As an investment, real estate in India holds great potential. For an NRI planning to invest in real estate in the country, what are the prospects? What do they need to know before investing in real estate back home? This article sheds light on all the important aspects of investing in real estate in the country.
Real estate has been traditionally regarded as an ideal investment option in India. Today, with the cities growing at an exponential rate, owing to the country’s emergence as an economic superpower, investing in real estate is indeed a sure bet. Besides high-net-worth individuals (HNIs) who reside in the country, the other major group that invests in real estate in are non-resident Indians (NRIs).
Being away in distant lands, they may not be proficient in various aspects and the nuances of investing in real estate in the country. If you are an NRI with a keen interest in investing in real estate back home in India, here is a handy guide to help you with the proceedings. Read on to know about the most crucial things before investing in real estate in India.
Table of Contents
8 Things NRIs Should Consider Before Investing in Real Estate in India
1. Nature of Property
A real estate investment is an immovable property. While NRIs have every right to own an immovable property – be it residential or commercial – there are certain restrictions regarding the type or nature of the property.
As per the Foreign Exchange Management Act (FEMA), they cannot own agricultural land, farmhouse, or plantation property in India unless they are gifted or inherited. However, with approval from the Reserve Bank and the government, they can own these types of properties in the country.
2. Taxation and Tax Benefits
Like an average citizen of the country, an NRI is liable to pay taxes on the income they earn from an immovable property, be it rental income or short-term or long-term capital gains. However, a key benefit they enjoy is the Double Taxation Avoidance Agreement (DTAA), which India has signed with more than 85 countries. This allows them to work and live in one country while earning income in another through an investment in real estate or through any other modes.
If an NRI holds a property for 2 years or more, it is considered a long-term capital gain, and the same will be taxed at 20.6%. Like any Indian resident, they can apply for refund of the TDS or tax exemption under sections 54, 54 EC and 54 F.
An NRI can be exempted from wealth tax on the first property if it is empty and declared to be for own use. If there are multiple properties, they will have to pay a wealth tax of 1% if the taxable net wealth exceeds Rs. 30 lakh.
3. Home Loan
Like any Indian resident, NRIs are eligible to get a home loan of up to 80% of the value of the property. It is mandatory that the loan sanctioned is disbursed, and later repaid by the borrower, in Indian currency.
When they take a home loan, the amount is not directly transferred to their account. Instead, the loan amount is credited to the developer’s account. Just like foreign currency or travellers’ cheques are not accepted while repaying the loan, payment made outside India is also not acceptable. Obviously, the question is, how do they repay their home loan? The answers are as follows:
- Inward remittance through banking channels
- NRO/NRE/FCNR (B) account
- Rental income
- Crediting the money to a close relative’s account
4. Power of Attorney (PoA)
The power of attorney is a powerful legal tool that authorises another person, usually a trusted individual, to act on the owner’s behalf. As an NRI, when you buy an under-construction property in India, giving a power of attorney to a trusted individual will make the entire process of owning the property smooth and hassle-free.
Make sure that you seek the expertise of a legal practitioner to prepare a power of attorney. Ideally, it should contain all the details about the rights you want your representative to exercise.
5. Repatriation of Funds Back to the Foreign Country
The term ‘repatriation’ refers to the transfer of funds across countries. For an NRI, repatriation means transferring funds from their bank account in India to the account in their country of residence.
As an NRI, when you repatriate your money obtained from the sale of an immovable property in the country, it needs to be done in adherence to certain conditions.
The property must have been purchased as per FEMA directives.
The amount repatriated should not exceed the amount used to purchase the property, if the purchase is made using money remitted through banks or funds in FCNR (B) account. The exceptions to this mandate are as follows.
An NRI can repatriate USD 1 million in a financial year, based on the following conditions:
From their NRO account, if the property was purchased out of rupee source funds.
If the property in question was awarded as a gift.
If it was inherited from an Indian resident.
If it is a residential property, repatriation of the sale proceeds is allowed on a maximum of two properties.
6. FEMA Rules Regulated by the Reserve Bank of India (RBI)
The RBI has eased the Foreign Exchange Management Act (FEMA) to make it easier for NRIs to own residential as well as commercial properties in India. With a valid passport, they can own property, except the types of property mentioned above.
If you are an NRI planning to buy a property in the country, being familiar with the latest FEMA directives will help you greatly.
7. Modes of Payment
As we have already seen, NRIs are eligible to get up to 80% of the value of the property they intend to purchase. Just like the loan is disbursed in Indian currency, the repayment should also be made in the same.
However, if the plan is to pay the EMI with money earned from the country you reside in, foreign exchange fluctuations can severely affect your savings. However, you can overcome such possible financial mishaps by opting to pay the EMI using your rental income from the property.
8. Eliminate the Middlemen
If you are an NRI planning to buy a real estate property in the country, the best thing you can do is to purchase it from a reputed builder. By eliminating the middlemen, you can save precious time and money.
For instance, consider the reputation of SOBHA Ltd. For close to 30 years, SOBHA has been developing both residential and commercial properties across the country. Today, the organisation has its presence in 27 cities in 14 states.
Besides developing world-class themed residential projects, SOBHA has built sprawling facilities for renowned Indian and global companies such as Infosys, Biocon, Lulu, Taj, Dell, etc. With an inimitable reputation for quality, on-time delivery, and a steadfast approach to transparency at all levels, purchasing a property from SOBHA will be an ideal decision.
Also Read,
Real Estate Market in India: 2023 and Beyond
Real Estate Investment for NRIs in Bangalore
Advantages of Investing in Indian Real Estate
FAQ’s
1. What are the things NRIs need to know about real estate investment in India?
Real estate is an ideal investment in India for NRIs. However, before investing, an NRI should know about various factors to ensure that the entire process is smooth. The most important ones among them are knowing about the types of property which they can invest in. For example, unless and until permission is taken from the RBI and the government of India, an NRI can’t purchase agricultural land, farmhouse, or plantation property in the country. The other important things to keep in mind are conditions for obtaining a home loan, taxation and benefits, granting power of attorney to a trusted individual if buying an under-construction property, repatriation of funds, foreign exchange management (FEMA) rules, and modes of repaying the home loan.
2. How to invest in real estate in India as an NRI?
Investing in real estate in India is quite easy for an NRI. In fact, except for a few mandates, the procedures are same as an Indian resident. An NRI is eligible to obtain a home loan – up to 80% of the value of the property – from an Indian bank or financial institution. However, the money doesn’t get credited to the borrower’s account, but to the developer’s. If it’s an under-construction property, it is ideal to transfer the power of attorney to a trusted friend or relative. Finally, and most importantly, before investing in a property, do a thorough check of the developer’s track record and reputation. This will help in ensuring that the money remains safe.
3. What are the RBI guidelines for NRI investment in real estate?
RBI has clearly defined the rules for NRIs for investing in real estate in India. When it comes to the types of property, they can invest in all types except agricultural land, farmhouse, and plantation property. They are eligible for home loans as well as tax benefits, just like any resident Indian. They can repatriate the funds in their bank account in India obtained through the sale of their property to their country of residence. These are the most important RBI guidelines applicable to an NRI while investing in real estate in India.
4. What are the benefits an NRI gets when buying a property in India?
The RBI has issued several relaxations for NRIs investing in a property in India. As per these, an NRI can benefit in various ways while investing in a property in the country. A few of them are as follows: tax benefit under 80 C of the Income Tax Act 1961. If the property bought is for self-use, an NRI can enjoy tax exemption. High returns from rental income – with cities growing rapidly, there’s a higher demand for housing. India has a stable real estate market which is poised to grow exponentially in the coming years. Quite naturally, a real estate investment is likely to grow multifold, offering NRIs high return on investments.
