The Indian real estate industry has grown significantly over the past 10 years, and Non-Resident Indians (NRIs) have contributed significantly to this boom. Due to hybrid work arrangements, a desire to return to their own country, and a desire for a higher standard of living NRIs are more likely to buy a home in India.
Guide to NRI buying property in India!
India’s real estate market is expected to be valued $ 180 billion by 2020. It is anticipated to grow into a $650 billion business by 2025. Additionally, this will result in a doubling of the real estate sector’s GDP contribution from 7% to 13%.
This sector is also receiving a boost from the Indian government’s commitment to provide housing for all by 2022. Due to all of these aspects, and despite problems like regulatory changes and liquidity challenges, the majority of NRIs choose to invest in Indian real estate.
The Indian government defines an Indian national who has spent more than 180 days outside of India in a year as an NRI. 2.84 crore people are thought to be NRIs in total. 2.36 lakh of them, or just under 10 percent, are wealthy taxpayers. An NRI millionaire typically has fortune of $3,83,000,000.
India’s real estate industry currently includes subdivisions under the residential, commercial, retail, and hotel categories. For NRIs, real estate has traditionally been a top investment choice. NRI-driven transactions have historically made up 8% to 10% of total annual real estate sales in India.
The overall value of NRI investments during the first eight months of the fiscal year 2018–19 was more than $10 billion.
What Are the Most Important Real Estate Investing Factors ?
What in real estate should you pay the most attention to? There are many additional elements that influence whether an investment is good for you, however location is always a crucial consideration. If you want to invest in the real estate market, have a look at some of the most crucial factors.
1. Property Location and Why It Matters ?
The maxim “location, location, location” is still true and is still the most crucial element in real estate investing success. Residential property assessments heavily consider the status of the neighbourhood, green space, scenic vistas, and proximity to amenities. When valuing commercial real estate, accessibility to markets, warehouses, transportation hubs, motorways, and tax-exempt regions is crucial.
What to Check Out :
The medium- to long-term outlook for how the neighbourhood is anticipated to change over the investment period is crucial when determining where to locate a property. For instance, the quiet open space behind a house now might one day be transformed into a busy manufacturing plant, lowering its value. Examine the ownership and intended use of the immediate locations where you propose to make your investment in great detail.
2. Assessing the Property's Value, and what is the significance of it ?
The listing price, investment analysis, insurance, and taxation are all dependent on real estate valuation, which is crucial for financing the acquisition.
What to Check Out :
Typical techniques for real estate valuation include:
- Sales comparison methodology: Most popular and appropriate for both new and old homes, recent comparable sales of properties with similar qualities
- Suitable for new construction, the cost approach uses the cost of the land and the building less depreciation.
- Based on anticipated financial inflows, the income method is appropriate for rentals.
3. Investment Objectives and Horizon Why does it matter ?
Lack of clarity regarding aim may result in unanticipated outcomes, including financial distress—especially if the investment is mortgaged—given the low liquidity and high value of real estate.
What to Check Out :
Determine which of the major categories listed below best fits your objectives, and then make plans in that direction:
- Buy and use yourself. You can profit from self-utilization, rent savings, and value appreciation in this location.
- Buy and rent. This provides consistent income and long-term value growth. To manage renters, do repairs, handle potential conflicts and legal concerns, etc., a landlord must have the right temperament.
- (Short-term) Buy and sell. Typically, this is done for small to medium-sized rapid profits; the typical property is under construction.
4. Revenue Opportunities and Projected Cash Flows and its significance :
How much money remains after expenses is referred to as cash flow. The key to a high rate of return on an investment property is a positive cash flow.
What to Check Out :
Create predictions for the following types of revenue and costs:
- Cash flow from rentals anticipated (rental revenue is favored by inflation for landlords)
- A rise in intrinsic value is anticipated as a result of sustained price growth.
- Benefits of depreciation (and potential tax advantages)
- Before selling, do a cost-benefit analysis. This can help you receive a better price.
5. Using Leverage Carefully: Why It's Important ?
Loans are practical, but they could have a high cost. To obtain a utility today at a cost of interest spread over many years, you pledge your future income. Don’t take on too much debt or what’s known as over-leverage; instead, make sure you know how to manage debts of this kind. Even real estate specialists face difficulties from overleveraging when the market is unfavorable, and real estate ventures might fail due to a lack of cash and hefty debt commitments.
What to Check Out :
Take into account the following, depending on your present and anticipated future earnings:
Choose the mortgage product that best suits your needs: a fixed-rate, an adjustable-rate mortgage (ARM), an interest-only mortgage, a mortgage with no down payment, etc. Keep in mind that every mortgage type has a different risk profile, so you should carefully research them all.
For instance, ARM mortgage rates are subject to change at any time as a result of events in the capital markets, and any rate adjustments that occur throughout the loan term must be accepted by the borrower.
Know the terms, conditions, and additional fees the mortgage lender may impose.
Look around to locate a better deal with cheaper interest rates.
6. Existing Property vs. New construction and significance of it :
New construction typically has affordable prices, customization options, and contemporary conveniences. Risks include unforeseen issues in a freshly constructed neighborhood, delays, and higher expenditures.
Existing homes provide affordability, ease of access, established improvements (utilities, landscaping, etc.), and convenience.
What to Check Out :
The following are some important factors to consider while choosing between a new building and an old property:
- For new investments, look over previous projects and investigate the construction company’s reputation.
- Examine the deeds to the property, latest surveys, and appraisal reports for existing properties.
- Take into account taxes, unpaid dues, and monthly maintenance charges. Costs like these can negatively affect your cash flow.
- Find out if the property is rent-controlled before investing in leased property.
7. Why Indirect Real Estate Investments Are Important :
It’s not for everyone to manage physical properties over an extended period of time. There are alternatives that let you make indirect real estate investments.
What to Check Out :
Think about more real estate investment options:
- REITs are trusts that invest in real estate.
- Stocks of real estate companies
- Mutual funds and ETFs with a real estate industry concentration
- Mortgage-backed securities
- Securities backed by mortgages (MBS)
NRI Real Estate Investment Regulations in India
The NRI Community is one of the wealthiest expat communities in the world. All across the world, NRIs are common, and they have also managed to amass a sizable percentage of the wealth.
These NRIs may be well-established abroad and may be making large sums of money, but at the end of the day, the majority of these NRIs desire to return to India because they still have a deep-seated affection for their homeland. NRI investment in India has also begun to rise as a result of the greater returns that Indian real estate offers compared to those of Western nations.
Additionally, since more NRIs desire to relocate to India in the future, NRI investment in Indian real estate is at record highs as it not only provides a solid return on investment but also provides a safety net for their relocation.
How Can NRIs Make Real Estate Investments in India ?
The Reserve Bank of India previously placed restrictions on NRI real estate investments, necessitating RBI and the Foreign Investment Paper Board (FIPB) permission. With the advent of the automatic route, this has been fully eliminated. The automated approach has eliminated the need for government approval for NRI real estate investments in India.
Real estate transactions involving non-resident Indians are handled in the same way as those involving resident Indians. However, they are only able to buy houses or businesses. Plantations, farm houses, and other such properties cannot be purchased without the Reserve Bank of India’s prior consent.
Even if NRI real estate investment is prohibited in these buildings, it is not subject to any limitations or permissions when passed down through inheritance.
Things that NRIs should consider before investing in Indian real estate :
Given that you now understand how similar the NRI investment process in Indian real estate is to that of a regular resident Indian, let’s look at some considerations you should make as an NRI.
1. Sufficient diligence :
You might not be entirely aware of the calibre or reputation of the builders because you don’t live in India. Therefore, conducting thorough due research on the properties you’re considering to buy is crucial. A thorough due diligence investigation can not only reveal any inconsistencies or poor management, but it can also guide your decision-making.
2. Grant a power of attorney :
You might have to travel to India several times during the NRI real estate investment process. Having said that, going back and forth several times might not always be practical or viable. What do you do in these circumstances, then? A Power of Attorney (PoA) can be useful in this situation. A Power of Attorney is a legal document that authorises another person to act on your behalf in certain situations.
You could grant a Power of Attorney to someone else to complete the registration process and other legal formalities on your behalf if you are unable to make several journeys to India. A PoA is a strong legal document, thus bear in mind that it can be abused. Therefore, only grant a Power of Attorney to someone you have complete faith in.
3. Benefit from home loans :
You don’t always have to use your own money to invest in real estate if you’re an NRI. Attractive interest rates are currently being offered on house loans by numerous banks and financial organisations to NRIs. The paperwork may be a little more time-consuming than usual, but that is the only negative.
In order to provide housing loans to NRIs wishing to purchase property in India, the Reserve Bank of India has started approving banks and housing finance organizations that are currently registered with the National Housing Bank.
Investing in commercial and residential real estate is a terrific method to diversify your portfolio of investments and may result in long-term returns. Individual investors, however, could find it challenging to control the investment process and select the appropriate assets. In order to invest in NRI real estate in India, where or with whom should they start?
We “ Silverdome Realtors “ can help with that. Beautiful homes and commercial sets up in India’s main cities are available through the innovative real estate investment portal of “Silverdome realtors”. It also supports NRI real estate investment in India. With a concentration on commercial properties, we offer a hassle-free real estate investment experience for people wishing to invest.
The platform reduces the risk associated with real estate investments by providing investors with access to carefully chosen assets in prime locations and offers investors the information they need to make informed investment decisions.
1. Who are People of Indian Origin, or PIOs?
According to the Indian Passport Act of 1955 (57 of 1955), a person of Indian origin (PIO) is a person who has never held an Indian passport and who is not a resident of Pakistan, Afghanistan, Bangladesh, Iran, Sri Lanka, Nepal, China, or Bhutan.
A spouse of an Indian resident or a person of Indian heritage who is not a citizen of Pakistan or Bangladesh is also referred to as a PIO.
2. In India, who is eligible to purchase real estate?
According to Reserve Bank of India (RBI) rules, an NRI is permitted to purchase any property in India. If the person held an Indian passport, any Person of Indian Origin (PIO), who is not a citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Nepal, Iran, or Bhutan, might buy real estate in India.
3. Is there a limit on how many houses NRIs can buy?
An NRI/PIO may buy up to two residential properties in India. This is due to the fact that if an NRI buys two residences, more than two residential properties may not be purchased with funds repatriated from an NRE account. The person must maintain the money in the bank or even in India for 10 years if it comes from a rupee account.
4. What benefits can non-resident Indians expect if they invest in India?
The following are the top three reasons NRIs thought to think about making an investment in Indian real estate:
NRIs can invest in as many residential and commercial properties in India as they want and earn rental income from them because there is no cap on the number of properties that may be bought.
With only a modest initial investment, many investments offer significant returns.
The benefit of requesting tax deductions on revenue from Indian real estate investments is another advantage.
5. How do NRIs keep track of their investments?
In the Indian market, real estate project completion delays have long been a source of worry because they might keep one’s money stranded for years. But now that RERA is in effect, real estate developers must put 70% of the capital funds raised for a project into an escrow account, which is then released as the project moves forward.
The transparency of the money used is one of the most crucial factors in building trust in NRI investing options in India.