Due to government regulations and increasing technological accessibility in COVID-19, the real estate sector has been a center of attraction for NRIs
Indian real estate market has been an area of attraction for NRIs since time unknown. Due to investment purposes and even emotional attachment to their country, NRIs rarely miss an opportunity to own a real estate property in India. This statement can be backed by a report from Knight Frank's Active Capital, which states that, Indian real estate has witnessed a massive demand by the domestic population as well as the NRIs. The report further concludes that foreign investments in Indian realty rocketed from USD 3.2 bn during 2011-13 to USD 7.6 bn during 2014-16 recording a staggering growth of 137%. It was also discovered that nearly 63% NRIs choose to invest in real estate rather than any other investments in India, by data from ANAROCK’s consumer sentiment survey for H1 2019. According to Reserve Bank of India (RBI) data, half of income earned by Indian citizens is used for family upkeep, followed by bank deposits, although a significant portion is also invested in real estate. According to this report by 360 Realtors “NRI investments in Indian real estate have doubled from $5 billion in 2014 to $10.2 billion in 2018," The major reason for the growing interest of NRIs in the Indian realty market is technological advancements like virtual tour of homes, digital inspections, and complete paperwork without visiting the property physically along with the new government policies favouring NRI investments such as RERA which has created transparency between builders/developers and consumers. Let’s take a look at what are the technological and government policy factors which are helping NRIs invest in properties in India
Technological factors
During the Coronavirus outbreak in 2020 the figures for NRI investments were reduced by 35%. However a significant improvement was witnessed in the 2nd quarter due to the use of technology by real estate developers to promote virtual tours of properties and online payment. There are several technologies like: Virtual tours which allows people sitting in any location to inspect a property and do the paperwork without the physical involvement. BMI (Building information modelling) which allows builders to showcase the upcoming projects to interested home buyers by compiling a 3D model of the building/project. It helps potential buyers/investors take a closer look at the insights and they feel more comfortable because they’re taking an informed decision. Another reason for this surge in the 2nd quarter was due to attractive payment plans and huge discounts offered by the real estate developers, and due to the growing belief that real estate properties are the safest option for investment in the post lockdown world. A cherry on top technological factor which has raised a sudden interest of NRIs is Smart homes & Eco-friendly features. Home Automation systems allow residents to control everything with just a click. And Wi-Fi enabled security cameras also make them feel safe about the chances of break-ins and any other security concerns. This has created a cushioning amidst the people who are not in India and still want to invest in residential property.
RERA (Real Estate (Regulation and Development) Act, 2016)
The Real Estate (Regulation and Development) was passed by the Indian parliament in 2016 to protect the interested investors/buyers and create transparency among them & builders/developers while increasing the accountability. RERA states that a builder needs to register before promoting or advertising any of the projects. Along with this, there are regular updates about ongoing projects and developers can't divert funds from unannounced projects and are answerable for all the glitches, and hence RERA has emerged as a great tool for home-buyers and NRIs. The most important aspect of RERA is that it has created a uniform body in all the states and union territories like SEBI (for stock markets) which in turn has standardized all the purchase of properties be it apartments, homes etc. Due to this, we have witnessed investments worth $13.3 Billion by NRIs in the real estate market of India during fiscal year 2021 as against the earlier estimates of $13.1 billion, according to a report by 360 Realtors. The ratio of investment volume has seen a growth of 6.4% compared to the previous fiscal year despite the slow market during the pandemic. A regression analysis from the same report by 360 Realtors suggested further that estimate investments will grow to $14.9 billion in fiscal year 2022 witnessing a growth of 12% The rupee's depreciation, attractive payment plans, and flight to tangible assets such as real estate will continue to encourage the expansion of NRI investments in India Looking at the above trend and the future estimates, it is obvious that real estate investments in India, by NRIs will continue to increase. Let's have a look at some points which NRIs need to consider before investing.
a) Availability of proper documents : Non-Residential Indians, planning to buy real estate properties in India can invest in only commercial and residential properties. For this, the list of documents that NRIs might need is, thankfully, not long. All they'll need is a passport, address proof, a permanent account number (PAN card) and a recent photograph of them looking at a property they want to invest in.
b) FEMA rules : The Foreign Exchange Management Act 1999, by The Reserve Bank Of India has made it pretty easy for NRIs to make real estate investments in India. According to the guidelines of this act any NRI or PIO (person of Indian origin) is eligible to own any property in India other than agricultural land, plantation property or a farmhouse. However there are certain exceptions to the act that NRIs must consider before making the investment.
c) Home loans : With the government promoting foreign investments in the real estate market in India, they have established easy access to home loans for NRIs. If you're an NRI who lacks ready funds, you are still eligible to apply for a home loan. Banks and housing finance institutes, that are registered with the National Housing bank, are now permitted by the RBI to provide home loans to NRIs who want to buy a residential property in India, considering all monetary transactions have to be done in Indian currency. Interest rates on home loans are as low as 6.5%. While an NRI can also avail a loan for upto 80% of the total property value. However, an important thing that NRIs need to remember is that the home loan will not be credited directly to the bank account of an NRI, rather it will be disbursed to the seller's or the developer's bank account directly. Whereas, the loan can be repaid through the funds from NRO(Non-Residential Ordinary), NRE (Non-Resident External) account or FCNR (Fixed Deposit Foreign Currency account) deposits of the NRI. It's a smart choice to use NRE account while applying for a loan because this will allow the investor to repatriate the capital invested in the property, when you sell it off
d) Taxation for NRIs When it comes to tax benefits, an NRI will enjoy the same benefits as that of a resident Indian. Along with that an NRI will have to pay a rate of 1% for withholding tax deduction at source if they're buying a property that costs more than 50 lakh Indian rupees. An NRI must pay the same taxes as any other Indian resident when purchasing a property in India, including stamp duty, registration fees, post-purchase yearly property taxes, and even GST in the event of an under-construction home. You may also invest in real estate in India to gain rental income. You would, however, be taxed at 30% via tax deducted at source (TDS), with the remaining money being repatriable under FEMA regulations. Proceeds gained from the sale of an immovable property can be repatriated after a TDS deduction of between 20% and 30%, depending on whether it is a long-term or short-term capital gain.
e) Power of Attorney : Since the NRI may not physically be present in India, despite owning a property, they can choose a relative, colleagues or even a close friend to carry out all the legal transactions. This can be done using a power of attorney, which is basically a document that allows a person to act on the behalf of another person. Thus an NRI, investing in the Indian real estate market must ensure that he delegates the power of attorney to a suitable person and registers the document to avoid any frauds and disputes in the future.
f) Choose the right developer : It is of foremost important for an NRI to carry out his own personal research and select a good developer. Choose a developer who has a good reputation in not only the regional real estate industry but on a wider scale. An NRI should look for certificates and awards and should also inquire about the developer through local residents.
Where NRIs or PIOs can invest?
The Reserve Bank of India has granted wide authority to NRIs to acquire any residential or commercial property in India via a circular with one restriction of them not being able to own any agricultural land or plantation property in India. The investor is not needed to seek special authorization from the RBI, nor is he obliged to submit any letter or notification to the RBI in this respect. Income tax regulations also let an NRI to possess as many residential or commercial properties as he or she desires, also having the right to apply for any arbitrary number of home loans too. This falls under the current general permits. If they wish someone to do the needful transactions on their behalf, they have the authority to give Power of Attorney (PoA) to that individual.
Tax implications of NRI sellings properties in India
An NRI must pay the same taxes as any other Indian resident when purchasing a property in India, including stamp duty, registration fees, post-purchase yearly property taxes, and even GST in the event of an under-construction home. Proceeds gained from the sale of an immovable property can be repatriated after a TDS deduction of between 20% if the property is been sold after 2 years of purchase, i,e, long term capital gains, and 30% if less i.e. short term capital gains.
Section 54 exemption Section 54 exemption applies to long term capital gains, the property can be self-occupied or let out. You are only required to invest the amount of capital gains, not the whole selling receipt, and your exemption is limited only to the whole capital gain from the transaction. Section 54 allows you a time frame of a year before the sale or 2 years after the sale on a ready possession property or a construction property which will be ready for possession under 3 years from the date of sale.
Section 54F exemption Section 54F exemption applies to long term capital gains for property assets and other than residential house properties. To obtain this exemption, the NRI must either acquire one home property within one year before the date of transfer or construct one house property within three years from the date of transfer of the capital asset. This new house property must be located in India and cannot be sold within three years of acquisition or construction. One more thing to be noted here, the NRI should not possess more than one home property (apart from the new house), nor should the NRI buy or build another residential house during the next two years.
Section 54EC exemption If you can avoid paying taxes on long-term capital gains by investing in specific bonds. For this aim, bonds issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC) have been designated. These are redeemable after 5 years (formerly 3 years) and must not be sold before 5 years (previously 3 years) from the date of sale of the house property. It is important to note that you cannot deduct this investment under any other circumstances. You have a 6-month window in which to invest in these bonds; but, in order to claim this exemption, you must invest before the return filing deadline. Experts also expect that the need for homes among NRIs would rise in 2021 as a result of remote working. While the GST and the pandemic caused some ups and downs, the Indian real estate market has taken up the pace once again. Given the current scenario, the unforeseeable future, technology developments, and favourable laws, it is a viable moment for NRIs to engage in the Indian real estate market, and their investment in domestic properties will continue to rise significantly in the coming years.
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