The TerraLex Cross-Border Real Estate Guide provides crucial insights into international real estate law, aiding TerraLex members and clients in understanding the regulatory and operational environments across various jurisdictions. This concise guide covers ownership and registration processes, investment vehicles, taxation, leasing terms, and construction regulations, making it an essential resource for those involved in global real estate transactions.
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All land parcels are recorded with the Revenue Department of the area within which the land parcel lies. The land can be of two types - agricultural and non-agricultural (residential and commercial). It is mandatory under law to register the ownership of land with the jurisdictional Revenue Department/Sub-Registrar.
Non-registration results in such ownership documents not being admissible as evidence in an ownership dispute before the Indian courts.
Under the applicable law, any instrument that creates, declares, assigns, limits, transfers, or extinguishes rights in immovable property must be registered with the jurisdictional Revenue Department/Sub-Registrar. Registering such a document validates all rights associated with it, including, but not limited to, ownership rights, leasehold interests, pledges, and mortgages.
To acquire property ownership as a foreign investor in India, the following legal steps are necessary:
(a) Compliance with Foreign Exchange Management Act, 1999 (FEMA)- Under FEMA, permitted categories such as Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs), including jointly with their spouses, foreign diplomat, consulate general can purchase immovable property in India, except agricultural land, plantations, and farmhouses. Long-term visa holders from Afghanistan, Bangladesh, and Pakistan belonging to minority communities (namely, Hindus, Sikhs, Buddhists, Jains, Parsis and Christians) may acquire one residential property for self-occupation and one for self-employment, subject to conditions specified under FEMA. Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong, Macau, or North Korea require Reserve Bank of India (RBI) approval to acquire immoveable property in India, except for leases up to 5 years.
(b) Verification of Title and Due Diligence – This is done through review of sale deeds, no-encumbrance certificates, property tax receipts, and mutation records to confirm ownership and identify any claims relating to the seller.
(c) Execution of Sale Agreement - Prepare and execute a legally binding sale agreement that clearly defines the terms and conditions of the transaction. The agreement should comprehensively detail essential aspects, including the agreed sale price, payment schedule, possession date, and any other mutually agreed-upon obligations or contingencies.
(d) Payment of Stamp Duty and Registration Charges – This is mandatory and varies depending upon the Indian State in which the property is situated. The stamp duty is payable on the sale consideration mentioned in the sale deed. Some Indian States allow a rebate in stamp duty for women buyers.
(e) Registration of Sale Deed- Register the executed sale deed with the jurisdictional Revenue Department/Sub-Registrar. This step is mandatory under the Registration Act, 1908 (Registration Act) to ensure the legal transfer of ownership.
Foreign investors in India typically acquire immovable property through special purpose vehicles such as Private Limited Companies/Limited Liability Partnerships/Branch Office/Project Office. Branch/Project Offices can acquire immoveable property only for its office use. A Liaison Office can only lease property for its office use.
Existing encumbrances like mortgages or liens are transferred unless cleared prior to the sale. Ongoing lease or tenancy agreements automatically transfer, along with property taxes, utility charges, and municipal dues. Maintenance contracts and property-related rights, such as easements, may also transfer, subject to terms and conditions of the sale deed.
The owner of real estate in India faces a range of liabilities, both financial and legal. Financial liabilities include property tax, municipal tax, and loan repayments if the property is mortgaged. Additionally, owners of properties in housing societies or commercial complexes must pay maintenance and service charges. Legally, owners may encounter liabilities related to unresolved encumbrances or title disputes, as well as contractual obligations arising from leases, tenancies, or service agreements associated with the property. Regulatory liabilities include compliance with zoning laws, land use regulations, and environmental laws, with violations potentially leading to fines or legal consequences.
Foreign investors looking to invest in real estate in India need to comply with the FEMA, which limits property ownership to certain non-residents and requires RBI approval for foreign nationals. A title verification of the intended property through revenue records and ownership documents is recommended. A due diligence of the tax liabilities of the owner in relation to the property should be undertaken as there could be penalties/interest liabilities which could result in attachment of the property by the relevant authorities.
Yes, exchange control issues are applicable when a non-resident invests in immovable property in India under the FEMA. NRIs and PIOs are permitted to acquire immovable property using funds from permissible sources, such as income earned in India or remittances received through authorized banking channels. Foreign nationals, however, can only acquire property with prior approval from RBI. Additionally, the repatriation of funds, including sale proceeds and rental income, is subject to RBI’s approval and must comply with FEMA's exchange control regulations governing foreign currency transactions.
Yes, real estate in India can be acquired through private agreements between a private property owner and a prospective buyer, subject to the buyer’s eligibility under applicable Indian laws. While private contracts for the sale of immovable property are common, it is essential that the appropriate State stamp duty and registration charges are paid on the registered sale deed.
In order to pursue a real estate development project, the foreign investor would have to incorporate a PLC or an LLP which in turn can obtain financing from a bank in India. While resident investors can access financing from banks and financial institutions in India, foreign investors face restrictions. Under FEMA, foreign entities and individuals (except NRIs and PIOs) are generally prohibited from borrowing in India for real estate investments without prior approval from RBI. NRIs and PIOs can avail of home loans in Indian Rupees from authorized lenders, but the funds must be used strictly for property acquisition or construction, in line with FEMA.
India offers specific investment vehicles for real estate, v.i.z. Real Estate Investment Trusts (REITs) and Alternate Investment Funds (AIFs), registered with the Securities and Exchange Board of India (SEBI). REITs allow investors to pool funds for income-generating real estate assets, while AIFs are commonly used for real estate-focused funds. These vehicles provide regulated avenues for both domestic and foreign investors, subject to compliance with FEMA and SEBI guidelines.
Real estate development and construction in India are regulated by various local development regulations, building codes, bylaws, and master plans specific to each city or town. Developers must secure multiple licenses and approvals from the relevant local authorities before commencing any project, including:
(a) Height clearance certificates, (b) Building plan approval, (c) Zoning plan approvals, (d) Consent to establish, (e) Fire safety approval, and (f) Water effluent analysis reports.
The initiation of any project is contingent upon obtaining these requisite licenses and authorizations, which vary based on the project's location, nature, and scale. Failure to comply with these regulatory requirements can result in legal and administrative consequences.
Yes, it is mandatory to register immovable property transactions with the jurisdictional Revenue Department/Sub-Registrar under the Registration Act. Failure to register renders the transaction inadmissible in evidence in a court of law.
Yes, India’s property registration system functions as a notice system. Once an immoveable property document is registered, it serves as public notice of the transaction, making the details of ownership and any encumbrances available in the public domain.
Ownership of commercial real estate casts a responsibility on the owner to pay the property tax to the local municipal body. Besides this, any rental income accruing from such commercial real estate is the personal income of the owner liable to income tax under the Income Tax Act, 1961, and Goods and Service Tax on the rent amount.
Transfer of commercial real estate by way of sale can result in enrichment to the owner for which the owner has a liability of capital gains tax under the Income Tax Act, 1961.
Transfer of commercial real estate by way of lease or sale attracts stamp duty under the State specific stamp duty legislation, and registration fee.
Local revenue laws may grant the benefit of reduced stamp duty and registration charges for purchase of property if the buyer is a woman.
Where a permitted foreign investor is acquiring property, the benefits under the Double Taxation Avoidance Agreement may accrue to such investor.
The borrower is liable to pay stamp duty on the financing agreement executed with the lender. Stamp duty is a State-specific levy, and the rates vary across different states.
Further, Goods and Services Tax is also applicable to loan-related services obtained from a bank or a financial institution, such as financing processing fees and is charged at a standard rate of 18%.
The common terms of commercial leases are:
No commercial activity and all other clauses common to commercial leases.
There are no codified rules for termination of a lease contract. Termination is based on contractual terms in both, commercial and residential leases; being a contractual term, it is governed by the Indian Contract Act, 1872.
Tenants are responsible for timely rent payments, utility charges, maintenance, and repairs for damages caused by negligence. Additionally, Tenants may face consequences for breaching lease terms, such as unauthorized subletting, and are liable for non-compliance with local regulations relating to use of the real estate. They must also comply with statutory obligations, including obtaining necessary licenses for the property's use, especially for commercial leases. Environmental liabilities may arise under the Environment Protection Act, 1986 depending upon the nature of the business. The tenants may obtain optional insurance coverage to mitigate risks related to property damage, third-party claims, and potential legal costs.
Terms of lease may be impacted by state/city specific zoning and environmental regulations.
Termination rights in case of insolvency of the landlord are included in the termination clause of the lease, which gives the tenant the right to terminate the lease in the event of such insolvency.
In the absence of any termination clause on account of insolvency, the lease may ultimately devolve upon the person or entity who is determined as the owner of the insolvent landlord’s property. This may lead to consequent termination of the lease by the new owner or attornment by the new owner to continue the lease on the existing terms.
Other than any rent variation clause in the lease contract, the parties may mutually agree to vary the rent.
Under the Registration Act, lease agreements with a term exceeding 11 months are mandatorily to be registered with the jurisdictional Revenue Department/Sub-Registrar.
Yes, taxes apply on renting both personal and commercial property in India. For personal property, income tax is applicable on rental income, with a 30% standard deduction for repairs and maintenance. Goods and Service Tax at the rate of 18% on rental income is applicable to renting of commercial property.
Direct foreign ownership of real estate is only allowed to NRIs and PIOs (and not to other non-residents) who are permitted to let out their real estate.
Yes, non-resident entities and individuals are entitled to acquire immovable property on lease for up to five years, subject to conditions prescribed by the Foreign Exchange Management Act.
There are no codified restrictions/requirements for long-term leases. The commercials and other material terms of such leases are usually mutually decided amongst the parties, subject to any State/city specific zoning/environmental regulations. The parties must ensure that the terms do not contravene any applicable laws.
Such regulations are State and city specific. However, dwelling units need to be registered with the local municipal body for the purpose of renting to tourists and obtain a license for the purpose. Additionally, the dwelling units are required to report the stay of any foreign national at their property to the Foreigners Regional Registration Office within 24 hours of their arrival at the property and also to maintain a register containing necessary particulars of such foreign nationals and details of their stay at the property. The local police department of a city/district may also require such dwelling units to report details of the tourists, including their duration of stay, for background verification.
As renting of such properties are on contractual terms, there are no rent controls in place. However, the rent and its escalation are based upon market forces within the area where such properties are located.
There is no specific pricing structure prescribed by law and is done in accordance with the mutual agreement between the parties involved in the project. The pricing of a construction project is generally done in accordance with either of the following three ways:
(a) Turnkey Projects: The cost of the project is determined in the form of a lumpsum amount without allocating the budget to different aspects of the project. (b) Division of Contracts: The project is divided into components like labour, material, etc. and the approximate cost of each component is calculated separately. (c) Tenders: For contracts with the Government of India or any State Government, the cost of a project is estimated in accordance with the terms of the tender.
Customarily, the following are the most common clauses concerning construction risk: (a) Design Liability: The design consultant is liable for any loss caused due to any defect in any design component of the project while all other kinds of defects become the liability of the contractor. (b) Labour issues: The owner of the project becomes liable as principal employer for any issues arising in relation to contract labour engaged on the construction project through a contractor. However, since the ultimate liability lies with the contractor, any liability incurred by the owner as the principal employer, is recoverable from the contractor.
There are no specific laws that govern the construction sector in India. However, compliance with the following laws are to be ensured in connection with construction projects: (a) The Indian Contract Act, 1872, (b) State-specific building byelaws, (c) Master plan of a city or area of a state, (d) Rules and standards prescribed by the Indian Road Congress, and (e) Other laws prescribed by the local authorities.
Yes, the developer is liable for contingencies or damages arising from the executed works. Any accident/damage attributable to the negligence of the developer is the liability of the developer. However, in case the damages are attributable to the negligence of a third party, the developer can recover such costs from such third-party under an indemnity clause in the contract.
Yes, the local municipal authorities in urban areas are entitled to regulate and control/limit development, construction, or the use of real estate or protect existing structures. Usually, the following requirements hinder the development, construction or use of real estate: (a) Seeking height clearance certificates; (b) Maximum permissible floor area for construction; (c) Licenses and permissions, (d) Building byelaws; and (e) Zoning rules/regulations prescribed by the local authorities.
There are dedicated town-planning departments and land development authorities in every State in India which issue and implement zoning and development plans for areas under their jurisdiction.
While the law does not mandate obtaining insurance for development projects, it is customary for developers to subscribe to appropriate insurance policies as a comprehensive cover in high-value projects.
Generally, contracts for such development works include a clause mandating insurance to be taken by the developers and contractors.
Disclaimer: This guide contains summaries of general principles of law. It is not a substitute for specific legal advice and should not be relied upon in relation to the application of the law or subject matter covered.
