I would suggest that it is practically impossible to buy land anywhere within 2 kms of the base of Arunachala for less than Rs.250 per square foot. Currently land is being sold at that price just off the Perumbakkam Road, which although looks very promising, much of the land will be blighted with severe water shortage. The reason being is that throughout the Arunachala area, there is sometimes a rocky shelf underneath the land, and once water has been depleted out of the shelf basin, there is no more until the next rainy season.

In my area, there is a farm to the south that has such a rocky shelf under their land and their agricultural tank and water supply always runs dry in a hot summer. However a farm to the east of me, is fortunate not to have the rocky shelf under their land, so has an excellent water supply that so far has never run dry.

In other words just because land seems economical it doesn't mean that its a bargain. A 12,000 litre tanker of water costs a minimum of Rs.500 - so any savings made on the land purchase would be quickly lost in paying for an independent water delivery service.

The suggestion being work through a land agent you trust and if in doubt pay to have a water survey done of your chosen area.

Email Update for Shantivanam Land

Our previous post details land available on the northside of Arunachala. The owner of this land has recently informed us he is currently building two Western style homes on the 10 acre land, each with its own twenty cent compound (i.e. one fifth of an acre). He is prepared to do the same for other interested parties or sell the remaining land in customised parcels to suit the individual needs of purchasers.

We will be posting sketches of the two homes currently under construction in the course of this coming week. So please check back.

Sorry if you are having problems with the fastmail address. If you wish to get in touch for more information about the Shantivanam Land, please contact:

shantivanam@rediffmail.com

Shantivanam

There is a large 10 acre parcel of land for sale outside a village on the northside of Arunachala located about 2 kms from the base of the Hill. The land is pristine, in excellent condition and suitable for either a farm, ashram or private homes and most importantly is located in a quiet, silent area.

The owner of the land is willing to sell the parcel in its entirety or by the individual acre, or even in smaller amounts (i.e. 1/4 acre) suitable for an individual home with large garden.

Already work is underway fencing the complete 10 acre parcel of land, to ensure security and privacy. The name of this protected area will be known as Shantivanam (i.e. forest of peace) and specially suitable for both Westerners or Indians who live away from Arunachala during part of the year.

There are 2 excellent agricultural tanks on the land. Also, ground water is only about 40 feet deep, thus sweet, clean water is easily available via individual borewells.

The land has been cultivated over the years so is in a well maintained, fertile condition.

At one end of the land is currently a young banana plantation.

Directly to the east of the land is a 230 acre 'poramboke' reserved Government land which is used as a catchment area for water that drains of Arunachala in the rainy season. Thus regardless of Arunachala land development elsewhere, in this particular area, there will be large tracts of protected, open land.

In addition to open areas of nearby land, within a couple of hundred yards, is reserved government hill lands, which are available for hiking and walking.

The land owner, who is a local professional living at Arunachala will be happy to build homes under contract on behalf of land purchasers. For more information and details about this beautiful Shantivanam land, you can get in touch with us at: arunachalana at fastmail dot fm

Know the Land Title

There are two basic types of land ownership in India - Patta and Peremboke; Patta land is privately owned and can be sold and purchased freely. Peremboke land is government owned property given to poor farmers to grow crops on or to live on. Farmers can pass peremboke land to their children to continue to farm from generation to generation, but they cannot sell it. It is a crime to do so and a crime to purchase it.

All peremboke land that is not being used for its original purpose of farming by the poor, will be repossessed by the Government. Those selling land or property illegally will be prosecuted and those who have purchased it will have it seized back by the Government.

There are numerous ways in which fraud is perpetrated. A lot of fraud involves Peremboke land mixed in with Patta land. There is also government land which is offered for sale by purported owners, but this is of course complete fraud.

I am posting these beautiful photographs of very nice land at Samudram Lake to show how difficult it is for someone not familiar with an area to know the separation of patta and peremboke land. Under no circumstances buy peremboke land – if the farmer refuses to sell his patta land without you buying his peremboke land – walk away – and avoid potential serious difficulties.

Some of the patta land in these photographs is in fact up for sale, if you would like to find out more about the land please get in touch for details.

A hint to potential land purchasers at Tiruvannamalai, be specially alert around water catchment areas, because oftentimes the land surrounding such spots is peremboke land. In the case of Samudram, the 700 natural reservoir direct south of Arunachala, the whole lake is ringed with peremboke land. Check very carefully if buying in this area.

Enquiries Welcome

Information and resources will be regularly posted on this Blog to help you find the land and/or property at Arunachala that you are looking for. If you have any general enquiries or questions about buying land in this area do please get in touch at the email contact address at the top of the left hand margin of this Blog.

Cow House

Today I walked about an area close to Arunachala and the Ashrams of Ramana Nagar, enjoying the unspoilt, pristine agricultural views. Within the next couple of days I will post information on land available in this area, but for now am just posting a very nice traditional cow house of a local farmer.

In the below photograph the young son of the farmer having a look at what I was doing inside the cow house.

Check back for some photographs of the land in a couple of days.

Land for Sale/Lease

Agricultural Land, which can be developed into a Retreat Centre and/or Ashram or used for cultivation purposes, is available for sale or lease on the Northwest side of Arunachala. The land is owned by a professional who works at Chennai and is thus looking to raise finances through his Tiruvannamalai land.

The land is in prime condition, has an bountiful source of spring water (around 60 feet deep), has been maintained very well and is in excellent condition.

Behind the land there are Hills (Government forest land) that can never be built upon or developed and are thus ideal for walking and treking. In front of the land there is a 250 acre water catchment reservoir which fills in the rainy season - so therefore can never be developed. The land will therefore maintain its integrity and not be spoilt by development either in front or back of it.

Arunachala from the land

The proposal for the 7 acre land site is:

1) LAND SALE
Sale of 4 acres of the land (seller retaining the remaining 3 acres) at a price to be disclosed. The seller is not interested in delayed, prolonged or instalment payment for the land. The purchaser has to be prepared to pay the full amount immediately upon purchase.

-or-

2) LAND LEASE
Lease of 5 acres of the land (owner retaining the remaining 2 acres) by legal DEED for a term of UP TO 20 years (a further term can be negotiated) at a price to be disclosed. Every 5 years there will be a yearly rent increase of 20%.

We can supply photographs, exact pricing and additional details to people with a serious interest. OFFERS FROM PROPERTY DEVELOPERS AND/OR SPECULATORS WILL NOT BE ENTERTAINED.

Land Prices

Up to 5 years ago it was possible to buy prime agricultural land (with a good water source) within a couple of kilometres of the Hill for under 2 Lakhs an acre. The main reason for this undervaluing of land was due to the fact that 'Tiruvannamalai' is classified as a 'backward area'. In this respect even now official Land Registry prices of both urban and agricultural land is priced very low.

Over the last years due to a variety of factors, land prices are experiencing a continuous and steep vertical rise. Land which cost Rs.100,000 an acre just five years ago is now selling for between Rs.12-15 Lakhs nowadays. (A Lakh is Rs.100,000)

Reasons for price rise:

1) Professional out-of-town brokers and speculators artificially inflating land prices.

2) Certain groups of financiers, such as Jains and Chettiars, buying land for investment purposes.

3) The District Collectorate moving to this area and thereby making Tiruvannamalai the District Headquarters.

4) Development and promotion of the area for tourist purposes by the Tiruvannamalai Municipality.

5) Increasing fame of Arunachala and the huge increase of new high income residents.

6) The attraction of New Age Gurus developing Ashrams at Tiruvannamalai.

For the above reasons, good land (with water supply) located within 3 kilometres of the base of Arunachala is priced at between 15 to 30 Lakhs an acre. Urban land for the purpose of individual house units costs anywhere from Rs.200-Rs.600 a square foot.

If the above prices are already too steep for some wishing to relocate to Tiruvannamalai, then one has to travel up to 12 kilometres from the base of Arunachala to start finding available land at pre-boom prices and where it is still possible to find tracts of agricultural land at under 3 Lakhs an acre. Land prices will NOT be going down in price and one doubts that land prices will plateau and stabilise for at least another 2-3 years. Prices will continue to go and stay up.

Indian readers of this Blog know only too well; that the exorbitant land and property prices in metropolitan/tourist areas like Chennai, Bangalore and Bombay, make parcels of land within City boundaries affordable ONLY to large Companies, Developers and Financiers. To the non-Indian readers of this Blog, who remembers with nostalgia the cheapness of prime land at Arunachala, be assured bargain basement days are over and you now have to pay SERIOUS money for what you want.

Buying a House

Many Building Companies and Entrepeneurs are coming into Tiruvannamalai and developing Housing Projects and Apartment Co-operatives. Read the below article for an exhaustive examination of Builders' and Developers' tricks. It may save you alot of heartache and alot of money!

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"Everybody wants a piece of real estate. The sector has been growing at 25-30 per cent a year since 2003, fired primarily by low interest on housing loans and the rising affluence of homebuyers. Those who had bought stocks of real estate companies, whose valuations have gone through the roof, are a happy lot. However, the same cannot necessarily be said of scores of financially and emotionally bleeding homebuyers. The developers play lord and master to middle-income individuals, who often live like monks to fulfil their dream of owning a house. Most sale agreements are heavily loaded in favour of builders in the currently unregulated market.

This disillusionment is reflected in the rise in the number of complaints that has accompanied the growth of the sector. In this scenario, what chance do you have of safeguarding your interests as a buyer? In 1993, the Supreme Court ruled in favour of M.K. Gupta in his case against the Lucknow Development Authority for not delivering his flat on time. This landmark judgment brought housing construction under the purview of the Consumer Protection Act, 1986.

This, however, hasn't done much to change the unscrupulous ways of builders. Owing to the bonhomie between developers, the authorities and the contractors, projects get sanctioned easily but the quality of construction goes unquestioned. Supreme Court advocate C.M. Srikumar says: "Even in cooperative societies, the contractor, the architect and the office-bearers of the society dupe the public."

What are the most common games that developers play? Here are eight common tricks and ways in which you can guard against them.

I. When do I get my house?
Most agreements do not clearly specify the date of delivery. For instance, one says: "Completion of the building is expected to be delivered by the date mentioned in the covering letter of this allotment. The delivery of the possession is subject to force majeure." What this means is that you cannot hold the developer responsible if he does not stick to the promised delivery date.

There have been cases when the delivery has been delayed by 12 months or more. Typically, the buyer would have paid 95 per cent of the price by the time he reaches the expected delivery date. If he is living in a rented house, delays will drive his calculations awry as he would not have factored in this additional rent. A Mumbai stockbroker fought a legal battle against Property Developers for five years for the reason of delayed possession.

What to do. Don't just take the builder's word on the progress of construction. Check it out from time to time. If you feel a delay is likely, start building up pressure on the developer. The best way to do this is to form a society. Usually, builders have many projects running at the same time and they push the ones where the pressure is higher. "The more the number of buyers, the greater is the pressure."

II. Where are my papers?
A lot of builders are evasive about giving the completion certificate at the time of handing over the flat. A completion certificate is issued by municipal authorities and establishes that the building complies with the approved plan. A developer would not get the certificate if he deviates from the plan.

You cannot prove ownership over your house if you don't have the certificate as you would not be able to get the house registered. Also, you may not be able to get utility connections. You will have problems selling, mortgaging or reverse mortgaging the house as it will not be in your name. In the worst case, the unapproved parts of your house would be demolished by the municipal authorities. Not a happy state of affairs.

What to do. Sale agreements often don't mention the completion certificate. If yours doesn't and you notice it before signing the papers, insist on the inclusion of a clause that you will be given the completion certificate when the flat is handed over to you. Ask the builder for it as soon as he announces that the house is ready for possession. If, you move into the house without it, the court will probably be your last resort.

III. What's the guarantee of quality?
Within a month of moving into his apartment the new owner got trapped inside the house as the door lock failed. In six months, the plaster started peeling off and the fans stopped working. In another few months, water started seeping in as the pipes had corroded. "I felt cheated. This wasn't worth my money," says the owner.

As of now, there is no way for a buyer to check the building materials used or the quality of construction. Says advocate Anupam Srivastava, who is with law firm Chambers of Law: "Quality is a subjective matter. Buyers should enter into an agreement on the kind of material that the builder will use."

What to do. Don't fall for the builder's glib talk. Insist on including the sanctioned plan of the building and the specifications of the raw materials to be used for construction in the purchase agreement. If you are already facing quality problems, you can go to the consumer court. A consumer activist and lawyer says: "If you want to approach the consumer court, move it within two years from the day you take possession." Alternatively, flat owners can form a Residents' Welfare Association (RWA) and get the builder to fix the problems.

IV. What is the price really?
An engineer in BHEL, Bhopal, had booked a bungalow with a Housing and Construction Company in 2004. On a visit to the site five months later, he found that his bungalow was not being built. He asked the Company to give him a different bungalow, as construction was in full swing on that. The Company formally changed the allotment but sent the purchaser a letter eight months later asking for Rs 3.15 lakh more.

There are legal loopholes as well. The Maharashtra Ownership of Flats Act, 1963, protects buyers against malpractices in the sale and transfer of flats. It gives homebuyers the right to inspect the builder's documents such as the specifications that he has obtained from the authorities. The Delhi Apartment Ownership Act, 1986, however, is a different story. Although it was published in the Gazette of India over a decade ago, brought on the statute book by Parliament and given the President's assent, it is yet to be notified.

What to do. The last stop is the consumer court. Says an expert, "Many malpractices are offences under the Indian Penal Code, for which the responsible party can be prosecuted." Keep checking with the builder if any changes are being made to the specifications mentioned in the agreement and the allotment letter. Also, try to get it mentioned in the contract that if a sum higher than the original price has to be paid by you, the builder would give you additional time for that. You must also ask for a copy of the sanctions that the builder has taken from the authorities to carry out the alterations.

V. What else do I pay for?
To make your house liveable, you will need electricity, water and sewage connections. You will also need electrical wiring, appliances like fans, lights and a water pump, which are unlikely to be part of the package and generally won't be mentioned in the agreement. These will be additional costs that you will have to bear. You might also have to keep some speed money aside for registration so that it gets done in a decent timeframe. In some cases, the builder may make a verbal promise to get it done for you.

What to do. Builders generally have a take-it-or-leave-it attitude with conscientious buyers while striking a deal. Even so, it pays to be scrupulous and to read the agreement and its fine print. "Get a lawyer, an architect or an evaluator to determine the correctness of the purchase." Finally, do some quick math and keep aside some funds to get your house up and running.

VI. How big is house?
A typical home purchase agreement states: "The plans, designs, and specifications are tentative and the developer reserves the right to make variations and modifications..." Simply put, in most cases, you won't know the final area of he house till you get it. The agreement will further state, "In case of change in area, the difference in cost of area shall be adjusted at the time of making final payment."

A buyer had booked a fully-furnished, air-conditioned service apartment measuring 650 sq. ft (super area). He got an allotment letter mentioning this area. However, when the builder offered possession, the super area of the flat had increased to 671 sq. ft. "Once the authorities approve of the floor space index, how can the builder change it?" he asks. After holding out for over 18 months, the choice before him now is to either accept all the terms of the builder or seek cancellation of his allotment. Further, he was informed that the maintenance charge, which was to be Rs 1.50 per sq. ft per month, has been increased to Rs 7 per sq. ft per month. The agreement shields the builder. It says "the monthly maintenance charges will be subject to revision from time to time".

What to do. Builders usually follow the same practices through all their projects. So, before buying, check out the builder's earlier projects to see if he plays fair. Start a blog or join one to share your experiences with others, though this doesn't guarantee redress. You can read about the mistakes and experiences of other people on websites like mouthshut.com

VII. What's the carpet area?
Most residential units in India are sold on the basis of the super built-up area, which includes open spaces like space for lifts, staircases and parking, among other things. But, what you really get is the carpet area, which literally means the area that you can carpet. This can be 15-35 per cent less than the super built-up area. Some developers, especially in Bangalore, sell on the basis of carpet area. In Pune, too, the builders' association has decided to increase the carpet area by 25 per cent to arrive at the saleable built-up area charged to the buyer. In both these cases, buyers are aware of the area they will get. Though there is still a long way to go, experts believe that soon properties all over India would be sold on the basis of carpet area.

What to do. Buy property on the basis of carpet area, although the builder will not like the idea. Argue with him that if the super built-up area is mentioned on the basis of the approvals and sanctions, the carpet area can be quantified. "There should be a provision for termination of the contract and resumption of the property so that builders don't have an upper hand. However, in the absence of rules, buyers should be vigilant."

VIII. Will I get a well-managed property?
The developer may promise to maintain the building or complex in the initial years. The service, however, may not be satisfactory. "The homebuyers cannot even use the Right to Information Act, 2005, to their advantage because it doesn't apply to private builders or even group cooperative housing societies."

What to do. You are unlikely to get relief through correspondence and phone calls. You can go the e-way to attract the builder's attention. For months, a Delhi-based developer ignored the complaints of the residents of one of their premier offerings. Then, a resident shot a nine-minute video that captured the visible flaws of the project, and posted it on YouTube.com, a broadcast site. Their grievances were soon attended to. You can use websites like www.consumerhelpline.in and www.cgsiindia.org to seek further guidance.

Though the dice is clearly in favour of the builder, the buyers can still fight back and many of them are doing so. Now, the government urgently needs to put a regulator in place to ensure proper disclosures and protect the buyers.

What we need
Mostly, a home is the biggest investment of one's life. And yet, most people buy it in a hurry. In this hurry, they sign all the papers without even reading it, let alone questioning its clauses. It may all seem illogical later, but it doesn't when it actually should.

The Indian real estate market does not have a regulator. The need of the hour is to take lessons from streamlined markets abroad and introduce comprehensive disclosure norms.

Generally, reputed builders deliver on time and as per promised specifications. Small developers, however, default by stretching their projects beyond the promised delivery date. Often, this is caused by funding issues. They may also skimp on construction costs, banking on the buyer's ignorance about quality parameters. Sometimes, they submit incomplete drawings to the municipal authorities. There are also fly-by-night operators, who pocket their clients' initial payment and then disappear altogether. In bigger cities, most developers are established and experienced players with a reputation to protect. Here, the incidence of gross defaulting is less than 10 per cent. This can, however, be as high as 15-20 per cent in emerging suburban areas, where there are a lot of small developers. Many developers who respond to sudden property booms in suburban areas have no experience or technical knowledge and often do not have banks backing them. Most emerging suburbs are also defined by unclear land titles.

What buyers should do. A buyer should check the developer's credibility, past projects, performance and delivery record. He should also ensure that the project is funded by a known bank and has all the approvals. A buyer is entitled to ask for a copy of the project's drawings, duly stamped by the municipal authorities.

Legal recourse. Buyers in Maharashtra can take recourse to Section 8 of the Maharashtra Ownership Flats Act, 1963, which makes a developer liable to refund the money obtained from a customer with 9 per cent interest if he is unable to justify non-completion of his project. Most states have similar regulations.

Reputed developers do undertake remedial action if a client is not satisfied with the final product. This is unlikely in the case of unknown one-time operators. Buyers should keep in mind that a developer is supposed to make improvements, repairs and alterations until a society is formed."

[Extract from

Urmila Rao, Outlook Money]

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Note:

Property is worth the investment only if the return on rental income is 8% of purchase price or more. That is - if the cost of house is 50 lakhs - you must be getting a minimum rental of 32 K on it. However - you can lower rental threshold on purchase decision to 6% if property is likely to escalate by 10% in next years annually.

It is a sell call for a house if rental income for the property falls below 4% and price escalation lower than 6%. In case of an expected negative trend in house price - sell call is to be made.

Property Transaction Regulations

There are very clear cut regulations on property transactions for NRIs, PIOs and foreigners in India. Mr. T.R.Shastri, Divisional Head of Karur Vysya Bank (Bangalore Division) explains the various implications of current laws:

The real estate prices in Bangalore are increasing and everyone in the market predicts that this time the boom is realistic and not speculative since the actual users are buying and not the investors. There is an influx of people from other States; there is also an influx of people from other countries. Yes, there are a number of foreigners who have chosen to live in Bangalore.

More importantly there are a number of Indians who are working presently abroad and hence are “Non-resident Indians” (NRIs) who would like to return to India preferably to Bangalore. Many of them wish to own a house or flat in Bangalore for either their future use or as an investment. Some of them may even be holding a foreign passport. A few of them may be interested in buying farm houses or agricultural lands nearby or commercial properties.

Having purchased one such property, some would like to sell it and then wish to know whether the sale proceeds can be taken out of India etc. There are a few NRIs who have settled abroad permanently but with inherited property in India. Naturally they would like to sell the property and take the money out of India. Parents of such NRIs who live face many such queries from their wards abroad. On their own also, many parents would like to advise their children abroad of how to invest in real estate and what the related rules are and so on.

In an economy where there are no restrictions on movement of capital (popularly known as capital account convertible economies), the investor in real estate has only to think about the capital gains or loss by such investment and also the tax implications. In our country, where the capital account convertibility has not yet been implemented fully, the investors should also know the exchange control regulations relating to such investments like the number of properties that can be purchased or sold, the repatriability of the sale proceeds, the method in which the funds are remitted, the types of properties that can be acquired etc. This article attempts to explain these aspects in simple terms.


Forex regulations
Transactions between a person resident in India and one outside India or transactions between two persons in India but in a foreign currency are subject to Reserve Bank of India (RBI) rules. Earlier the rules were governed by Foreign Exchange Regulations Act 1947 which were modified subsequently in 1973 and then again in 1993. All these were replaced by an act called Foreign Exchange Management Act 1999 which is effective from June 1, 2000.

Subsequently a number of changes have been made by government and RBI published through notifications, regulations etc. While these are available in the web page of Reserve Bank of India, a summarised version is discussed below. While the words resident or non-resident are apparently simple to understand, the legal definition is provided under the Foreign Exchange Management Act. A person resident in India means a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year (April-March) and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period. In other words, to be treated as “a person resident in India”, under FEMA a person has not only to satisfy the condition of the period of stay (being more than 182 days during the course of the preceding financial year) but has also to comply with the condition of the purpose/intention of stay.

In case of doubt whether a person is to be considered as a resident or otherwise, he has to prove his residential status as per law. e.g. RBI does not give a status certificate. Generally this status is clearly applicable to most of us. But in case of businessmen or dependents of non-residents who travel regularly, students studying abroad, Indians who have acquired foreign citizen but have come to India for work on deputation etc there may be scope for interpretation. It is advisable to consult experts before entering into transactions.


Purchasing
NRIs can purchase residential and/or commercial properties without any restriction. In other words, there is no ceiling on the number of such properties, he can buy, the size or value of such property etc. There is no ceiling on the value of such properties he can buy so long as it is only residential or commercial property i.e. it can be a villa, penthouse, shopping mall or all the shops on M G Road! There is no document or statement or any such details to be sent to RBI, government of India or to any bank before, during or after such purchase.

This freedom is available to all non-residents who are either citizens of India (i.e. holding Indian passports) or who are Persons of Indian Origin (PIO). The permission is for buying residential or commercial property and not purchase of agricultural land or plantation property or farm house in India.


PIOs
There is a legally valid definition for this term PIO. In simple words, however, a PIO is one who held an Indian passport any time earlier or who or whose father or grandfather was a citizen of India. Thus if a person migrates and later acquires local citizenship, he, his children and his grand children also have this permission. However, to avoid complications arising out of citizenship before partition and other related issues, the local citizenship acquired should not be of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan.


Restrictions
On the other hand, a foreign national of non-Indian origin resident outside India (e.g. Mr. George Bush) cannot acquire any immovable property in India by way of purchase. Moreover property cannot be purchased jointly in the name of one eligible person with one non-eligible person even as a second name. That means an NRI or PIO cannot buy a property jointly with a foreigner (i.e. who does not even have the PIO status). However, a foreign national resident in India does not require approval of RBI to purchase any immovable property in India. This is because once he is a resident in India, he gets the rights like any other resident. This freedom of course is not available to citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan. Thus if you propose to sell your property to a “foreigner” because the price is attractive, better verify his residential status!

Such “ineligible persons” (e.g. foreign nationals of non-Indian origin and also citizens of certain countries specified above) can acquire residential (not commercial) accommodation on lease not exceeding five years without any RBI permission.


Property gift
The above explained permissions relating to purchase apply to acquisition by means of gift also. That means NRIs & PIOs can acquire residential/commercial property as gift but not agricultural land/plantation property/farm house in India. Foreign nationals of non-Indian origin cannot acquire any of these as gift also. Normally gift of immovable property is rare. But this sub-rule has been introduced to prevent any deliberate action aimed at misuse and tax evasion.

However, non-resident person (i.e. NRI, PIO or a foreign national of non-Indian origin) can receive such property by way of inheritance from a person resident in India or person outside India (the latter subject to RBI permission). This means that if an Indian, resident in India dies and his legal heir or person named to receive the property is abroad, he can own the property so left by the deceased even if such heir is not eligible to buy such property (e.g. being a foreigner of non-Indian origin like our Mr. George Bush).

In certain communities, certain elderly persons only remain in India and their present generations may have migrated abroad e.g. to Israel. These rules become relevant when such elderly persons in India die either intestate or with specific rules for devolution of property.


Agricultural land
The NRI or PIO cannot purchase or get as gift farm house, agricultural land or plantation property. But it is possible that he may have been owning them before becoming an NRI or PIO. The law does not stipulate that such holdings are illegal or that they have to be sold immediately on becoming NRI or PIO. On the other hand, the law stipulates the rules relating to sale of such property if he so desires any time when he is a non-resident.

The NRI or PIO can let out his property and the rent received is freely repatriable. In other words, even if he has a property owned by him out of local resources or owned before becoming an NIR or PIO, he can take the rent out of the country by converting it into US dollars at his bank. Of course, he cannot ask his tenant to pay the rent in dollars!


Selling
NRIs can sell a residential/commercial property in India to a resident or to an NRI or a PIO but PIO can sell it only to a resident. NRI or a PIO can sell his agricultural land/ plantation property/farm house in India only to a resident Indian, because such property cannot be acquired by other than resident Indians. Foreign nationals of non-Indian origin require prior permission of RBI both for acquiring property in India (as already explained above) and also for its subsequent sale.

Raising loans
The banks and housing finance companies are now over enthusiastic in lending for buying or constructing houses and flats. They are ready to lend to NRIs also and mortgage of property is a must for raising such loan. Fortunately rules clearly permit such mortgage transactions. It can be either the simple “equitable mortgage” or “registered mortgage”. NRIs and PIOs are permitted to raise loans from commercial banks and housing finance companies in India by mortgaging the property.

However, if a private company wants to lend taking such property as collateral, it is not permitted. Similarly for whatever reasons e.g. better interest rate, the NRI cannot mortgage the property to a bank or a company outside India and raise finance. Of course, as always, with RBI permission, this is possible. Foreign national of non-Indian origin requires RBI permission for mortgaging property either in India or abroad.

Initially, the rules relating to the foreign exchange source of funds were very strict in the sense that the non-resident had to bring forex into the country to acquire any property. Now rules have been considerably diluted.

Presently, an NRI or PIO can acquire a property in India by remittance from abroad, from out of his local nonresident bank accounts, out of his local resources, out of loans raised from a local bank or housing finance company or money borrowed from his Indian employer (if such be the case).

Since our economy is not yet capital account convertible, the sale proceeds of a house by a resident India cannot be repatriated, i.e., it cannot be taken out of India.
Repatriating proceeds

In simple words, a resident Indian cannot just sell his house and ask the bank to convert the entire sale proceeds to US dollars saying that he will migrate to USA and hence needs the funds in dollars. However, an NRI or PIO can repatriate sale proceeds of maximum two residential properties acquired out of foreign exchange funds. It is subject to quantitative ceiling in that the amount repatriated should not exceed the foreign exchange brought in.

This is to prevent any attempt being made to repatriate more than what is brought in due to exchange rate fluctuation. There is no lock-in period, i.e., an NRI can buy property on day one and sell it on day two and take back the original amount in dollars and have the capital gains, if any, retained in India.

A question that naturally arises is when can the NRI take out of India, the surplus arising out of sale of the property i.e., the capital gains part of the sale.RBI has permitted taking out of India (i.e. repatriate) such funds provided such a property was held by him for a period not less than 10 years. If such a property is sold after being held for less than 10 years, remittance can be made, provided that the funds were lying in his bank account (NRO account) or in any eligible traceable investment. Applicable tax has to be paid before remittance.

The remitting bank has to ensure this. Hence the bank will agree for remittance of such funds out of NRO accounts only on production of an undertaking by the remitter and certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes as per their Circular No.10/2002 dated October 9, 2002. of course, this remittance facility is not available to a citizens of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal and Bhutan.

A person owning residential, commercial property, agricultural land, plantation property, farm house may become a NRI or PIO. There is no legal bar in he continuing to hold them for any length of time.

It may be noted that such property is held out of local resources and hence does not have the colour of foreign exchange. In spite of it, considering the liberal foreign exchange position of the country, the present rules permit repatriation of sale proceeds of such property also provided that the property was held for at least 10 years or for any short fall in that period, the funds were lying in his bank account (NRO account) or in any eligible traceable investment. Immovable property inherited by NRI or PIO can be sold and it can be repatriated at the rate of $1 million (nearly Rs. 4.4 crore) per year.

However this involves certain documentation including tax clearance certificate. Thus if a wealthy Indian citizen dies leaving behind large mansion in the heart of city and if his children are abroad, they can sell the property and take away the proceeds at the rate of around Rs. 4.3 crore per year, which frankly is a large figure.

Thus, there is considerable liberalisation of rules for the non-resident individuals. However, rules are not that liberal if the investment is proposed to be made by overseas companies, investment entities etc. Thus “FDI” investments are still subject to conditions. The basic idea is that there should be no hassles for individual transactions and it should be as though full convertibility is available to non-resident Indians for his assets (like house property) and receivables (like rent received) in India.

Perhaps on the roadmap for convertibility and making Indian economy truly global, the first salvo has already been fired and it is for our beloved nonresident Indians to test it and taste it. Come, invest and if you wish take back - that is what the mother land is telling them. If it is taken well, perhaps government will tell this to any one outside India.

Arunachala Land

This website will give current, accurate information about regulations governing the buying, selling, bequeathing and leasing of land and property in India, (in this case as it pertains particularly to Arunachala and surrounding countryside).

We will also be posting pragmatic information advising about problems, pitfalls and complications one may encounter while engaged in either buying, selling or leasing property or land.

As well as information about regulations, we will also be posting news about particular land and property available for either purchase or lease. We can immediately provide the additional service of land agent to prospective purchasers, to whom we will submit a well researched report; verifying ownership and land title, checking on neighbours and their future plans, ensuring proper access to land, reporting on fluctuating seasonal changes (i.e. is it land that gets flooded in heavy rains etc), determining quality and availability of ground water, ascertaining future Municipal developments (installation of unsightly electrical pylons etc) and in everyway ensuring that the land purchased has every advantage.

We will be developing additional services in the coming months in which we will facilitate and arrange land leases, with or without a house.

We welcome all queries and suggestions.