In 2023, Indians emerged as prominent property buyers in Dubai, surpassing British investors in at least two quarters and investing around USD 2 billion in the UAE property market between 2020 and 2023. With attractive investment propositions, particularly in newly developed areas, UAE developers have targeted affluent and upper middle-class Indian investors with installment plans. However, many buyers are unaware of the Foreign Exchange Management Act (FEMA) implications. According to FEMA, residents can only remit up to USD 250,000 annually for property purchase abroad, and borrowing for such transactions is prohibited. Despite relaxed Golden Visa rules, RBI restrictions require careful consideration of installment schemes to avoid legal complications. Clarity from Indian authorities and due diligence are crucial for safe international investments.
As per a report released in 2024, Indians were among the largest property buyers in Dubai in 2023, beating British investors in at least two quarters. Between 2020 and 2023, Indians are estimated to have invested around USD 2 billion in the UAE property market.
In several UAE localities, particularly in the newly developed areas, property rates, often cheaper than Mumbai, come across as an attractive investment proposition. There are recent promotions by UAE developers, targeting the affluent and upper middle-class in India, with an installment plan of 1% every month after initial downpayment of 20%. Investment in property above a certain value also entitles the owner to apply for a Golden Visa in UAE. The Golden Visa rule, which was relaxed recently, now allows an applicant to borrow the entire amount for property acquisition.
However, most buyers entering into such transactions are ignorant of the FEMA implications, which one can't figure out from the advertisement.
The rule is clear - an individual can remit USD 250,000 to buy a home overseas, or a family can pool in a larger amount, with each member chipping in USD 250,000 (the yearly limit), to acquire a bigger property outright. The RBI's Liberalised Remittance Scheme allows overseas remittance up to USD 250,000 a year. Along with this remittance cap of USD 250,000, a string of dos and don'ts have been introduced by the RBI in mid-2022.
One of these restrictions is that a resident individual cannot purchase a property abroad with borrowed money -- irrespective of whether the financier is a local bank or an offshore lender. Thus, transactions that entail payments in 'instalments' spread over years, for purchasing either a 'ready-to-move-in' apartment or a property under construction could be an issue.
Experts warn that Dubai property ads promoting easy installment schemes may be misleading buyers. Under Foreign Exchange Management Act (FEMA), a resident can enter into a financial transaction in respect of a transaction involving an asset outside India only with general or specific permission of the Reserve Bank of India (RBI).
Installment plans for under-construction properties may be okay, but buyers must carefully review contract terms with developers. While some say installment purchases of ready homes may be allowed, a strict reading suggests they create a prohibited contingent liability. The RBI has provided little clarification on this issue.
In conclusion, as Dubai continues luring Indian wealth with luxury properties at competitive rates and golden visa incentives, strict adherence to foreign exchange laws is important to avoid legal complications down the line. Developers and buyers both would benefit from greater clarity and guidance from Indian authorities on what constitutes permissible installment structures. Seeking due diligence and specialized advice remains the safest approach for Indians keen on this lucrative international investment destination.
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