Why and where to invest in property in India

real estate investment

Real Estate investment has always been a lucrative option. It still attracts a lot of investors for building on wealth as it promises good returns. Real Estate covers:

  • Housing sector
  • Retail
  • Hospitality
  • Commercial

Indian Real Estate sector is also a good option for NRI investors as there is a lot of scope and potential for growth in a large number of Indian Cities.


Read: Increasing Benefits of Property Investment in India


There are many factors which influence Real Estate Investment Decisions:

  • Political Stability
  • Infrastructural growth
  • Connectivity of a place to airports and other major cities
  • Government Policies in General and Particular for the area – ease of business, transparency, speedy disposals of proposals etc.
  • Tax benefits
  • Quality of Life – Basic Amenities, Education and health facilities
  • High paying jobs – more beneficial for investment in the housing sector
  • Migration – Inflow of people
  • Prospects for future development
  • Emotional bonding with hometown – the special reason for many NRIs as they want to create an asset in their hometown to settle down after they come back to native place
  • Affordability

When it comes to choosing cities for Indian Real Estate Investment, Delhi, Mumbai, Chennai and Kolkata has always been a favourite. They have had their share of growth and development. There is saturation in the property market. The possibility of future growth is limited.  Now their periphery area is attracting investors, eg. Navi Mumbai.


Read: Investment Options for NRIs


Recently, the Tier II Indian cities are attracting real estate investment, as:

  • Government’s efforts: Indian Government’s Smart City projects under which they aim to develop Tier II cities by providing core infrastructural facilities, a decent quality of life and clean environment besides smart solutions. Economic decisions like GST and regulatory authority like RERA which has brought transparency and accountability are also boosting investment.
  • Property is available at affordable price and high Rental Income
  • Improving Infrastructure, health facilities and educational institutions
  • Migration

List of top most Indian Cities for Real Estate Investment with reasons:

  1. Bangalore – Infrastructure, Connectivity, IT sector induced demand
  2. Chennai –Rising demand due to fast-growing economy (manufacturing, health, automobile, technology sector), Affordable property rates and good rental rates.
  3. Mumbai – areas like Thane and Navi Mumbai enjoy proximity to Mumbai, Employment Opportunities, and demand for residential accommodations.
  4. Pune- Lot of migrants in the IT sector has drawn steady demand for further investment
  5. Hyderabad – Presence of IT employees raises demand in housing and retail sector, Connectivity to Airport and State Government facilities for investors
  6. Kochi – Government’s initiatives like single window clearance, discounts to NRIs for investing, better infrastructure, educational Institutions drawing migrants, all are leading to property sector growth.
  7. Ahmedabad – Employment Opportunities, Improved Infrastructure, demand for houses, Transparent and easy procedures
  8. Bhiwadi – City is catching up for Investment. Proximity to Gurgaon and International Airport, IT sector presence, Affordable prices, Infrastructure are an advantage.
  9. Thiruvananthapuram – Growing IT sector, City’s tourism potential, Infrastructure, Healthy Lifestyle.
  10. Coimbatore- City is close to many tourist destinations, upcoming infrastructural facilities, growing service sector including IT firms, Flourishing manufacturing and retail industries.

Read: Government Initiatives and NRI Investments in India


In case of NRIs, besides, the monetary reasons, emotional connection with their hometown for settling down in the future is also a major factor which drives their real estate investment decisions.

Indian Real Estate holds a lot of promises for good returns on investment.

Tax rules for investment in real estate by non-resident Indians

Tax rules for investment in real estate by non-resident Indians

Indians staying abroad have deep-rooted connections with India. Non-resident Indians or persons of Indian origin staying abroad are given various kinds of facilities in India for investment in property in India. Income from such investment, i.e. the Capital Gains is taxable under the Income Tax Act.

Before getting on to understanding the rule of Investment for NRIs in real estate in India, let us be clear about the definition of NRI:

Who is an NRI?

The term NRI refers to Non-resident Indian. It is legally defined under the Income Tax Act, 1961 and FEMA, 1999.


Also read: NRI Investment in Property – India as an attraction


A person who is a citizen of India or a person of Indian origin is a resident of India:

Under IT Act

  • If during the previous year, he is in India for 182 days or more
  • If during the previous year he is in India for 60 days or more AND during the four year period immediately preceding the previous year, his stay in India is for 365 days or more.

Under FEMA-

  • If he is residing in India for more than 182 days in the Preceding Financial Year
  • It excludes a person who has gone out of India or who stays outside India for purposes of carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period.

A person if not covered under these Acts as a resident of India, is a NON-resident Indian.

Rules for Investment by Non-Resident Indians in Real Estate in India

Real Estate transactions fall under the purview of FEMA. Investment in property in India is permissible as follows:

NRIs can invest in

  1. Residential
  2. Commercial

NRIs cannot invest in

  1. Agriculture
  2. Plantation and Farmhouse
    (can only be inherited or gifted to NRI)

Also read: Increasing Benefits of Real Estate Investment in India


Mode of Payment

The payment can be made from funds received in India through normal banking channels or funds held in NRO/NRE/FCNR (B) accounts maintained in India.

Earnings of NRI from investment in real estate can be in the form of:

  • Rental Income – it is income from rent of property in India
  • Capital Gains – it is income from profits earned by the sale of a property in India

2 a.    Short-term Capital Gains: profit from the sale of property within 2 years of its purchase.

2 b.   Long-term Capital Gains: profit earned from the sale of property held for more than two years.

Taxation

Income from rent or Capital Gains is taxable in India under the Income Tax Act. In case of purchase of property, deduction of income tax is made and paid to Income Tax Authorities. When selling a property, taxes are paid on Capital Gains.

Under DTAA (Double Taxation Avoidance Agreements), an NRI can claim a tax credit in his country of residence, for taxes paid in India.

Tax Payable and Tax Exemptions

  • In case of purchase of property, deduction of Rs 1 lac allowed
  • In case of purchasing a house on loan, deduction on home interest is available
  • Other deductions like stamp duty, registration charges and municipal taxes paid are also available.
  • No wealth tax payment if the property is vacant, but tax is payable on subsequent property purchase even if vacant.
  • Capital Gains are also taxable, but an exemption is allowed:
  1. If invested in another property
  2. If invested in certain Bonds are also exempted. (NHA I, REC)

Thus India provides Investment opportunities to Non-Resident Indians to invest in property in India to earn Capital Gains. The income is taxable under the Income Tax Act.

What are the things to remember while investing in property in India?

investing in property in India

Property investment in India is popularly thought to be a safe and profitable long-term investment option. It has always been more reliable than investing in stocks. However, the market does face liquidity and other risks from time to time.

To avoid such risks involved in the property market as an investment, one must remember the following tips before finalising on any property:

Selection of property

  • For a property investment in India selecting the right property at the right place as per the budget is very crucial.
  • There is a surplus of choices available in the market, so one must decide as per his/her requirement rather than get swayed by any market gimmicks. Pick a property that is according to the budget and in a preferred location.
  • Researching and reading well on the means of buying is equally essential. Researching is important because it will eventually lead one to his/her desired property, and while researching, consulting a broker, online or directly through the builder before finalising the purchase makes the deal even better.
  • Before shortlisting the property one wants to opt for, a thorough check on the builder’s track record/his credibility is also a must. It can be done through reviews on real estate portals or talking to friends and relatives who have invested before and via actual site visits.

Financial considerations while investing in property in India

  • If one is taking a loan, then one must get the loan eligibility checked from the respective bank even before searching for a property in India. This is important to get the required loan amount sanctioned. It will also ease the process of approval and will give the confidence about one’s worthiness in the market.
  • While investing in property in India, it is suggested to the investors that they get their credit report extracted from Credit Information Bureau (India) Ltd. It is a necessary procedure especially when one is applying for a home loan. A good CIBIL score helps in arranging for better interest rates for the loan sought. It would also help in saving other charges levied by the banks and even get a speedy sanction of the loan, saving a lot of hassles, paperwork and time.
  • Other than your eligibility for a loan, one must check for internal and external quality of construction of the Property, all legal paperwork from the builder and layout plan of the project. Carefully reading the Booking form and Sale Agreement before signing is a must as some of the clauses could be in favour of the builder.
  • Investment in property in India is unlike investing in share market or equities or mutual funds wherein one can spend a short time and accumulate profits. Investing in estate requires an investment of at least five years as the rates of property rise or drop due to the social, civic and road development in the neighbouring area factors.

Legal Considerations

  • Lastly consulting a lawyer or professional for the Agreement of a sale plays an important role. One must take help from a chartered accountant or lawyer.
  • Unless one is an expert, the nuances or clauses mentioned in the Sale Agreement might get missed. A lawyer or CA can explain the needs and importance of documents needed to cross check before closing the deal.
  • Legal intervention is thus necessary in case the other party is not abiding by the laws or trying to fool you.
  • A lawyer also helps the consumer understand the nitty and gritty of various terms and market concepts along with the risks.
  • Property investment in India is still an unorganised sector, and many consumers might be helped to a great extent if they do thorough research before buying a property.

How NRIs Affect The Economy

How NRIs Affect The Economy

NRIs, the global citizens of the modern world, do a substantial job in creating a robust and a proficient image of our Motherland in the countries that they reside. They contribute to our economy in various ways; they generate earnings estimated at about $250 Billion.  It is not only the quantum of money but rather the currency they brought in as. The remittances are in the form of dollars, substantially reducing any currency risks.

How NRIs help the economy?

A lesser known way how NRIs help the economy is found in the tourism sector. Plenty of them brings along with them their friends and colleagues residing overseas. They also pique people’s interest by reciting various age-old tales of our country.

Post the Liberalization policies that were introduced in the 1990s, a large number of NRIs invested in Indian economy having considered the potential for its growth. This has further helped the country to raise foreign currency funds and created various new opportunities for people living in the territory of India.

Investments by NRIs in India

RBI has directed numerous banks to engage NRI deposits and has provided many both long-term and short-term investment plan options for them. Other than this, they are even encouraged to establish some institutions in the country.

Several reports by the government also reveal that NRIs are one of the vital source of Direct Foreign Investment, Outsourcing (also referred to as market development), newer technologies flow into the nation, in addition to these, NRIs are also known to make political contributions and more substantial knowledge.

Guide for NRIs to Sell Inherited Property in India

succession certificate

STEP 1: TRANSFER TITLE OF THE PROPERTY

After inheriting the property from your ancestor, the first thing that you must do is transfer the title of the said property to your name. This can be done by the process called ‘mutation of revenue records’. For this you would need a copy of the will; in case there isn’t one, a Succession Certificate from a local court would work too.

STEP 2: GET THE REQUIRED DOCUMENTS IN ORDER

Here’s a list of all the documents that you would require:

  • Original Purchase Agreement, i.e. title document of the said property.
  • Original Share Certificate, in case of the unit in a co-operative society.
  • No objection certificate, issued by the said society.
  • Copy of approved plan and occupation certificate, which would be issued by the concerned authority, a municipal corporation.
  • Lawyer certificate, in case the seller does not possess the original documents stated above, a certificate from his lawyer proving that he is the rightful owner would be required.
  • PAN number, It is essential to apply for Tax Exemption Certificate under Section 197.

STEP 3: IDENTIFYING PREFERRED SALES METHOD

To carry out the transaction for the sale, the NRI can either hire a professional company or he can do it himself.  These companies provide end-to-end solutions including the identification of buyer, handling legal issues, due diligence and the tax issues. But, for these services that they provide, they charge a fee, which is a percentage of the sales’ consideration.

STEP 4: COMPLETING THE TRANSACTION

This can also be referred to as the actual process of the sale, and this can further be divided into the following steps:

  • Identifying the sale value, in case you have hired a firm, they would provide you with the complete data to determine the price such as the value of similar properties in the same locality. If you are doing the transfer on your own, you would require the similar data.
  • Managing structure of the transaction, unlike the prevalent practice of use of cash, something that the NRIs do not prefer using, one can easily sell the property without involving the cash component.
  • Issue an Admit Power of Attorney, an Admit PoA states that while the documents are executed by the owner, the PoA holder would merely represent him in the registration office.
  • Tax Issues, immovable property sold after 3 years of purchase is taxed at 20.6% in India. Further, in case of NRIs, it is imperative for the buyer to deduct tax at source, which presents another set of complications for the NRIs.