Five Things that NRIs Must know Before Making a Real Estate Investment in India

Good news for Non-Resident Indians! Now property buying in India has become simpler than ever. Due to recent changes in the law of real estate investment for NRI’s, the process has become easier and more lucrative. NRI’s are tapping into India’s real estate investment market because of its growth and scope. The Indian real estate market is also booming with properties that are built with architectural finesse. Luxurious townships, beach view houses, built-in facilities are developing rapidly in the country, and especially in Mumbai and its suburbs. We know that our NRI investors are on the lookout for great properties, and will find something that meets their needs, but there are a few things that you, as an investor, should know before making a purchase. To make things easy, we have broken the essentials of house- buying for NRIs into five points.

  1. The FEMA Rules Regulated by RBI- To protect foreign exchange outflow and risks of money laundering, the government has introduced the Foreign Exchange Management Act or FEMA in 1999. This was done to control the flow of currency across Indian borders. The Reserve Bank of India has recently eased the terms of FEMA, making it simpler for foreign investors to invest in Indian real estate. According to the new changes made to the act, NRI’s holding a valid passport can make purchase of residential and commercial properties in India. The only kind of exception to this is purchase of any protected lands, and agricultural lands, which can only be owned by an NRI through inheritance.
  2. Power of Attorney- Power of Attorney (PoA) allows an individual to appoint someone else to represent them in their financial matters while making an investment. This is especially viable if the individual is not present to oversee the matters of the arrangement. Their attorney has the legal right to handle the financial matters. In case of purchasing real estate, it is mandatory for NRI buyers to have legal representation because they might not be present in real- time to supervise the formalities of the process. The Power of Attorney ensures that NRIs can seamlessly grant their relatives or friends their own legal rights to act on behalf of them to complete the purchasing process. NRIs hold the Power of Attorney in case of purchases, renting property, and mortgaging property.
  3. Home Loans- Banks in India grant loans to non-resident Indians for purchase of real estate in India, thanks to RBIs regulatory framework! Home loans are issued to NRIs, Person of Indian Origin PIO, and Overseas Citizen of India (OCI). Anyone above the age of 24 and within the age of 60 is eligible for applying for a home loan up to 80% of the value of their property. The applicant should also possess work experience of at least six months overseas with a cumulative work experience of 2 years. Application documents include PAN card, passport, proof of income, proof of address and proof of identity. The loan is granted in Indian Rupees, which the debtor must also return to the bank in Indian rupees. The payments can be made through inward remittance, rental income, by depositing it to the borrower’s relative’s account or through NRO, NRE or FCNR (B) account.
  4. EMIs and the Forex- One of the easiest ways you can pay your loan back is to pay it in EMIs. However, foreign exchange rates tend to fluctuate from time to time and affect your monthly payments. Therefore, it is always a good idea to pay your loan back through rentals.
  5. Taxation and tax benefits- The tax aspect of property buying always remains a pressing question be it a local buyer or an NRI buyer. But India has made provision for non-residential Indians to steer clear of paying double taxes. India has entered into the Double Taxation Avoidance Agreement or DTAA, whereby India has signed treaty with more than 80 countries.. This helps taxpayers to avoid paying taxes both in the country of where they earn their income as well as the country of their residence. The income in this case is considered as earned through a real estate investment. Similar to any other citizen of India, an NRI is obligated to pay their taxes on their rental income and also for both short-term and long-term gains from sale of property. If a property is owned by an NRI in India, then it is considered as a capital asset. This equates an NRIs tax rights to that of an Indian citizen and the gain on sale of their asset will be taxed at a rate of 20% or slab rate applicable depending upon the holding period of the asset. Further, they could even file for tax exemptions under various sections of the law and/or claim DTAA benefits if the conditions are met.

Non-resident Indians have been investing in the real estate market for quite some time. The market has witnessed tremendous growth in terms of NRI-investment in the last decade. According to Knight Frank Research’s Active Capital Report, a whopping 137% growth has been recorded in NRI investments in real estate between 2011 to 2013, and 2014 to 2016. In 2021 alone, the real estate market recorded a cumulative investment amount of $13.1 billion. This number is predicted to grow by 12% in the year 2022. This reason behind such a huge influx of investments from Non-Resident Indian is partly personal, and an attempt to discover their roots, and partly because of the market’s record of stable return on investments. Moreover, the infrastructure and facilities that are available with real estate projects in India are unparalleled of late. India is among the top countries when it comes to luxurious living, competing with Dubai, California and Australian cities. Townships in Mumbai and its suburbs are of particular attraction. Beach-front residences in Vasai, nature- wrapped apartments in Naigaon, or forest encircled homes in Vasind- properties in Mumbai are a hit amongst NRIs. If you are a non-resident Indian and are planning to buy a home in Mumbai, India, now is the time!

Sources For Statistics
https://www.knightfrank.com/research/report-library/active-capital-the-report- 8447.aspx