NRIs make up a significant share of investors in India’s property market across residential and commercial segments. Many NRIs invest in properties in India mainly because of favourable foreign investment policies, retirement needs and strong growth of the sector, which drives high demand and the potential for higher returns. Buying a property while residing abroad is not an easy task. It calls for proper due diligence. Here’s a guide for NRIs planning to purchase a property in India, with a focus on legal, financial and various aspects of the journey.
What attracts NRIs to the Indian real estate market?
The share of NRI investors in Indian real estate has nearly doubled over the past decade. NRIs’ growing interest is gradually shaping the property market today. Many NRIs prefer luxury homes, which has driven growth in the luxury segment across top markets such as Mumbai, Bangalore and Chennai. There are many factors influencing the growth of NRI investments in real estate. Firstly, the sector is seeing healthy growth, with the idea of home ownership fast gaining popularity. By purchasing a property, an NRI can look forward to high returns and rental yield, especially in a fast-developing location. Many NRIs look towards their home country to settle after retirement. The sector sees a growth in retirement homes and other housing options across cities.
See also: Dos and don’ts for NRIs investing in Indian realty
Important checks for NRIs
Due diligence
Every property buyer should prioritise due diligence. Legal checks, including title verification and a physical inspection, must be done. Hiring a lawyer can be especially helpful for NRIs.
Visit the property location
Conducting a physical check of the property is part of the due diligence process. Finalising a property only by looking at the photos can lead to unexpected results. Like all real estate investments, the location of the project should be attractive and offer good connectivity.
Track the market trends
Being aware of the market trends will put NRI buyers in a better position to negotiate real estate deals without relying on brokers or third parties. It will help them know about the current property rates and buyer sentiments, enabling them to make better decisions.
Assess property prices
Prices quoted by developers abroad are typically higher than those quoted to domestic buyers. Moreover, discounts may not be available. Hence, buyers should be financially prepared to deal with the purchase costs. Evaluating the payment plans and choosing what suits one’s budget is a smart move.
Engage Power of Attorney (POA)
Most NRIs get a representative to manage their real estate deals in their home country through Power of Attorney (POA). This is a legal and safe way to handle property transactions and prevent fraud and other property-related problems.
Stay cautious about Marketing
Many Indian developers conduct roadshows abroad. NRIs should not be entirely convinced by impressive presentations and glossy brochures. They should have someone trusted visit the property’s site and check the ground realities.
Opt for a home loan
It is good for NRIs to choose a home loan for buying a house, even if it is a small amount. It will reduce their financial burden by minimising the upfront costs. Not only that, it will save them from risks as banks conduct due diligence on their part. They will verify whether the developer owns the land on which the project is coming up and whether required approvals have been obtained.
ROI assessment
NRIs investing in residential real estate at this point in time should have reasonable return expectations over a long-term period. After all, it is an important aspect of real estate investment. Choosing an established or fast-growing location makes more sense, as property prices tend to appreciate. At the same time, the depreciation of the rupee against their home currency will also have a bearing on their returns.
See also: All about the legal documents required for purchase of property
Indian laws governing NRI transactions
NRIs investing in India must understand the laws that govern real estate transactions. There are, for instance, restrictions on how quickly the profit from a real estate transaction can be repatriated. NRIs also need to learn whether their gains will be subject to double taxation.
NRIs can purchase any number of properties in India, but there are restrictions on the type of property they can buy in India. According to the Foreign Exchange Management Act (FEMA), NRIs cannot buy agricultural land, plantation properties or farmhouses without prior approval from the Reserve Bank of India (RBI).
Moreover, funds from the purchase must be handled through proper channels like NRE/NRO accounts.
