A strange provision on NRI housing loans

21 Sep
There has been a recent RBI policy change that has puzzled me. NRIs and PIOs can borrow in rupees from authorized dealers (banks) in India. Such loan products have existed for some time, for housing, education and cars. The recent RBI circular says that resident Indians who are relatives of NRIs and PIOs can repay housing loans on their behalf.
Earlier, resident Indians could pay board, lodging and travel expenses of NRI/PIO relatives. In a parallel circular to the housing loan one, RBI also allowed resident Indians to pay for medical expenses of NRI/PIO relatives. I have no problems if we are liberalizing so that resident Indians can pay for all expenses of NRI/PIO relatives, provided relatives are tightly defined.
Nor do I have any problems if we are liberalizing so that resident Indians can pay for all loans of their NRI/PIO relatives. But we are specifically singling out housing, as opposed to education and cars. What is special about housing? Or is there more to it than meets the eye? I have surfed the Net without any satisfactory explanation.
NRIs/PIOs can buy residential and commercial property in India, with very minor caveats. Such property can be sold and the proceeds repatriated, with very minor caveats again. Where is the money for investing in such property going to come from? Other than the money coming in from overseas, there was earlier a provision for joint purchases of property by NRIs and resident Indian relatives, with banks granting housing loans.
However, the loan would have to be paid by the NRI alone. It is this provision that has now been relaxed and the resident Indian can also repay the loan. Have there been instances where NRIs have defaulted? I haven’t been able to get hold of figures, but that prospect seems unlikely. Is the housing market in such bad shape that it needs to be given a kick-start?
That’s not a plausible proposition either. Returns in the housing market are inordinately high and have dropped in developed countries. If one is going to buy, with the kind of prices now, one should go and purchase in developed countries. And the threshold limit for such purchases has been increased.
It thus seems to me that there is some speculative angle that I am missing and I am willing to be educated. Whenever a specific sector is singled out for special treatment, one should be suspicious. Discretion suggests not just scope for abuse, but also need for abuse.

 

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