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NRI Guide to Real Estate Investing in India
NRI Guide to Real Estate Investing in India
The real estate market in India is quite opaque. It is rife with middlemen and legalities which makes the investment process quite challenging. This article is a comprehensive real estate investment guide specially curated for NRIs.
December 26, 2023

According to a report by NoBroker, during 2019-20, 10% of total real estate investments in India were by NRIs. In 2023, it is at 15% and is projected to reach 20% by 2025.

The main reason for increased demand can be attributed to the depreciation of the rupee, higher rental yields, attractive discounts and offers by developers, and the emotional and financial security of owning a home in India.

Also, thanks to the Real Estate Regulatory Authority (RERA) Act, it played a pivotal role in enhancing consumer confidence and led to increased investments in the real estate sector.

India has one of the highest rental yields in the world, averaging around 4.54%.  This is much higher than the rental yields in developed markets such as the US, UK, Canada, and Australia, which range from 1.5% to 2.5%.

Investing in property can be like navigating a thrilling adventure, but before you dive headfirst into the market, let's talk strategy.

Are you buying real estate for residential or commercial purposes?

Are you planning to take a home loan to fund the acquisition?

Do you get any tax benefits (deductions) for your real estate purchase in India?

Let us break it down for you. If you are a first-time investor, here’s a compiled list of what you need to know before investing in real estate in India - everything from picking the perfect city and project to managing taxes, dealing with legalities, and exploring financing options.

Things to Consider Before Investing in Real Estate

Investing in the Indian real estate market can be rewarding but comes with certain risks and challenges. Let’s first define the purpose of your investment.

Residential Real Estate Vs Commercial Real Estate

The purpose of your investment plays a crucial role in shortlisting properties - whether it is residential real estate or commercial real estate. 

If the residential property is for renting out, you may want to invest in cities with high rental yields. For personal use, you may want to pick a city that matches your lifestyle and family needs. 

Similarly, you should pick cities with good growth potential and rental yields while investing in commercial properties. The rental yield of commercial real estate is higher than residential yield. 

Thus, before hitting the ground, clearly define the purpose of your investments. Be it residential or commercial real estate, you need to consider the following things before investing:  

Research and Due Diligence

First things first, research is your best friend. Some aspects to consider are:

Pick the right city

Check out the nitty-gritty details about the city you're eyeing. Is it growing economically, has good infrastructure, a comfortable living vibe, and a solid rental market? The choice of the city also matters whether you are purchasing as an investment or for occupancy.

As per Anarocks CII report, Hyderabad, NCR, and Bengaluru are among NRIs' top three preferred destinations.

Choose a suitable project

You should have a clear picture in mind w.r.t. budget, property type, and purchase purpose. Ideally, look for projects in prime areas with good connectivity, modern amenities, and a clear title and legal status.

Also, for under-construction projects it’s a ‘proceed with caution’. There have been multiple instances of delayed possession or late handovers (due to various reasons) to customers across cities.

Thus, it's best to avoid under construction properties unless the builder has a solid reputation of delivering projects on time.

Buy from a reputed builder

Always opt for reputed builders with a solid track record. Pick builders with a good reputation, on-time project delivery, good quality construction, and post-sale service.

As far as possible, avoid buying properties from unknown or unregistered builders. For all you know, they may not have the necessary approvals, permissions, and certifications.

Consider properties with rental income potential

You may or may not come back to India. However, having an income-generating property can be an additional source of income.

Thus, prefer projects that have a high potential for generating rental income. Pick the ones in high demand, have a low vacancy rate, and offer a good rental yield.

Decide if you need some help

You may consider hiring a middleman who can help you with all the groundwork and logistics. However, mind you, they come with a hefty price tag.

If you don't know the real estate market that well or don't want to burden yourself with the little details of purchase, you may consider hiring a middleman to do the job for you. 

But if you have some knowledge about the market and are a Do It Yourself (DIY) believer, you can save a few bucks. Cutting out the middleman is like avoiding unnecessary drama. They might charge hefty commissions and sneak in hidden fees. Deal directly with developers or use transparent online platforms.

Legal and Regulatory Compliance

If you don't perform legal due diligence of the property or comply with the regulatory requirements, it may cost you a fortune. Say, you invest in a property that doesn't have clear titles or approvals, you may end up losing all the money you paid for it (in case of builder default).

To ensure a smooth experience, make sure you are complying with all.

Also investing in properties approved by RERA ensures transparency and protects buyers from disputes.  

Legal due diligence

Legal stuff can be a headache, but it's crucial. There are many legal aspects that you need to verify before buying a property. For example, ownership titles, encumbrances, approvals and clearances from authorities, sale deeds, and the list goes on. 

Just hire a legal expert who can perform the due diligence for you.  

Foreign Exchange Management Act (FEMA)

While investing in Indian real estate, you must ensure you comply with FEMA rules by the Reserve Bank of India (RBI). According to the FEMA rules, you can buy any number of residential or commercial properties in India. However, you cannot buy agricultural land, plantation land, or farmhouses.

Refer to the RBI’s Notification

Documents Required

You need to furnish the following (not an exhaustive list) documents while purchasing properties in India:

  • Passport/ OCI card/ PIO card
  • PAN Card
  • Address Proof: India and foreign country of residence
  • Income Proof: Country of residence and India (if any)
  • NRE/NRO Account and FCNR account (if you want to take a home loan in foreign currency)

Financing Options and Power of Attorney

You must consider the following aspects when financing your property investments in India: 

Mode of Payment When Buying Property in India

When it comes to financing, figure out how you will fund the acquisition. NRE, NRO, FCNR accounts, or foreign remittances—your call.

NRE and FCNR accounts are fully repatriable, while NRO is partially repatriable. Withdrawals are made in Indian rupees for NRE and NRO accounts, while for FCNR it is in foreign currency. 

Thus, depending on your needs and access to funds, you can pick a suitable route to purchase the property.

Alternatively, you can also use the funds from selling other properties in India. Or from the rent, interest, or dividends earned investments in India.

It is important to note that you CANNOT pay in cash, traveler's cheques, or foreign currency notes.

Home Loan

You can avail a home loan from an Indian bank to buy property in India. You can get a loan of up to 80% of the property's value. Depending on your income, credit score, and repayment capacity.

First time home buyers are eligible for deduction of up to Rs.1.5 lakh under Section 80C on home loan principal repayment. 

And home loan interest deduction up to Rs. 2 lakh under Section 24(b) if the home is lying vacant. If the property is rented out, the entire interest payable can be claimed as exemption. However, this deduction is unavailable if you opt for a new tax regime.

Appointing a Power of Attorney (POA) Agent

A POA agent can be your property superhero if you can't make it to India often. They can complete the formalities and procedures related to property transactions on your behalf.

Wonder how to appoint and execute power of attorney? Everything NRIs need to know about POA (Power of Attorney)

Charges and Taxation

Real estate purchases attract certain costs, here’s a list for you:

Stamp duty and Registration charges

You must pay stamp duty and registration charges while buying a property in India.

Stamp duty is a tax levied on the property's value, while registration charges are the fees paid when registering the property in your name.

These charges vary from state to state and depend on the property's type, size, and location. It usually ranges from 5% to 10% of the property's value in India.

Goods and Services Tax (GST)

You have to pay GST on the purchase of under-construction properties in India. The GST rate for under-construction properties is as follows:

  • Residential properties - 5%
  • Commercial properties - 12% 

However, there is no GST for ready-to-move-in or completed properties (if the builder gets an occupation certificate).

Income Tax

If you are purchasing a property for rental income, you must pay income tax for the income earned.

You can also claim deductions and exemptions for certain expenses like interest on home loan, stamp duty, registration charges, maintenance costs, etc.

Also, the Double Taxation Avoidance Agreement (DTAA) between India and your country of residence can help you avoid paying tax on the same income twice.

Property Management

Got the property, now what? You must manage your property well to maintain its value and generate income.

If you have multiple residential properties or large commercial real estates, it can be quite difficult to keep track of its maintenance and manage the assets. In such scenarios, you can hire a professional property management company or a trusted caretaker to look after your properties in your absence. Duties like taking care of property maintenance, repairs, doing rental agreements and sales deeds can be outsourced.

Alternatively, you can register on online real estate portals that help you list your properties for rent or sale. 

Repatriation of Funds

You may be buying property as an investment and wish to sell it at a later date. Or, change of plans - you no longer need that house in India and you want to sell it now. Or you want to repatriate the rental income. The reason can be anything, repatriation of funds without any difficulty is the priority. 

You can remit the income and proceeds from property investments in India to your foreign bank accounts, subject to certain conditions and limits.

The remittance limit is up to $1 million per financial year from your NRO account (after paying applicable taxes). You can also remit the income and proceeds from NRE or FCNR accounts without any limit or tax liability.

You need to submit the following documents to repatriate funds from India through your NRO account. You can physically submit the documents or download it online and courier the send the signed copies to bank branch:

  • Form 15CA: A declaration that the funds being remitted to foreign are taxed in India. You can complete the form online on NSDL and obtain the printed acknowledgement.
  • Form 15CB: This certificate, issued by an accountant. The accountant fills out the form and shares it with you. You can then send the completed form to the bank.
  • Form A2: Remittance form - includes details of your remittances.
  • Bank Request Form: Fill the necessary details for debiting funds from your account.

For repatriation through NRE and FCNR accounts, you must submit Form A2 and Bank Request Form.

How Should You Invest in Indian Real Estate?

Your real estate investments in India can be in residential properties or commercial properties. Let’s understand the available options:

Residential Properties

Physical Property

You can invest in residential or commercial properties in India, like apartments, villas, plots, shops, offices, etc. It can be for your own use, rent, or as an investment (to sell later). You can buy properties that are:

  • Ready to move in,
  • Under construction, or
  • In the pre-launch phase.

Commercial Properties

Physical Property

You can invest in commercial properties in India, like shops, offices, etc. You can set up your own office or lease it out to companies/ brands or as an investment (to sell later). You can buy ready to move in, under construction, or projects that are in their pre-launch phase.

Fractional Investing

Fractional real estate ownership means owning a part of big properties. Usually, the minimum investment is Rs 25 lakh. This allows you to invest in big commercial properties that would usually be way out of budget. You can invest in properties that are either under construction or completed.

Real Estate Investment Trust (REIT)

REITs own and operate income-generating properties like malls, hotels, offices, warehouses, etc. REITs generate regular income by renting or mortgaging the properties for the long term.

Problems with Real Estate Investing in India

India is a booming economy with a huge potential for real estate investment. Forecasts suggest that India has the potential to become the third-largest real estate (USD 1 trillion) market globally by 2030. You can benefit from the high demand, attractive returns, and tax benefits of investing in the Indian real estate market.

The average return from Indian real estate investment has been 7-9% (20 years). However, not everyone gets it because of the high information asymmetry that exists while investing in real estate.

You must consider the risks, challenges, and regulations involved in the process. The entire process requires effort, from short-listing the property to purchasing and maintaining it. You can consult experts in each area to ensure your experience is smooth.

Having said that, real estate investments are high ticket purchases. Only some have the stomach for such investments.

What’s a Better Alternative to Real Estate?

If you are buying real estate for the purpose of making money (as an investment only), mutual funds could be a better option. They have the potential to generate higher returns compared to real estate.

Historically, returns from real estate have been much lower than mutual fund returns. The following table summarises returns from Indian metro cities over the past years:

City 

1Y

2Y

5Y

10Y

Mumbai

7.55%

7.35%

3.01%

6.71%

Delhi

14.84%

6.65%

0.48%

5.25%

Chennai

2%

4.60%

4.95%

7.35%

Kolkata

-6.62%

4.06%

3.86%

5.99%

Bengaluru

4.99%

0.40%

6.56%

8.98%

And historically, mutual funds have given returns between 15% to 20% (over 10 years). Moreover, investing in mutual funds is much more friendly on the pockets in terms of investment capital and management. 

Professional fund managers manage the fund and invest on your behalf. Here's a table summarising the returns of major indices in India:

Benchmark Name

1Y

3Y

5Y

10Y

NIFTY 50

10.09%

16.82%

14.65%

14.05%

S&P BSE 500

14.73%

20.05%

15.96%

15.69%

NIFTY MIDCAP 100

36.41%

31.38%

20.14%

20.08%

NIFTY SMALLCAP 250

39.86%

35.72%

21.51%

20.49%

Nifty IT

12.64%

16.89%

20.81%

16.18%

NRI Guide to Real Estate Investing in India: Frequently Asked Questions (FAQs)

How can NRI invest in real estate in India?

You can purchase either commercial or residential real estate in India. FEMA doesn’t permit you to buy agricultural property, farmhouses and plantation homes in India.

Can NRI buy property in India with cash?

No. You cannot buy property in India with cash - Indian currency or foreign currency. Even traveler’s cheques are not accepted.

Do NRIs have to pay tax for property sale in India?

Yes, you will have to pay capital gains tax for property sale in India. If you sell the property within two years, the short term capital gains are added to your total taxable income and are taxable as per the applicable slab rates.

If sold after two years, the long term capital gains are taxed at 20%.

How can NRIs buy property in India without visiting?  

You can appoint a POA on your behalf to purchase property in India.

Do NRI pay TDS on property purchase?

Yes. If you purchase an immovable property in India from a:

  • Resident - attracts 10% TDS (if the sale value exceeds Rs 50 lakh)
  • Non-resident - attracts 20% TDS ( if long-term capital gains are applicable)

How many residential and commercial properties can NRI buy in India?

There is no limit on the number of properties that you can buy in India. 

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