Although the real estate sector in India has been going through a lean phase in the past few years, more so under the distressing impact of COVID-19, if you are an NRI, then it may turn out to be the ideal time to make property investments in the country
By Vishal Duggal
Real estate has always been a preferred investment choice for Non-Resident Indians (NRIs), who are known to have a natural affinity towards owning a house in their homeland as they place a higher intrinsic value on property owned in India over that of property owned in foreign locations. The emotional quotient apart, there are critical factors that help sustain NRI interest in Indian property market.
Considered one of the safest investment avenues, the returns on property investments are generally higher, compared to other asset classes, due to their minimal volatility and stable appreciations, besides being a great source of regular rental income. Real estate becomes an all the more attractive avenue for NRIs who wish to come back and settle in India, it provides them a sense of security against unforeseen circumstances.
For the past several years, the real estate market in India is bogged down by the sluggish sales of homes as well as commercial spaces. The Indian currency has fallen considerably against the US dollar in the recent times. Those looking at investing back in India can make use of the depreciation in the value of the rupee, coupled with the stagnant property prices, stricter regulatory measures in the wake of implementation of Real Estate Regulation and Development Act, 2016 (RERA), low home loan interests, and good rental yields, to build a sound investment portfolio.
Given the growing uncertainty about jobs and businesses in the minds of NRIs due to the pandemic, there has been a sudden spurt in demand for properties in the country from NRIs residing in the Gulf Countries, Singapore, UK Australia, Malaysia, Canada and US. As the pandemic has adversely impacted global stock markets, they feel that real estate is still a relatively stable investment option at lower risks.
Rules and regulations governing property purchase by NRIs in India
The RBI along with the Foreign Exchange Management Act (FEMA) has considerably relaxed rules and regulations for non-residents who are looking for investment in real estate. It has not only simplified the rules but also provided the benefit of repatriation of the capital involved.
- The RBI through the FEMA regulates how NRIs can buy property in India.
- NRIs can only buy residential and commercial properties and not agricultural land, plantation property and farmland. However, properties falling under these categories can be inherited.
- NRIs can pay for the property either through an inward remittance in foreign exchange through the banks, through rupee-denominated non-resident ordinary (NRO), non-resident external (NRE) or through the funds available in Foreign Currency Non-Resident (FCNR) accounts.
- There are also some developers who provide the option of paying the amount in USD, thus eliminating an additional step for NRI buyers.
- NRIs can sell residential and commercial properties to resident Indians, Indian citizens resident outside India or to Persons of Indian Origin (PIO) outside India.
- NRIs do not need the permission of the RBI in order to transfer immovable property to Indian citizen, PIO or NRI.
- It is not necessary to submit PIO/Overseas Citizenship of India (OCI) card at the time of purchase; it suffices if the purchaser can establish his/her NRI status. The card is mandatory only at the time of the sale and during repatriation of funds.
- You can also look for a property management arm to assist you after possession of the property that can manage everything including security, maintenance, rental agreements to quality tenants, and the resale of the home in your absence in your home country.
- NRIs can also rent out the property and the funds received from the rentals can be repatriated to the country where they are living, without any restriction.
- NRIs can repatriate the sales revenue of only two residential properties in their lifetime which is over and above the $1 million limit per financial year out of the sale proceeds. Any remittance of an amount in excess of the aforesaid limit would require a specific approval from the RBI.
- You can buy a property in India without leaving your country of residence. NRIs can also appoint a Power of Attorney to sign the papers at the time of property possession and registration.
- NRIs can hold the property in joint names with another NRI but not an Indian resident or a foreign national. The NRI’s foreign address is mentioned in the purchase agreement.
- Loans for property purchase can be taken from any Indian bank within India or from a branch of any Indian bank in the NRI’s country of residence.
- NRIs consider financial institutions as the easy option available in India for purchasing any property; while for the latter too it makes financial sense to deal with NRI customers who are very much prompt when it comes to repayment.
Top investment destinations in India
Majority of the NRI buyers are those who are looking for a second home. They can invest in several cities such as Mumbai, Pune in the west, Delhi-NCR, and Jaipur in the North, Bangalore, Chennai, Hyderabad and other southern states. In NCR, Gurgaon and Noida are highly investor driven locations.
In Chennai, one can also consider the regions in and around the city including Thiruvallur, Kanchipuram because there is a huge choice of new developments in these regions.
NRIs can invest in suburban localities of metro cities to gain them a greater amount of returns down the years. Examples Nalasopara, Dahisar, Panvel, Pen and Kalamboli, Bandra East, Goregaon, Lower Parel, Mahalaxmi and Parel in Central Mumbai; GST road, Porur and OMR in Chennai; North Bangalore, Hebbal, Sada Shivnagar, Sarjapur Road and Whitefield in Bangalore, and Dwarka Expressway in Gurgaon.
As luxury apartments have been a major attraction for the NRIs, they can invest in ready-to occupy units or projects nearing completion for better returns. Investment in Tier II and Tier III cities can also be beneficial as these cities have seen more appreciation than the metro cities.
How should NRIs invest in real estate?
Real estate investments necessitate meticulous planning and follow up. As an NRI, you should go through the proper channels, either through a friend or relative to ensure the authenticity of property. You can also explore property expos and seminars to choose a right property. A reputed developer can provide a clear title of property free from a lawsuit, as well as take care of maintenance of the property after purchase.
NRIs should exercise caution as property dealers may often provide incorrect or misleading information regarding property. So, it is always good to cross check with reliable sources to safeguard your investment.
Before choosing to buy a property, zero in on the purpose of the purchase. Are you buying a property in India to live with your family or for your parents back home or is it just purely for investment purpose? Determine the purpose first as your decision will have a direct effect on where to choose and which developer to choose.
Next determine your budget. Apart from the base sale price, reputed builders also charge preferential location charge (PLC), external development charge (EDC), infrastructure development charge (IDC), parking charges, club membership fees, maintenance charges, etc. In addition to all this, there are some charges which have to be considered before the possession of the property including stamp duty charges, registration charges, legal fees, brokerage fees (if applicable), yearly taxes and more.
Check whether the region you have chosen has got a good infrastructure including connectivity by road, rail and air, good growth rate, employment opportunities and also the quality of life the place will provide. In case you want to go for future rentals or resale your house or above all the appreciation value, the location of the house will play a major role.
When you choose the builder, do a complete research on the builder including the builders’ reputation in the market, ease of transaction, on-time delivery of the project, quality of construction and delivery of the promises made including amenities, security and other facilities. If you are going for a home loan, make sure the the project is approved by major banks. Finally, make sure your builder prices are not very high when compared to the market price.
Before making the final transaction, ensure that the Agreement of Sale document is made and registered in accordance with provisions in the Registration Act of 1908.
You should verify that the land title of the project is clear and free from any encumbrance or lin. Often constructed structures are demolished by municipal authorities on grounds of being illegal.
All said and done, this is the right time for the NRIs to invest in both residential and the commercial property. As the vacancy rates of the office space stand high, the developers have little option but either lease cheap and/or sell cheap.
Some interesting facts about NRI property investment
- Major sources of NRI investments include the USA, Canada, Gulf Cooperation Council (GCC), UK, Singapore, Malaysia, etc.
- While most NRIs based out from countries like the US and Malaysia show their preference towards southern cities like Bangalore, Chennai and Hyderabad, those from Canada show interest in places like Delhi, Chandigarh and other northern parts
- The NRI investment in Indian properties range from Rs 50 lakh to Rs 1 crore and beyond, while those from the Gulf region also invest in affordable housing.
- 2/3/4 BHK configurations are most popular amongst NRIs
- Tying up with financial institutions and banks, fully licensed projects, original allotment documents on the day of booking are the main attractions for NRIs that developers offer.