Why Should NRIs Invest In Indian Real Estate Market?

By LODHA

Working abroad usually means a great paycheck. A large portion of the paycheck is usually left for investments, and NRIs are often confused about a good investment option for them. There are many reasons why NRIs must invest back home. Many NRIs plan to ultimately come back and settle in India either after retirement or after working for some years. Even if there's no plan to return right now, it's best to keep a contingency in case of unforeseen circumstances. Some NRIs may want to invest in India for their families back home. Also, investing back home helps diversify and grow your financial assets.

Though there are many NRI investment options in India to choose from like fixed incomes, gold, stocks, etc., one investment that every NRI must purchase real estate as the pace of growth has picked up, and now is the right time to invest in the real estate market. 

NRI purchase property in India is one of the most popular investments for NRIs. Not only is it a safe, long-term investment, but real estate can also give steady growth. In metro cities of India, the real estate market has constantly been booming, and it is advisable to invest in real estate whenever a fund is available. The Mumbai real estate market is one of the fastest-growing in India, as it is the country's commercial capital. 

At a time when the value of the rupee is at an all-time low against the dollar, this is the perfect time to remit money back to India and make investments in real estate. The fall of the rupee coupled with the upward growth of real estate makes this the right time to invest.

Read on to learn more about why real estate investment in India is beneficial.

1. Strong Economic Growth

India's robust economic growth, driven by various sectors such as IT, manufacturing and services, has positioned it as one of the world's fastest-growing economies. This growth translates into rising demand for residential and commercial properties, making it an opportune time for NRIs' real estate investment in India and to reap the benefits of capital appreciation. Moreover, the future of real estate in India appears promising, with increasing urbanization and growing demand for residential and commercial properties.

2. Favourable Policies and Regulations

The Government of India has introduced several initiatives and reforms to attract foreign investments in the real estate sector. Measures such as the Real Estate Regulation and Development Act (RERA) and the Goods and Services Tax (GST) have enhanced transparency, boosted buyer confidence and streamlined processes. These reforms have created a more secure and regulated environment for NRIs to invest in real estate with ease.

3. Diversification of Investment Portfolio

Investing in Indian real estate allows NRIs to diversify their investment portfolio beyond their country of residence. By diversifying across geographies and asset classes, NRIs can mitigate risks and potentially achieve higher returns. Real estate, with its tangible nature and potential for rental income, provides a stable and appreciating asset that adds stability to an investment portfolio.

4. Competitive Property Prices

Unlike real estate prices in developed countries, Indian properties often offer a more affordable investment option. NRIs can capitalise on favourable exchange rates and purchase properties at competitive prices, providing an opportunity for long-term appreciation and potential rental income.

5. Rental Income Potential

Investing in Indian real estate opens the door to earning rental income. With a growing population and increasing urbanization, there is a consistent demand for rental properties. NRIs can leverage this demand by investing in residential or commercial properties and earning a steady stream of rental income.

6. Tax Benefits 

The same taxation rules govern NRI investment in real estate in India and claim tax benefits under section 80 C of the Income Tax Act, 1961, just like any Indian citizen. The property bought by an NRI is exempted from taxation if declared for self-use, but if the property is rented, it will be deemed taxable income. If an NRI purchases a residential property of INR 50 lacs from an Indian resident, then the NRI can withhold tax at the source at the rate of 1% of the purchase valuation.

On the other hand, if the property owner himself is an NRI, then the NRI investor can withhold tax 20% of the long-term capital and 30% in case of short-term capital gains. Moreover, the Double Taxation Avoidance Agreement plays a crucial role in NRI investment in India. It gives NRI the benefit of claiming credit in the overseas country where he is currently residing on the taxes he incurs on the rental income or capital gains concerning the property in India

7. Emotional Connection and Future Planning

For NRIs with strong ties to India, investing in real estate can provide a sense of connection to their homeland. It also offers the possibility of returning to India in the future and having a ready-made property for personal use. Additionally, owning real estate in India can serve as a legacy for future generations. 

8. Retirement Planning

NRI real estate in India can serve as a strategic tool for retirement planning. NRIs can choose to invest in residential properties that can later serve as their retirement homes. Additionally, rental income from properties can provide a steady income stream during retirement. Investing in India offers NRIs the option of securing a comfortable retirement and financial stability.

The FEMA Requirements that Every NRI Has to be Aware Of

Understanding the FEMA (Foreign Exchange Management Act) requirements is crucial for Non-Resident Indians (NRIs) to navigate financial transactions and investments in India. Here are some key FEMA requirements that every NRI should be aware of:

- NRIs can open specific types of bank accounts like NRE, NRO, and FCNR to facilitate real estate transactions. These accounts have different purposes and FEMA guidelines.
- When sending or receiving money to or from India, it is important to comply with remittance limits. FEMA establishes a maximum of USD 1 million per financial year for repatriation, contingent upon specific conditions.
- NRIs are allowed to purchase residential and commercial properties in India under FEMA regulations. However, there are restrictions on agricultural land, plantation property and farmhouses.
- NRIs can also receive immovable property as gifts from relatives or through inheritance.
- NRIs must fulfil reporting requirements, including filing tax returns and submitting necessary documents.

Seeking legal advice is crucial for NRIs navigating real estate transactions in India to ensure compliance with FEMA requirements and other applicable laws.

FAQs

1. Can NRI buy property in India?

Yes, NRIs can invest in Indian real estate, subject to certain guidelines and regulations.

2. What are the RBI guidelines for NRI investment in real estate?

NRIs are permitted to buy residential or commercial properties in India. However, they are not allowed to own agricultural land or farmhouses in India.

3. What is the best investment for NRI?

The best investment for NRIs depends on their financial goals and risk appetite, but real estate is commonly considered a potential option.

4. How much income tax for NRI to purchase property in India?

If an NRI purchases an immovable property in India from a resident, he must deduct 1% TDS if the purchase price exceeds Rs 50 lakh. TDS should be deducted at 20% if an NRI purchases a property from a non-resident and long-term capital gains (LTCG) are applicable. In case short-term capital gains are applicable, TDS at 30% should be deducted.

5. Does NRI pay TDS on the property?

Yes, if you sell a property in India as an NRI, the buyer deducts 20% as Long Term Capital Gains Tax (LTCGT) or properties sold after two years. For homes sold during the first two years, the TDS rate is 30%, which is deducted as Short Term Capital Gains Tax.