FAQs on Real Estate investment in India by NRIs

Introduction

Investing in real estate can be a smart move, and for Non-Resident Indians (NRIs), India has a growing property market full of opportunities. But, managing real estate investments from another country can be tricky. If you’re thinking about investing in property in India to grow your money or plan for the future, you probably have a lot of questions. In this blog, we’ll answer the most common questions NRIs have about buying property in India, so you can make well-informed choices.

General Investment

1. Can NRIs invest in real estate in India?
   Yes, NRIs can freely invest in residential and commercial properties in India. However, there are restrictions on agricultural land, plantation properties, and farmhouses. NRIs need to provide a passport, PAN card, address proof, and recent photographs. If an NRI cannot be present for the transaction, a Power of Attorney (PoA) can be used.
2. How many properties can an NRI buy in India?
   There is no limit on the number of properties an NRI can purchase under the general permission route.
3. Which accounts can NRIs use for property transactions?
   Investments can be made through funds received in India via normal banking channels or funds held in NRE/FCNR/NRO accounts, i.e., Non-Resident External, Foreign Currency Non-Resident Accounts, and Non-Resident Ordinary accounts respectively. NRIs can avail home loans from Indian banks and housing finance companies. The repayment of such loans must be made through NRE/NRO accounts or remittances from abroad.
4. Can NRIs transfer their property in India to another NRI or resident Indian?
   Yes, NRIs can transfer their property in India to another NRI or resident Indian through sale or gift, subject to compliance with FEMA regulations and other applicable laws.
5. What are the recent trends in the Indian real estate market that NRIs should be aware of?
   Recent trends include increased demand for luxury and premium properties, growth in the affordable housing segment, rising interest in commercial real estate, and the adoption of digital platforms for property transactions.

Taxation

1. Are there any tax benefits for NRIs investing in Indian real estate?
   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, making real estate investments more tax-efficient. Understanding and complying with tax regulations is crucial, and consulting with a tax advisor is recommended.
2. How are rental incomes from Indian properties taxed for NRIs?
   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.

Investment Considerations

1. What are some challenges NRIs face when investing in Indian real estate?
   NRIs might face challenges like managing the property remotely, finding reliable tenants, and navigating legal complexities. They should consider hiring property management services or partnering with a trusted friend or relative in India.
2. What are the repatriation rules for sale proceeds?
   NRIs can repatriate the sale proceeds of residential and commercial properties. Repatriation up to the amount of foreign currency invested doesn’t require RBI approval for the first two properties. For amounts exceeding the invested amount or for sales beyond the second property, approval may be needed. If the property was purchased using rupee sources, the amount repatriated cannot exceed $1 million per financial year.

Advanced FAQs answered with Data

1. How has historical data shown NRI investment in Indian real estate performing compared to other asset classes?

According to a JLL report (2022), NRI investment in Indian real estate has grown steadily. Investment reached US$2.3 billion in 2017, compared to US$1.1 billion in 2016. While direct comparison to other asset classes requires specific investment goals, property prices in top 8 cities rose by 7% in 2022, showcasing potential capital appreciation.

2. Is there data on rental yields for different property types in major Indian cities for NRIs?

Rental yields can vary depending on location, property type, and current market conditions. However, a CRE Matrix report (2023) suggests average rental yields for commercial properties to be around 6-8% and residential properties around 2-4% in major cities like Mumbai, Delhi, and Bengaluru.

3. How does the tax burden on rental income differ for NRIs compared to resident Indians, considering tax deductions and treaties with specific countries?

NRIs face a flat 30% tax on rental income after deducting municipal taxes. Resident Indians can claim various deductions, lowering their tax burden. However, NRIs have no limit on interest deduction for NRI home loans, unlike resident Indians with a capped deduction. Tax treaties with specific countries like the US or UAE might offer further benefits. Consulting a tax professional for your specific situation is advisable.

3. Are there any data-driven insights on the rise of specific property types attracting NRI investment, such as student housing or senior living facilities?

A data-driven analysis for specific property types is not readily available publicly. However, news reports suggest a growing interest in alternative investment options like student housing due to rising student populations in major cities.

4. How have fluctuations in the Indian Rupee (INR) historically impacted NRI investment decisions?

A depreciation of the INR can make Indian real estate more attractive for NRIs investing in foreign currency. For example, a weaker INR allows NRIs to purchase more property with the same amount of foreign currency. However, historical data analysis on INR fluctuations and NRI investments would be required for a more conclusive answer.

5. What is the current contribution of NRI investments to the Indian real estate market?

According to a report by CII and Anarock, NRI investments in the Indian real estate market amounted to approximately USD 13.1 billion in 2021, contributing significantly to the sector’s growth despite the pandemic.

6. How has the appreciation rate of real estate properties in major Indian cities impacted NRI investments?

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.

7. How does the Double Taxation Avoidance Agreement (DTAA) benefit NRIs in real estate investments?

DTAA prevents NRIs from being taxed 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. This ensures NRIs do not face double taxation on their income.

8. How does the taxation on capital gains work for NRIs in India?

Short-term capital gains (property held for less than 2 years) are taxed at the slab rate applicable to the NRI. Long-term capital gains (property held for more than 2 years) are taxed at 20% with indexation benefits. NRIs can also avail exemptions under Section 54 (investment in another residential property) and Section 54EC (investment in specified bonds).

9. What trends in Indian real estate should NRIs watch for in 2024 and beyond?

Trends to watch include the rise of smart cities, increased demand for sustainable and eco-friendly properties, growth in the co-living and co-working spaces, and the impact of infrastructural developments like metro projects and new airports on property prices.