5 Reasons Why NRIs Should Invest in Real Estate in India

There is one common aspiration shared by both Indian residents and non-resident Indians (NRIs) — the dream of owning a property in their native. Having a place of residence back home provides long-term financial benefits and a sense of emotional security for individuals staying a thousand miles away from their motherland.

With the Indian real estate market returning to its pre-pandemic glory, people living abroad are seizing the opportunity to pour their capital into immovable properties. A recent Financial Express article stated that NRI investment in India had witnessed a robust 6.4% growth from FY20 to FY21.

Moving ahead, factors ranging from sentimental value to contingency financial plans will favour NRI investment in Indian real estate.

1. Value of Indian Currency

   NRIs have a distinct advantage over native people due to the depreciating value of the rupee against currencies of developed nations like US dollars and pounds.

   When their money is converted into Indian rupees, it gives them increased purchasing power. As a result, NRIs can acquire properties in premium locations at a lower cost compared to what it would have been in developed nations.

2. Prospects of Potential Returns

   While the global real estate market crumbled amid an economic downturn, the Indian counterpart stood firm and witnessed an early recovery. The demand for affordable housing is increasing due to the growing population and urbanisation, which is driving up property values.

   Major cities like Mumbai, Bengaluru, and Delhi offer competitive rental yields compared to global markets, making them attractive investment opportunities for NRIs looking for regular income streams.

   The emergence of co-working spaces, fractional land ownership, and commercial real estate, among other options, expands the investment opportunities for NRIs, with the potential for better returns on investment.

3. Properties are Centrally Located

   For those planning to shift their base to their homeland, luxury apartments located in the heart of cities are ideal. Prominent builders carefully select the location for their apartment projects, ensuring excellent connectivity to employment hubs and various social infrastructure. This advantage is highly desired by NRIs who hope to see similar development in their home country.

   Residential enclaves situated near renowned educational institutions, prestigious healthcare facilities, lively entertainment districts and bustling shopping centres offer unmatched accessibility for individuals accustomed to a fast-paced lifestyle abroad.

4. Easy Buying Process

   The Government of India (GOI) and Reserve Bank of India (RBI) have implemented rules and relaxed regulations emphasising the importance of luring more NRI invests in India. The regulatory authorities’ moves simplify property buying processes for offshore Indians.

   RBI has permitted housing finance centres registered with the National Housing Bank to grant home loans to NRIs to buy properties in India. The loan is credited to the property developer’s account, which can be repaid using the NRO account (Non-Residential Ordinary), NRE account (Non-Resident External) or FCNR account (Fixed Deposit Foreign Currency account).

   Transparency in real estate transactions is imperative for people living abroad. Implementing the Real Estate Regulation Act (RERA) 2016 has enforced the much-needed criterion. According to the act, builders must register every property detail, including approvals, completion date, and land status, among others, on the RERA website. Developers must mention their RERA registration number in all their property-related communications.

   The Income Tax (IT) Act provides a series of tax benefits for NRIs, such as the following:

   • Under sections 80C and 24(b), an NRI is eligible to file for tax deductions on interest and principal payments if they draw a home loan.
   • An immovable property possessed by an NRI for more than 24 months is considered a long-term capital asset that qualifies the holder for an indexation benefit with easy taxation at 20%.
   • Additionally, the IT Act allows tax exemptions under Section 80TTA.

5. High Resale Value

   The 2023 budget has provided an impetus to the infrastructural growth, pledging about INR 10 lakh crore in direct investment from the central government. This move will have a direct impact on the real estate value of the areas that are scheduled to undergo an infrastructural facelift.

   The ongoing focus on the production-linked incentive (PLI) scheme will enhance the commercial sector, leading to a substantial demand for real estate for office spaces and manufacturing units. This increased need for commercial space will positively impact the resale value of properties in the future.

Understanding the Properties Where NRIs Can Invest

NRIs have the opportunity to invest in a variety of properties in India, contributing to the nation's growing real estate sector. There are several investment plans for NRIs in India However, it's essential for NRIs to be well-informed about the types of properties they can invest in and the regulations governing such investments. Here are some NRI investment options in India where individuals can invest, considering legal aspects and potential returns.

Residential Real Estate:

NRIs can invest in residential properties such as apartments, villas, and plots. These investments are popular among NRIs looking for a second home or as a long-term investment. The Real Estate (Regulation and Development) Act (RERA) ensures transparency and protects the rights of homebuyers, including NRIs.

Commercial Real Estate:

Investing in commercial properties like offices, retail spaces, and warehouses is another avenue for NRIs. The demand for commercial spaces in growing cities offers attractive rental yields. NRIs can either lease these properties or sell them for capital appreciation.

Agricultural Land:

While NRIs are generally not allowed to purchase agricultural land in India, they can inherit such land from their ancestors. However, some states have specific regulations, so it's crucial to check the local laws governing agricultural land ownership for NRIs.

NRI Investment Schemes:

The Reserve Bank of India (RBI) has introduced various schemes specifically for NRIs, such as the NRI Fixed Deposit Scheme and the NRI Portfolio Investment Scheme (PIS). These schemes provide NRIs with a structured way to invest in both residential and commercial properties.

Real Estate Investment Trusts (REITs) and Real Estate Mutual Funds:

NRIs can explore investment opportunities in REITs and real estate mutual funds, which offer a diversified and professionally managed portfolio. These investment vehicles allow NRIs to participate in the real estate market without directly owning physical properties.

Joint Ventures and Partnership:

NRIs can engage in joint ventures or partnerships with Indian residents for real estate development projects. This collaborative approach allows NRIs to share both the risks and profits associated with real estate ventures.

The FEMA Requirements that Every NRI Has to be Aware Of

Understanding the rules of FEMA (Foreign Exchange Management Act) is really important for NRIs when dealing with money matters and investments in India. Here are some important things that every NRI should know:

• NRIs can open special bank accounts like NRE, NRO account, and FCNR for real estate transactions, and each of these accounts follows different rules under FEMA.
• When sending or receiving money to or from India, it's crucial to stick to the remittance limits. FEMA sets a maximum of USD 1 million per year for repatriation, depending on specific conditions.
• NRIs can buy homes and commercial properties in India under FEMA rules, but there are restrictions for agricultural land, plantation property, and farmhouses.
• NRIs can also get immovable property as gifts from relatives or through inheritance.
• NRIs need to meet reporting requirements, like filing tax returns and submitting necessary documents.

For NRIs dealing with property transactions in India, getting legal advice is really important to make sure they follow FEMA rules and other laws properly.

Conclusion

Investing in residential properties in India offers NRIs myriad benefits, ranging from potential high returns on investment and diversification of their portfolio to the emotional connection with their homeland. Given the rapidly growing economy, favourable government policies, and the potential for significant real estate value growth, NRIs should not hesitate to invest in the Indian real estate sector. Relying on trusted professionals and real estate builders will ensure a fruitful investment for Indians living abroad.

FAQs

1. Can NRI buy property in India?
   Yes, NRIs are allowed to buy residential and commercial properties in India, subject to certain conditions and regulations.
2. What are the things NRIs need to know about real estate investment in India?
   NRIs should be aware of the types of properties they can invest in, legal regulations, FEMA requirements, and potential tax implications. Understanding the market trends and seeking legal advice is crucial.
3. How to invest in real estate in India as an NRI?
   NRIs can invest through various channels such as NRE, NRO, or FCNR accounts. They can also explore Real Estate Investment Trusts (REITs), joint ventures, and partnerships. Seeking guidance from financial advisors and legal experts is advisable.
4. What are the RBI guidelines for NRI investment in real estate?
   The Reserve Bank of India (RBI) has specific guidelines governing NRI investments, including the type of accounts, remittance limits, and compliance with FEMA regulations. NRIs should stay updated with the latest RBI guidelines for property investments.
5. What are the benefits an NRI gets when buying a property in India?
   NRIs can benefit from potential capital appreciation, rental income, and the ability to own a property in their home country. Additionally, they may qualify for tax advantages and can diversify their investment portfolio.
6. Does NRI pay TDS on the property?
   Yes, NRIs are required to pay TDS (Tax Deducted at Source) on the purchase of property in India. The buyer is responsible for deducting TDS and depositing it with the Income Tax Department. If you're an NRI selling a property in India, the person buying it will take away 20% for the Long Term Capital Gains Tax (LTCGT) if the property is sold after two years. For properties sold within the first two years, they'll deduct 30%, and that goes towards the Short Term Capital Gains Tax.
7. How much income tax should an NRI pay to purchase property in India?
   The income tax implications for NRIs purchasing property in India vary based on factors like property value, rental income, and capital gains. When an NRI buys a property in India from a resident, a 1% TDS must be deducted if the purchase price is more than Rs 50 lakh. If the property is purchased from a non-resident, and long-term capital gains (LTCG) apply, the TDS should be deducted at a rate of 20%. For short-term capital gains, TDS at a rate of 30% should be deducted. NRIs should consult with tax experts to understand the applicable tax rates and obligations.