Real estate is a favoured investment choice for non-resident Indian (NRI) due to its potential for long-term capital appreciation and rental income. According to a recent research report by NoBroker, a proptech company, non-resident Indian (NRI) investment in the real estate sector is poised to contribute 20 per cent by 2025. This increase in demand can be attributed to factors such as sentiment for the homeland and the availability of quality real estate properties back in India. According to the Reserve Bank of India (RBI) website, most of the remittances are used by the NRIs to maintain themselves and their families back home but a big portion is also used to invest in the real estate sector.
Experts believe that the NRI investment in India is strong on the back of several compelling reasons. At present, the Indian rupee being weak against the US dollar, significantly lowers the cost of property investment in India. Second, the NRIs get tax benefits from the Indian government, such as deductions on home loan interest and principal repayments. Moreover, residential real estate offers advantages such as monthly rental income and is considered to be a stable asset, that provides a hedge against market volatility. For the NRIs planning to retire in India post-retirement, investing in property now allows them to secure a home for themselves, with the added benefit of property value appreciation over time.
According to Ravi Shankar Singh, Managing Director, Residential Transaction Services, Colliers India, real estate in India has a long record of delivering significant capital appreciation to investors. “This is especially true as we see the Indian economy steadily and continuously growing. While rental yields have also been on an upward trend, ranging between 2.5 to four per cent across several markets, the rupee has also been stable and will continue to remain so. All these lead to real estate being a lucrative investment for the NRIs,” he says.
Things to keep in mind before investing in real estate in India
Whether NRIs choose a property in India for living or investment purposes, they should consider their budget and personal preferences. To make a sound real estate investment, the NRIs need to keep the following points in mind:
1. Conduct thorough due diligence
“Diving deep into research before investing is important. This includes evaluating connectivity, understanding the potential for property appreciation, and checking local infrastructure development. As an NRI, you must also go for a developer with a proven and reputable track record. Thorough due diligence helps identify the best investment opportunities and avoids properties with legal issues or poor growth potential. With detailed assessment or research, you might end up buying a property with legal disputes or in a not-so-convenient area, which might cause you trouble later, like financial losses or stress,” says Anupam Rastogi, co-founder and Chief Business Officer, Square Yards, a proptech platform.
2. Be clear about your investment purpose
Once you have decided to invest in real estate in India, you must have clearly defined goals for your investment. Are you purchasing it for residential, commercial purposes, or purely for investment? Only with a defined goal, you could choose the right property and the location. When you know your investment goals, you can select a property that aligns with your objectives and maximizes returns. However, without a clear purpose, you would be lost, and you might zero in on a property that doesn’t serve your needs. For example, if you want to invest in a property for renting purposes, you cannot choose an area with a low demand for rent in terms of returns and availability of tenants.
3. Understand financial and tax implications
If you especially plan to rent out your property, you need to understand financial and taxation aspects. This includes taxes on rental income, capital gains, and property ownership. “You must make sure all transactions are done through proper banking channels in India with the necessary documents. A thorough understanding of financial and tax obligations helps in effective planning and ensures compliance with legal requirements. If you ignore these aspects, it could lead to unexpected tax liabilities, legal issues, and difficulties in repatriating rental income, spoiling your financial plans,” adds Rastogi.
4. Familiarize yourself with RBI and FEMA regulations
NRIs need to understand the regulations set by the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA). While NRIs can invest in residential and commercial properties, they cannot invest in agricultural land, plantation property, or farmhouses. It is important to be very well-versed with these regulations as it would ensure your regulations are legally compliant and secure. If you happen to invest in disputed properties, it could lead to legal hassle, financial loss, and potential forfeiture of the property, thereby severely impacting your portfolio.
5. Appoint a property management advisor or company
It’s challenging to manage your property from abroad. Hence, it's necessary to hire a property management advisor or company or have a trusted contact in India. This could help you to oversee your property, handle maintenance, and keep you informed about any issues. If you manage your property effectively, it will ensure your property remains in good condition, tenants are managed properly, and any issues are promptly addressed. In the absence of proper management, properties can deteriorate, leading to decreased value and higher maintenance costs. There could also be tenant issues, causing financial losses and stress.
