Recently, several contestants from the Bigg Boss reality show were seen at a lavish party in Dubai hosted by a prominent builder. These participants, akin to Bollywood celebrities, have the potential to become informal influencers, showcasing Dubai’s luxurious properties to affluent Indians. This marketing initiative takes various forms, including conventional property exhibitions. A notable example includes flyers in Mumbai and Delhi that promoted Dubai homes, suggesting EMIs of ₹3 lakh a month for prospective buyers.

Diving into the Real Estate Phenomenon in Dubai

Nonetheless, amid this alluring marketing narrative, some major banks are discreetly withdrawing from facilitating property deals in the UAE. Reports indicate that at least three prominent banks—one private and two multinational—have ceased processing remittances related to EMI payments for UAE properties. This move raises questions about the legality and feasibility of financing overseas real estate investments under existing regulations.

The primary concern for these banks revolves around the risk of violating the Foreign Exchange Management Act (FEMA). Instances where EMIs stretch over a prolonged period, or where payments are made even before property possession, could be deemed non-compliant. Many buyers and influencers alike may not fully comprehend the legal boundaries they may inadvertently cross in their quest for Dubai properties.

Navigating Legal Terrain: The Liberalised Remittance Scheme (LRS)

The compatibility of EMI transactions for overseas property purchases under the Liberalised Remittance Scheme (LRS) remains a contentious topic. Some banks assert that such transactions aren’t permitted due to fears that non-payment of installments might lead to forfeiture of prior payments, which could necessitate prior approval from the Reserve Bank of India. Consequently, any arrangement involving potential forfeiture appears to breach LRS guidelines, as pointed out by Vishal Gada, CEO of Aurtus, a regulatory firm specializing in tax and transaction services.

According to the LRS, Indian residents can remit up to $250,000 annually for foreign investments, including property purchases. However, the framework prohibits borrowing for overseas transactions. Banks implementing a conservative approach further emphasize that any EMI plan generates a future payment responsibility, categorizing it as a capital account transaction that falls outside permissible LRS activities.

Consequences of Non-Compliance

Last year, the Enforcement Directorate (ED) examined several individuals in India regarding undisclosed UAE property holdings. Many proprietors unintentionally violated FEMA regulations, while others faced complications arising from undetected assets or unaccounted sources of funds. Unfortunately, buyers often overlook these regulations due to persuasive marketing strategies or ill-informed financial advice.

Dubai’s real estate laws allow developers to seize portions of investments based on project completion stages. This can place buyers in precarious legal situations, particularly regarding the classification of forfeited EMIs under FEMA. For instance, committing to long-term EMIs that extend past property possession deadlines—such as a ₹3 lakh monthly payment for a ₹2 crore project slated for delivery in 2029—clearly defies FEMA statutes.

Understanding Different Regulatory Frameworks

The regulations governing overseas property transactions vary significantly from those that apply in India. The procedural ease for Non-Resident Indians (NRIs) with international incomes and established networks differs widely from the experiences of other buyers who may not fully grasp the regulatory landscape. Moin Ladha, a partner at Khaitan & Co., articulates that while LRS allows for overseas property purchases, this allowance must align with the broader framework of capital and current account transactions. Structures involving installment payments attached to the property or overseas borrowing violate these permissions, complicating compliance further.

As these complexities unfold, it’s critical for prospective buyers to thoroughly understand the legal implications before entering transactions involving foreign real estate. Whether they are inspired by reality show celebrities or luxurious marketing narratives, individuals must navigate the legal landscape with care to avoid potential pitfalls.