Why should NRIs consider investment in Real Estate in India

For Non-Resident Indians (NRIs), the question of investment often brings up thoughts of stocks, bonds, or mutual funds abroad. However, the Indian real estate market presents a compelling opportunity that shouldn’t be ignored. Here are the Top 8 Reasons you should consider Investing.

1. Strong Economic Fundamentals:

India boasts a robust and fast-growing economy, fuelled by sectors like IT, manufacturing, and services. This translates to a rise in disposable income and a growing urban middle class, both of which drive demand for housing and commercial spaces. This rising demand, coupled with a limited supply in prime locations, is a recipe for potential capital appreciation for NRIs who invest in the Indian real estate market.

2. Favourable Government Policies:

The Indian government has actively implemented policies to make the real estate sector more attractive to foreign investors. Streamlined regulations, relaxed repatriation benefits, and simplified property acquisition and disposal procedures make the entire process smoother for NRIs. Additionally, initiatives like “Smart Cities Mission” are fostering infrastructural development in various cities, further boosting property values in those areas.

3. Diversification and Portfolio Hedging:

Real estate in India offers a way for NRIs to diversify their investment portfolios geographically. This reduces risk by hedging against fluctuations in other markets. Owning a physical asset in India also provides a sense of security and a hedge against inflation, which can erode the value of traditional investments over time.

4. Steady Rental Income Potential:

The Indian rental market, particularly in major cities, is flourishing. NRIs can generate a regular stream of income by renting out their properties. This income can be used to offset expenses, generate additional revenue, or even be reinvested in the Indian market.

5. Competitive Property Prices:

Compared to developed nations, property prices in India are still relatively affordable. NRIs can leverage favourable exchange rates to invest in properties that offer good value for money. This affordability allows NRIs to enter the market even with a moderate budget. This affordability, combined with the potential for high returns, makes Indian real estate an attractive option for NRIs. For instance, cities like Bengaluru, Hyderabad, and Pune offer modern infrastructure, good quality of life, and high rental yields, all at a fraction of the cost of similar properties in cities like New York or London. They are sometimes higher than 4%, and hence better than even the developed markets.

6. Emotional Connection and Future Planning:

For many NRIs, investing in Indian real estate provides a tangible connection to their homeland. It can serve as a future retirement home, a place for visiting family, or simply a way to maintain a stake in the country’s growth. Real estate investment can also be a part of future planning for children, offering them a place to stay or a potential inheritance.

7. Tax Benefits:

In some cases, NRIs may be eligible for tax benefits on rental income from their properties. India offers several tax benefits for NRIs investing in real estate. NRIs can claim deductions under Section 80C of the Income Tax Act for home loan principal repayments and under Section 24 for interest payments. Additionally, the Double Taxation Avoidance Agreement (DTAA) ensures that NRIs do not have to pay tax twice on the same income. For instance, rental income from property in India will be taxed in India, and the tax paid can be claimed as a deduction in the country of residence. Understanding and complying with tax regulations is crucial, and consulting with a tax advisor is recommended.

Rental income is taxed at a flat 30% after deducting municipal taxes. NRIs can further reduce this tax burden by appointing a resident Indian as a power of attorney to manage the property and claim additional deductions for maintenance expenses.

8. Hyderabad Supremacy:

Historically, real estate in India has shown strong capital appreciation. However, the perception people have is usually not backed by data. This is as the property prices in Bengaluru have appreciated by approximately 5-7% annually over the past five years, while in Hyderabad, the appreciation rate has been around 8-10%. Such trends indicate the potential for substantial returns on investment, even when Bengaluru was considered to be the king. Now, it is a well accepted fact that Hyderabad real estate market is the best one to bet on.

Things to Consider Before Investing

1. NRIs must adhere to the Foreign Exchange Management Act (FEMA) guidelines.
2. Apart from independent thorough research on the property, developer, and local market; one must consult a reputed real estate agent and lawyer.
3. Managing properties from abroad can be challenging. Reputable property management companies can handle maintenance, tenant management, and other logistical aspects.

Investing in Indian real estate offers NRIs a unique combination of affordability, high returns, tax benefits, and emotional satisfaction. With the Indian economy poised for continued growth, government initiatives fostering a favorable investment climate, and technological advancements simplifying the investment process, now is an opportune time for NRIs to increase their investments in the Indian real estate market.

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