Indian Investors Buying Homes Abroad With Credit? Here’s What Can Go Wrong

The idea of owning a second home abroad has gained strong appeal in the minds of Indian investors over the past few years. Easy payment plans, aggressive markets driven by foreign developers and the prestige of owning a global real estate piece in your name have contributed to this specific trend. All this sounds like a dream come true, until people find shortcuts to owning a piece of land abroad. In a recent finding, Indian investors have been found using international credit cards to fund property purchases, which in turn has triggered regulatory warnings and exposed investors to some serious risks.

This process seems valid and quite straightforward: swipe a credit card for the down payment, and convert the transaction into EMIs, while bypassing the banking procedures. However, this convenient ‘method’ collides with India’s foreign exchange regulations, which creates legal and financial consequences set in motion. “International Credit cards are to be used for travel-related expenses abroad or for routine trade and consumption transactions, such as goods or software purchases. It cannot be used for buying stocks or real estate offshore,” says Advocate Nikhil Narendran, partner at Trilegal

The Regulatory Mismatch

Under India’s foreign exchange framework, overseas property purchase is looked after by the Reserve Bank of India (RBI) through the Liberalised Remittance Scheme (LRS). The LRS allows residents of India to remit up to USD 250,000 per financial year for transactions permitted by the RBI. This includes buying a property abroad. Essentially, these remittances must follow a valid transactional route through authorised banks, also being backed with proper documentation and declarations.

Credit card usage here becomes problematic since property purchases are seen as capital account transactions. Using them for investments in real estate falls outside of the regulatory framework set by the LRS.

Risks Of Such Transactions

Breach Of FEMA

The Foreign Exchange Management Act (FEMA) governs all overseas transactions by Indian residents. If a property purchase is not tracked through the LRS channels, it can be treated as a violation. Authorities have already flagged such cases previously, in cases where Indians investors use international credit cards for property purchases, especially in Dubai. These individuals face scrutiny for bypassing the rules set by the RBI. “The violation of FEMA for which the maximum penalty is up to three times the money remitted. At the same time, these cases are likely to be seen as genuine compliance mistakes rather than wilful violations, particularly because banks themselves may find it difficult to identify such end use. If the funds are reversed and the transaction is regularised through banking channels, the RBI is likely to take a measured view and compound these,” adds Narendran.

Enforcement action and asset seizure

The consequences are not just limited to FEMA penalties. Enforcement agencies have taken action against those who have failed to route the funds properly. In some cases, overseas assets which can not be seized directly, authorities have attached claims to the domestic assets possessed by the individual. This way of purchasing a property can jeopardise the domestic assets if and when found in the FEMA norms.

Exceeding LRS limits

The annual limit set under the LRS for all remittances is set to USD 250,000; this is a strict limit. When investors use multiple credit cards or stagger their repayments, they may unknowingly exceed this cap. In addition to this, transactions made by credit cards have always been treated differently compared to bank remittances, which makes tracking the total expenses a hard job.

If the authorities claim that this limit has been breached, penalties follow, even if the breach was not planned.

The rise of credit card-funded transactions speaks of a broader trend. Investors who seek convenience and immediate results in global investments should not consider credit cards as a reliable form of ‘loan’ because they are not. When cross-border real estate comes to the table, compliance is not a formality; it is a legal duty that needs to be fulfilled as a responsible citizen.