NRI Comprehensive Guide to Buying Property in India

The Call of the Motherland

The motherland is always sweet for anyone. In many cases, Nris sell all the Property that they possess and all ancestral property only to settle abroad. But as time passes the attachment towards the motherland seem to increase and a nostalgic feeling makes them buy a property in India which acts as an abode when they come to India even for a sojourn after two or three years.  

NRIs also look for greener pastures for investment and few of them having ample money can invest in the right property and can expect hefty returns from their investment. In that case, if they opt to rent out their property they need the professional services of a Property Management Consultant who can manage their property when they are away.  

Another motive is to buy a property and a decent dwelling place for the other family members or parents staying in India. In doing that not only do the family members get a decent place to stay but they also get a shelter when they return to India during any time or their holidays.

Who is an NRI?

A Non-Resident Indian (NRI) is a resident outside of India who has been resident outside India for more than 182 days according to Foreign Exchange Management Act. A Person of Indian Origin is a person who is a citizen of another country whose father or grandfather had been an Indian citizen but not of Pakistan, China, Afghanistan, Bangladesh, Sri Lanka, Iran, Nepal or Bhutan and is also not regarded as a PIO or if he or she has held an Indian Passport anytime. Similarly, a resident of India who is a foreigner can also buy and sell a property in India without any prior approval from Reserve Bank of India.

Why Should an NRI Invest Property in India?

Undoubtedly a plush lifestyle abroad may entice people to become an NRI but a connection with the root is something that fetches a sense of belongingness very necessary for existence. Apart from these, there are several other reasons for an NRI to invest in India. Few of them are lower cost of homes compared to the prices of the country they live in or other developing countries. Moreover, the rate of price rise of real estate has always been more in India than that of the developed nations. This assures more returns on investment.

Furthermore, the fall in Rupee value against respective currencies would always help them to gain more which is an added advantage. The NRIs would always have an option to return to India if they have a home of their own and more importantly the facility of reverse mortgage would help the senior NRIs to maintain a secured retired life as the money borrowed from the banks in the way of a reverse mortgage is not taxable.

If long-term investment and a higher rate of return on investment are on your mind then you should invest in Indian property. But as long as consumer protection is concerned India has introduced RERA which has brought in more transparency and attempts to protect the end users.  For all these reasons and few others Indian property has always been of interest for the NRIs but of late there has been renewed interest for the NRIs to own Indian property. The reasons for it are also numerous. Below we list the reasons why Indian real estate is of interest to the NRIs and PIOs.

Why Invest Property in India ?

India is one of those countries who tops in the younger population which is also led by a growth-focused government at the centre. The economic liberalization two decades ago has brought huge dividends to India attracting global investors and now it is poised to witness the next phase of the growth trajectory.  The Indian economy has shown a healthy growth rate of 7.02% over the last seven years with increased purchasing power, demand and consumption from the domestic sector increasing the investment activity.

The real estate sector also offers a diverse range of property segment spread across multiple cities having their respective demand drivers. The key metropolitan areas include cities like Delhi NCR, Bangalore, Mumbai, and other emerging cities like Pune, Hyderabad, and other cities with IT/ITeS industries being the major drivers of growth. The Indian market is also well distributed with domestic institutional investors, family businesses, high net-worth individuals, large global institutional investors, and real estate funds. The yield from residential properties varies between 2 to 4% and in the commercial sector, it is around 8 to 11%. The real estate investment by foreign investors has been increasing year-on-year with more NRIs interested to invest in Indian properties.     

Reasons for the Increased Interest of NRIs on Property in India  

There has been increased interest in Indian properties by NRIs owing to the following reasons:

•    With the introduction of RERA, the consumers’ risks have been considerably reduced with improved buyer’s sentiments.
•    With renewed interests and an environment under GST, it provides more confidence and comfort to the investors.
•    The consumer sentiments are expected to improve gradually as GST, RERA, and the amended provisions of insolvency and bankruptcy transform real estate into a consumer-friendly sector.
•    The year 2017 witnessed a turnaround period after RERA and GST was introduced bringing in more transparency surging buyers’ sentiments resulting in more enquiries & bookings.
•    The affordable housing sector has got a renewed boost not only due to a drop in the price but also due to the government rolling out various incentives and measures for first-time home buyers.

Read Also: Is RERA changing the face of Indian Real Estate?

Must Know Real Estate Rules for NRIs

Regulatory law

Indians residing abroad who are considered as Non-resident Indians having an Indian passport need not require any prior permission from RBI to make any investment in property in India. The real estate transactions of the NRIs would be governed by the rules and regulations as enacted under the Foreign Exchange Management Act (FEMA).

Types of Property an NRI can Invest in

Whether an NRI or a person of Indian origin (PIO), he or she can purchase any number of residential or commercial properties in India. However, a permission is required if they want to invest in agricultural land, plantation or farmhouse. Transfer of such properties is allowed if they are gifted to the NRIs.

Funding of Properties

For any kind of property investment, the transactions should be carried on in Indian currency through the Indian Banks with the concerned NRI, having an NRI account in the authorized Indian Bank. Indian banks can also fund the investment of a property up to 80% and a minimum of 20% of the value of the property should be funded by the NRI from his or her own sources. As all the transactions should be carried through an Indian bank, the NRI should have an NRO, NRE or FCNR (Foreign Currency Non-Resident) account.

The NRIs should look into the fact that the title of the property is clean, duly verified by a lawyer and if the property is jointly held, the title should be cleared first with no pending dues or bills with any authorities.

Power of Attorney

In case the NRI buys an under construction property, the power of attorney has to be conferred by the purchaser to the builder or any of a trusted associate.

Tax Benefits

The tax benefits that an NRI enjoys are the same as that of an Indian resident on the purchase of any property as they can also claim a deduction of Rs. 1  Lakh under section 80 C of the Income Tax Act, 1961. On selling the property within three years of purchase it would be considered as short-term capital gains and the earnings would be taxable and if sold after three years the NRI can avert the long-term capital gain tax by investing in another property.

Overseas Exhibitions

The Confederation of Real Estate Developers Association of India (CREDAI) organizes exhibitions regularly for the NRIs to keep them abreast of the investment options across the country. The NRIs should insist that the developer or the builder they choose is a member of CREDAI and check their offers before they invest.  

NRI’s Checklist for Property Investment

As the NRIs have an impediment to come to India often and check the property they are investing in, it is imperative that they are cautious about this and choose the right property and avert risks of delayed possession or even dispossession. Notwithstanding these risks the Indian real estate has grown in leaps and bounds in the last decade and investing in it would not only give the opportunity for the NRIs to be connected to their roots but would also bring good returns for the expatriate investors. On the flip-side, there have been numerous cases where NRI buyers have been misguided about the delivery time of the property or even the size and structure of it and have been duly exploited. The risks are undoubtedly manifold but taking precautions and doing the checks would prevent you from the risks and keep you protected. We list the checks below that you need to follow to finalize the deal in a hassle-free manner.

Do thorough Background Checks of the Builder

Conduct a thorough background check of the builder and visit the past projects with a due diligence with the customers. Check the past projects of the builder and check the track record of the builder physically. Make sure that the builder is a member of the realtors’ association like CREDAI and it is recommendable if the builder has ISO certifications.

A Site Visit is Mandatory

Although you may check the credibility of the builder on the internet duly checking the reviews but it’s still mandatory to come to India once and visit the site at least once. Before investing a large amount of money, it’s mandatory that you visit the site and check the construction procedure and quality as reversing your decision may prove to be even more costly. If it is utterly impossible to visit yourself, you can ask your local representative or any relative to conduct the checks for you.

Avail a Housing Loan

Choose a project that’s approved by national banks as banks would have already done the due diligence about the builder and the project before approving the project. A housing loan from such a bank would ensure that the money is released from the bank in stages and the loan is pre approved.

Read Also: Comprehensive Guide for the Home Buyers

Maintenance of the Property

Maintenance is a major issue or concern and makes sure that there are some society or association for the maintenance of the property. In metro cities, you would also get professional property maintenance management firms that you can enlist as an alternative.

Measure the Built-up area

Make sure the construction area that is quoted is for the built-up area or whether it is the carpet area. The area that is quoted is often the super built-up area that includes the staircase, lobbies, common passages, etc. but you should always know the built-up area. The carpet area is normally 15 to 20% lesser than the built-up area.

Check-Shortlist-Negotiate-Finalize

The right way to choose and finalize a property is to check 100 properties, shortlist 20 out of them, scrutinize them and start negotiating with 10 of them and then finalize one of the 10 that best suits your need. This is suggested by the real estate experts and analysts and is popularly called the 100-20-10-1 rule.

Check the Statutory Approvals

After you complete the above steps and finalize a property it is mandatory to check the statutory approvals like water supply, Airport, fire, sewage disposal, town planning, safety approval, approval from the fire department, etc.

Take Sufficient Time

It’s a great mistake to finalize a deal in a hurry when you come for a sojourn. Rather than that, render any of your relative or friend the power of attorney(POA) on your visit to India. In case you can’t decide or shortlist a property that you would buy in your short tenure of visit to India your friend or relative would act on your behalf to decide the right property for you to buy it even after you leave India.

Most Important Points to Consider before Finalizing the Deal

Where Should an NRI Invest – Property in India?

Before choosing the location, get the master plan of the city you target to invest in. Apart from the four metros of India, there are other cities too which are rapidly growing like Bangalore, Ahmadabad, Hyderabad, etc. If you choose to invest in your native town where you grew up and where your parents live then the master plan would tell you how the city would look like or shape up to after one or two decades. This will give you a fair estimate of the places that would grow in demand and what are the most lucrative places or areas to invest.

What Should be Your Investment Size?

If you are buying a property for investment purposes and earn from rental income, it’s wise to follow the thumb rule. According to the lending and finance companies, the permissible EMI is 30% of your total income. If your monthly take home is US$ 5000 which is equivalent to approximately Rs. 3, 60,000, a 30% of the deal would be Rs. 1, 08,000. Assuming that the loan tenure is 20 years and the interest is 10% you would be eligible for a loan of Rs. 10800000. This amount can be financed by the bank which is 80% of the value which means you can afford a property of a maximum value of Rs. 13500000 which is Rs. 1.35 Crores.

Buy When the Rupee is Falling against your Currency

Keep a close watch on the trend of the Rupee in comparison to the currency of the country you work in. If the trend of the Rupee is falling against your currency then it is the ideal time for you to buy as you would gain by the falling rate of Rupee. If instead, the Rupee is gaining against your currency then it is not the right time for you to buy as that would prove expensive. Choose a time for investment watching the trend of the value of Rupee and opt for a time when the Rupee falls against your currency and on applying for a loan the banks would also sanction it accordingly.   

Evaluate the Value of the Property

Although a professional surveyor or valuer can evaluate the proper value of a property, you can also carry out a quick valuation of the property using the techniques described below.

Sales Comparison Approach Online

Your developer might have given a price of a flat or apartment which is of a certain dimension. Collect the prices of the apartments in the same locality of similar dimensions online and compare the prices. After comparing the prices if you see that the price you are paying is more, then find out the reason for you to pay more prices than the market.

If on the contrary, you see that the prices are lower than the market then enquire why you are offered a lower price. Also, do a due diligence to find out the title of the property or any pending litigation. You should only compare under-construction projects with other projects which are under construction also and ready to occupy apartments should be compared with similar property.

Another approach can be the calculation of the cost by finding out the value of the land and adding the cost of construction. However, due to unavailability of land, the prices of the land in that same area may not be accurate. In that case, the online comparison approach may be the right way.

How to Transfer the Funds     

The Reserve Bank of India policy states that an NRI or a PIO  can make payments for the purpose of a residential or commercial property in India through any of the below-mentioned means:

1.     Funds can be remitted through normal banking channels to India
2.     Funds from NRE/FCNR or NRO account can be used
3.     But payments using foreign currency or travelers’ cheques are not allowed.

Tax Implications for NRI’s

•    Short-term capital gains tax will be applicable if the property is sold within 36 months of purchase of it based on your income slab and Long-term capital tax will be levied if it is sold after 36 months.
•    Income generated from renting the property is also taxable if it crosses the exemption limit.
•    The NRI/ PIO earning from such property in India has to file income tax returns in India and should have a Permanent Account Number (PAN).
•    An NRI who buys a property has to pay 1% property tax if the value of the property is more than Rs. 50 lakhs and in case the property is bought from another NRI, it’s even higher.
•    However, the interest on a loan is deductible from the total taxable income of an NRI and the same benefit is there in case of repayment of the loan. However, the deductible amount has a ceiling of Rs. 1.5 lakhs.   

Documents Required for Buying Property in India

The following documents are required for an NRI or a PIO or OCI to buy a property in India. :

•    Address Proof
•    PIO or OCI Card (for PIO and OCI)
•    Passport (for an NRI)
•    PAN Card (Permanent Account Number)
•    Passport Size Photographs

The Present and the Future of Real Estate 

The Present

At the present the real estate market has recuperated with reducing unsold stocks, increased interest of buyers and RERA and GST protecting the interests of the customers. In the post RERA times, they are not only interested in the commercial properties but they have become equally interested in residential properties too. Renewed interests of the NRIs are noted due to a better economy where there is more demand of commercial property and office spaces and as the rates of residential properties plummet.

As far as the trend followed by the NRIs in buying residential properties there is a change noticed. As earlier the NRI buyers were mostly interested in luxury properties but now the trend has changed. Even they are equally interested in the properties in the affordable segment. The NRI buyers are buying property with a keen eye on the return on investment. The last few years saw a slowdown in the residential real estate due to which the emphasis during the last few years by the NRI buyers was in the commercial sector. But now as the prices of the residential properties have lowered and is readjusting with the market conditions, NRIs are looking for both commercial and residential properties which have chances of high escalation of prices.

As the developers have noticed this trend of the NRI buyers they are also offering attractive discounts to lure them to purchase properties. The demand for properties from NRI’s increased much more in 2018 than in 2017. RERA has ensured them that their investment is safer than before which has infused renewed interest among the NRIs.

The Future

The analysts feel that now is the best time for investing in the residential real estate as builders are offering discounts to get rid of their unsold stocks. The prices of residential apartments dropped significantly after the demonetization and regulatory measures like GST and RERA have made the market more consumer-friendly, equitable, bringing in added transparency, security, and accountability. This has ensured more investment from the NRIs which the analysts feel would increase as the government would try to incentivize foreign investment through various policies and measures. One such legislation is the REIT (Real Estate Investment Trust) where investors would be able to invest in commercial properties like stocks. Going forward such legislation would surely attract more investment from the NRIs in the realty sector of India. If you happen to be an NRI and considering investing in real estate of India, this would be the best time for you.  

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