Is now the right time for NRIs to invest in Indian real estate?
Indian property market is projected to continue its upward trajectory
The outlook for the Indian real estate market for non-resident Indians (NRIs) is more promising than ever before after the 2024 Indian elections. With policies and economic reforms taking the spotlight, NRIs are increasingly viewing India as an ideal destination for real estate investments.
Factors such as government initiatives, strong market demand, and the continued promise of ROI make Indian real estate an appealing option for NRIs.
Market analysis and trends
A recent report from Anarock suggests a surge in housing demand, projecting a 15-20 per cent increase in property sales over the next five years. This data underscores the resilience of the real estate industry, which has withstood economic challenges and emerged as a robust player in the global investment arena.
According to Anarock findings on major cities, Mumbai, Delhi NCR, Bengaluru, Hyderabad, and Pune continue to lead the market in terms of contributing to housing demand. In 2023, these cities saw a 20 per cent increase in housing sales compared to the previous year, driven by both resident and non-resident Indians. The report also highlights a growing interest in tier 2 and tier 3 cities, known for their affordable housing options and promising growth opportunities.
Government initiatives
Following elections, various policy initiatives are likely to be implemented to stimulate consumption, including that of housing, which will make it even more appealing to NRIs. A significant move has been the expansion of the Pradhan Mantri Awas Yojana (PMAY).
By enhancing funding for this programme, affordable housing projects can once again become interesting for developers who have so far been put off by the narrow margins in this genre. Subsidies under PMAY are made accessible to a wide range of buyers, including NRIs.
The enactment of the Real Estate Regulation and Development Act (RERA) has introduced much-needed transparency and accountability into the industry. RERA has boosted confidence among NRIs who previously hesitated to invest due to concerns about project delays and a lack of transparency.
With this and other regulations now enforced, NRIs can have faith in project completions and fair transaction procedures. Like resident Indians, NRIs who invest in the real estate sector in India can benefit from tax deductions on both home loan interest and principal repayment, making it financially appealing for NRIs to put their money into the property market.
These initiatives, along with the regulations under the Foreign Exchange Management Act (FEMA), have streamlined the process of purchasing property in India, offering NRIs more enticing investment opportunities.
Opportunities and challenges for NRIs
When NRIs contemplate investing in Indian real estate, they consider various aspects. A key objective for NRIs is returns on their investments. The prospect of capital appreciation combined with rental income makes housing a compelling investment option. Diversifying investment portfolios is very important for NRIs looking to spread their risk amidst the volatility often seen in markets. Indian residential real estate is a secure and profitable investment option for them.
While the overall scenario is favourable for NRIs, they do have some concerns when it comes to investing in real estate.
Dealing with legal matters in India can be complex for NRIs. However, the implementation of RERA and other reforms has significantly improved transparency, addressing many of these worries. Currency fluctuations between the rupee and foreign currencies may affect investment returns. Although this remains a concern, the rupee’s recent strengthening has helped reduce some risks.
The removal of indexation benefits in the recent budget has been a source of worry for investors since indexation adjusts the purchase price for inflation, thereby reducing capital gains tax on property sales. Sans this benefit, the tax liability increases. However, the removal of indexation benefit will not significantly affect long-term demand and property prices.
Factors such as the amount of appreciation will determine whether the new tax, minus indexation, will be advantageous or disadvantageous for sellers. As it seems now – when the difference between the purchase price and the sale price in a 10-year period is higher by, say 2-2.5 times, then the new tax regime without indexation is more lucrative for buyers.
Overall, the future is promising for NRIs investing in the Indian real estate market. The government’s focus on infrastructure development, building cities, and enhancing connectivity will further boost the attractiveness of real estate investments.
The writer is Managing Director - Middle East & North Africa, Anarock Group