Why is Now a Favorable Time For NRIs to Invest in Indian Real Estate?
The Indian real estate market has always seen robust demand. After the agricultural sector, real estate is a major contributor to India’s GDP. Even with hurdles in its journey, it was able to steady itself. With attractive opportunities, supporting policies, and increasing investments - the sector has been looking lively and engaged.
The ICRA estimates that the Indian enterprises can raise 48 billion US dollars via real estate investments in 2022. Supplementing the market, SEBI (Securities and Exchange Board of India) has approved the REIT (Real Estate Investment Trust) market. This allows more scope for investors to access the Indian real estate market.
Especially the NRI division is predicted to contribute to and boost the Indian real estate sector further. This growing trend in Foreign Direct Investments (FDIs) has called for transparent policies and transactions. All this is pointing to a favorable time for NRIs to invest in Indian real estate.
Can NRIs Own Property in India?
Yes. The Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) states that NRIs can own properties in India. However, they will have to follow some guidelines (see: RBI Guidelines for NRI Investment in India in the below sections). Indian banks also provide loans for NRIs. But the tenure of the loan and the repayment rates may differ.
Why Should NRIs Invest in Real Estate in India?
A solid real estate sector and reformed government policies are the two main reasons why NRIs should consider investing in India. Further, India is a country that is forecasting a good trajectory in growth.
There has also been an increase in the flow of FDIs (Foreign Direct Investments). This in turn is powering the youth of the country by generating employment opportunities. Industry and commerce sectors are going through intense development and growth. This is another reason why India is fast becoming a profitable country for investors.
With real estate giving out stable and steady returns, NRIs are lining up for properties in India. The introduction of GST and RERA has made real estate a more lucrative market, especially for NRIs.
Other reasons for why NRIs should invest in real estate in India are briefly discussed below-
The introduction of RERA (Real Estate Regulation and Development Act) has reduced the perceived risk of buyers.
This act holds the builders and developers in the real estate sector accountable under the law. This further promotes the security in real estate investments by NRIs. In short, it provides for a grievance cell for the buyers.
Subvention schemes are being offered by builders and developers to locals and NRI investors. This scheme calls for the buyer to only pay 10%-20% as an initial payment for the property.
Real Estate Investments Trusts (REITs) go through a number of certifications to establish their organizations. They are becoming a safe and trusted option for investments by both locals and NRIs.
Here are some reasons why you should invest in a commercial REIT-
- Exemption from corporate tax
- Possibility for higher dividends
- Possibility for total return of investments
- Accessibility to the commercial real estate sector
- Diversification of your portfolio
- Liquid investment
Investments in REITs also have some limitations like-
-Taxation on the dividends
- Sensitivity in regards to the interest rate
- Possibility for properties specific risks
The government is implementing policies that would make the Indian real estate market more safe and transparent. Among such attempts, the reduction of the stamp duty is one.
The Demonetization period resulted in many realtors planning a tactful correction of prices.
The growing value of the dollar allows space for NRIs to invest more in the Indian real estate market.
RBI Guidelines for NRI Investment in India-
For any investment, there are certain guidelines laid by the RBI to ensure risk-free transactions. Similarly, the RBI has listed out a few guidelines for NRIs purchasing immovable properties. They are briefly listed below-
NRIs can purchase land in India. They can purchase agricultural land, farmhouses, or plantation properties.
NRIs can process their payments through-
- capital received in India via normal banking mediums,
- or via arrears through their NRO/ NRE/ FCNR (B) account,
- and in Indian currency only
NRIs who purchase properties (residential or commercial) after a general permission grant need not file documents with the RBI.
What Documents do NRIs Need for Purchasing a Property?
The following are the general documents that are required by NRIs while making a land purchase in India -
Person of Indian Origin (PIO) card (or) Overseas Citizen of India (OCI) card
Power of attorney registration document
Permanent Account Number (PAN) card
Address proof, authenticated by the Indian Embassy
In the best interest of the clients, the list of required documents should be cross-checked with the realtor or the registrar's office.
The following are the general documents required for NRIs to avail a home loan-
For availing home loans,
Copy of Indian passport
Copy of Visa
For those with a foreign passport, a PIO card
For those whose parents are Indians, an OCI card
Work permit copy/ contract of your employment/ appointment letter
Salary certificate (only the latest)
Income Tax report
Bank statement (for the past year)
Bureau report from the residing country
In the best interest of the clients, the list of required documents should be cross-checked with the banker.
Why now?
Now that we covered the basics of it all, let us explore why now is the best time for NRIs to invest in Indian real estate.
The pandemic has extended its effect on the real estate sector too. Landowners were initially uncertain regarding their investments. However, the pandemic did not have a long-lasting effect on the real estate business. Following the relaxation of rigid lockdown rules, the business is back on track and is booming as always.
During the lockdown season, the land value has been depressed. This provided a window for the NRIs to make additions to their investment portfolios. Majority of such real estate investments have been coming from Canada, UK, Kenya, Germany, UAE, and South Africa.
Below are few more reasons for why now is a favorable time for NRIs to invest in real estate-
Increased digital access
Increased lucidity (transparency)
Relaxed norms for investments
Decrease in the rupee value in relation with the US dollar
Low rates of interests for home loans
Reasonable offers and discounts from builders and developers
Year-end reports show that in the fiscal year of 2021, investment from NRIs was 13.3 billion US dollars. This is 6% higher than the fiscal year of 2020. According to the Department for Promotion of Industry and Internal Trade (DPIIT), the FDIs received between April 2020 and September 2020 was around 500 billion US dollars. Majority of these investments received were towards the real estate sector. Experts believe that the investments from the NRI community would increase to 15 billion US dollars in 2022. By 2025, it is predicted that the real estate sector would be contributing to 13% of the country’s GDP.
Clearly, the pandemic has not slowed down the NRIs' hunt for lands and properties. Karnataka, Kerala, and Tamil Nadu are becoming hubs for their real estate investment. They are becoming a reason for the growth of luxury holiday homes and living spaces. Top real estate companies in Vizag and Hyderabad are catering to such desires and needs. Property consultancies are making acquisitions easier with their end-to-end services.
The final question is what’s in it for the NRIs investing in India? As the saying goes, the right time to buy a house is always five years ago, there is no right time for investing. It is now, it is today. The NRIs investing in India have the following advantages apart from the benefits they get for their significant contribution to the per capita GDP of the country.
Income through rents
Long term rewards
Investments can serve as a retirement plan
Higher returns when compared to countries like the US and Japan.
For NRIs investing in India it should not be a burdensome task. The pandemic has brought some necessary changes in the market which include virtual home tours, digital inaugurations, and online financial transactions. With the advent of the digital marketplace, buying and selling of real estate has become more transparent and hassle-free. The recovery of the Indian real estate market back to its original glory will only further complement the NRI investments.
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