Why and how do NRIs invest in Indian real estate?
Real Estate: An obvious choice
For non resident Indians (NRIs), when it comes to investment options in India, real estate always makes the top place in the list. Now, for the potential ex-pat real estate investors, they need to find answers to few questions before joining the game.
If you are an NRI who wants to invest in India, then the first query crossing your mind would be –
why and how to invest in real estate?
Why do NRIs invest in real estate?
Real Estate fetches a wonderful investment opportunity for Indians living abroad. An estimated 30 million non-resident Indians (NRIs) in over 140 countries have an estimated combined wealth of USD 1.2 trillion. Expatriates constituted the highest remitters of foreign exchange consecutively for the years 2010 and 2011.
Their advantage lies in the fact that while they earn in foreign currency, they can invest back home in rupees and a dip in currency value makes their case even better. Indian rupee’s depreciation over the past few months has been a boom for the NRIs and they have been flocking to India’s real estate market, as it is an ideal situation to give them more returns for their money.
The key advantages like the falling Indian rupee, increase in NRO account interest rates, properties in India cheaper in dollar terms and saturate market in foreign countries make favourable conditions for NRIs investing in real estate.
Typically, NRI investors tend to be of two kinds – those who want to earn good returns on their investment and those who purchase property for their family in India.
How to invest in real estate in India?
Know the legalities: NRIs should you know legal formalities and norms before investing in real estate market. If you are an NRI who is about to invest in real estate, then you should take a good look at the provisions contained in the Foreign Exchange Management Act (FEMA) as well as the Income-tax Act.
Know the property you can buy: As per the said Foreign Exchange Management Act an Indian citizen who resides outside India is permitted to acquire any immovable property in India other then agricultural/plantation property or a farm house.
Be clear about your purpose: Before making any investment in real estate the Non-Resident Indian should very carefully prepare the basic objective or the purpose of making investment in real estate sector in India.
Know the limitations: NRIs have no restrictions on how many commercial or residential properties they can own in India. However, there are restrictions on the repatriation of sale proceeds. Repatriation is limited to two units. Effectively, this means that while they face no restriction when investing in commercial or residential real estate in India, repatriation of sale proceeds can only be done for two units.
Payment modes: NRIs can invest in real estate by remitting funds to India through normal banking channels, or by investing in funds in NRE/FCNR/NRO accounts they hold in India.
They cannot make payment via travelers’ cheque or foreign currency notes. They cannot pay outside India or settle payments through exchange of funds outside the country.
Availing loans: NRIs can take a home loan from an Indian institution approved by the National Housing Bank (NHB) and loan repayment can be done either through inward remittances, debit to a NRE/FCNR/NRO account, via rental income earned in India or by borrowing from close relatives residing in India.
NRIs can also avail of home loans from the employer in India, provided specific terms and conditions listed by the central bank are met.
Mortgage rules: NRIs can mortgage residential property in India with an Indian financial institution without any approval from the central bank. They can also mortgage it with a foreign financial institution with prior approval from the Reserve Bank of India (RBI).
Leasing: NRIs can lease their residential property without prior approval of the RBI in India. Rent received can be credited to NRO/NRE account or remitted abroad, subject to the fulfillment of tax obligations.
