Guide for NRIs to Invest in Indian Real Estate
The Indian real estate industry is poised for remarkable growth, with projections estimating it to reach a $650 billion business by 2025. This expansion is expected to significantly boost the sector's contribution to GDP, rising from 7% to 13%. The Indian government's initiative to provide housing for all by 2022 further supports this growth. Despite challenges like legal changes and liquidity constraints, NRIs continue to see Mumbai real estate as a prime investment opportunity.
Understanding NRI Status and Market Potential
An NRI (Non-Resident Indian) is defined by the Indian government as an individual
residing outside India for more than 180 days a year. Currently, there are
approximately 2.84 million NRIs worldwide, with millionaires making up 2.36 lakh of
this population. On average, a wealthy NRI's net worth is $3.83 million.
The United States is home to 1,33,564 NRI millionaires, representing 56.5% of the global NRI millionaire population. The United Kingdom accounts for 12.7%, with the remaining distributed across the UAE, Canada, Singapore, Hong Kong, Indonesia, and Japan. Collectively, NRIs hold a fortune estimated at $1.4 trillion, underscoring the significant financial impact they can have on the Indian economy.
Steps for NRIs to Invest in Indian Real Estate
- Open
an NRE Account:
Before conducting any financial transactions in India, NRIs must open a Non-Resident External (NRE) account. Banks like HDFC offer NRE Savings Accounts tailored for NRIs. - Get a
PAN Card:
A Permanent Account Number (PAN) is essential for all financial transactions in India. It serves as a national identity for tax purposes. - Financial
Planning and Currency Consideration:
Understanding the financial aspects of investing in Indian real estate is crucial. Since transactions are conducted in Indian rupees, NRIs should consider currency movements and inflation rates to determine the true value of their investment. - Conduct
Thorough Research:
Before investing, NRIs should conduct comprehensive research. Factors like infrastructure, the reputation of property developers, and the history of similar developments are vital. Attending property exhibitions, such as those organized by Griha Pravesh and CREDAI, can provide valuable insights and investment options. - Choose
Your Investment Wisely:
With the Indian government merging the statuses of Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs), NRIs can now own both residential and commercial properties in India, excluding agricultural land, plantation property, and farmhouses. Reputed developers are a safer bet due to their market visibility and reliability. - Secure
Financing:
Once an NRI decides on a property, securing financing is the next step. Projects approved by national banks are preferable as they have undergone due diligence. The Reserve Bank of India mandates that NRIs pay at least 20% of the property's value in cash, with local financial institutions potentially covering the remaining 80%. - Tax
Benefits:
NRIs are entitled to similar tax advantages as Indian citizens. Under Section 80C of the Income Tax Act, 1961, they can claim a deduction of up to Rs. 1 lakh. Additionally, there are provisions to reduce long-term capital gains tax if the property is sold after three years and the proceeds are reinvested in another property.
Conclusion
The post-pandemic landscape offers promising opportunities for NRIs to invest in Indian real estate. With favourable exchange rates and a booming market, now is an ideal time to explore viable investment options. However, for under-construction projects, it's advisable to stick to reputed builders to mitigate risks and ensure quality.
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.
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.
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Why NRIs Should Invest in the Indian Real Estate Market
5 June 2024
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