Skyscrapers under construction in Mumbai, which has seen substantial real estate inflation Image Credit: Shutterstock

Whether the market remains bullish or bearish, non-resident Indians (NRIs) prefer a place back in India — not just for good investment returns but also to remain rooted in their country of origin. Game-changing policies such as RERA and GST have now boosted confidence and transparency and streamlined the property-buying process for NRIs.

Mindful of the importance of fostering more positive sentiment for NRI investment into the country, the government also eased norms to facilitate a more streamlined and less cumbersome property-buying process for NRIs.

- Shajai Jacob, CEO – GCC for ANAROCK Property Consultants

This has begun fuelling new NRI investments into the Indian property market. The fact that the rupee value against dollar depreciated in 2018 was also a sound reason for NRIs to view Indian real estate more favourably. And, of course, developers have been offering substantial freebies and even discounts, apart from interesting payment plans, to draw NRIs as well as domestic buyers to their projects.

Mindful of the importance of fostering more positive sentiment for NRI investment into the country, the government also eased norms to facilitate a more streamlined and less cumbersome property-buying process for NRIs.

With Indian real estate once again becoming an attractive proposition, NRIs who are interested in buying a home in the country need to equip themselves for making the best possible property purchase decisions. This includes understanding the regulations and processes related to real estate purchase by NRIs, and also knowing what they can reasonably expect from such investments.

Let’s do a quick realty check:

Understand FEMA

The Foreign Exchange Management Act (FEMA) stipulates that an Indian citizen residing outside the country can invest in Indian real estate, provided that the property in question is not agricultural land, plantation property or a farmhouse.

There is no restriction on the number of properties that NRIs can own in India. However, NRIs obviously need to take informed decisions on such acquisitions. The most important consideration is that of whether the property purchase is for their own or their family’s actual use, or as an investment for rental income and potential capital appreciation.

Understand ROI

Before a generalised market slowdown in 2015, the return on investments (ROI) on residential property in India was extremely rewarding for NRIs. However, post the slowdown, which was exacerbated by demonetisation, RERA and GST, there were no convincing signs of market revival until recently. As a result, there was a paradigm shift in wealthy NRI investors’ focus — specifically, towards commercial properties, which promised far more satisfactory yields.

Then, 2018 saw the beginning of a fairly decent recovery in the residential sector, thanks largely to improved transparency and efficiency in the market. Historically, NRIs preferred investing in luxury homes by leading developers as these offered better rental income and capital appreciation. Today, NRI investors are also focused on affordable housing for rental income and better long-term appreciation.

However, NRI end users with higher purchasing power are still taking luxury housing seriously as long as the price is right.

In short, both residential and commercial real estate now hold very good investment potential for NRIs, with commercial showing increasing viability on the back of favourable macroeconomic conditions, India’s thriving start-up revolution and the interest for the new kid on the office space block: co-working.

Understand payments

NRIs need no special clearances or permission to invest in Indian real estate. However, it is pertinent to

note that: All monetary transactions must be done in Indian currency and through normal banking channels via an NRI account. NRIs can use either their own funds or avail of home loans from banks or other financial institutions in India. The Reserve Bank of India mandates that all buyers, including NRIs, can avail of a maximum 80 per cent of the overall property value via loans from financial institutions.

NRIs must use inward remittances via NRO/NRE accounts in India. They can also issue post-dated cheques or opt for Electronic Clearance Service (ECS) from their NRO, NRE or foreign currency non-resident (FCNR) account.

While the loan process and benefits remain same as for resident Indians, the documents that an NRI must submit differ from Indian residents. NRIs must meet certain eligibility criteria and also issue a power of attorney (PoA) — a key document required during NRI home loan processing.

Understand documentation

The days when NRIs had to visit India or rely on relatives for the initial property search, as well as interviews with property sellers, are over. Thanks to advancements in technology, NRIs can conduct the initial search online, including via 3D walk-throughs, and make closer inquiries via video conferencing.

The main documents required to make any sound property purchase decision include: property’s title deed, last tax receipts, approved plan, notice of commencement, and encumbrance certificate. In addition to this, a valid visa, PoA and PAN card are also required for the verification process.

Understand Taxation

NRIs enjoy all tax benefits that local residents do, except the TDS rate during the property sale. An NRI can claim a deduction of Rs150,000 (about Dh7,733) of the loan’s principal amount under Section 80C of the Income Tax Act, 1961. Under Section 24, the interest on a home loan is deductible to the extent of Rs200,000 per annum.

To get these tax benefits, a minimum of two years’ investment is recommended. This is because the Indian Income Tax rules state that if a property is sold within two years of purchase, the proceeds will be treated as short-term capital gains, and are therefore added to an NRI’s annual taxable income.

If a property is sold after two years of purchase and ownership, there is an option to reduce long-term capital gains tax by investing the proceeds in another property purchase.

NRIs must file income tax returns in India, and all NRIs buying property in India have to pay property tax along with the applicable stamp duty and registration charges for the property. It is therefore advisable that they assess all costs before taking the plunge. Income earned via rent in India is also subject to income tax. Thus, NRIs should ideally obtain a PAN card before investing so that the associated financial procedures become easier.

Best cities and locations

Housing is still the real estate category closest to the hearts of most NRIs. Pure end users will obviously prefer their city of origin, regardless of whether it has optimal investment potential. For investors, there are a number of cities that give good returns such as Bengaluru, Mumbai Metropolitan Region, Pune, Hyderabad and Gurgaon. 

Using Property Consultants

In the rapidly changing Indian real estate market environment, the services of accredited and credible property consultants have become more important than ever before, especially when it comes to making investments.

As already mentioned, there is an increasing demand for other real estate asset classes such as mall spaces in retail, co-working in commercial, co-living and senior living in residential, and even warehousing. India’s imminent real estate investment trusts will also garner significant investor interest.