CHENNAI: An estimated 30 million NRIs in 160 countries are looking at India for real estate investment opportunities. India has been consistently notching up the top slot in terms of quantum of expatriate remittance for years now, from US$55.6 billion in 2010-11, US$66.1 billion in 2011-12, US$67.6 billion in 2012-13 to US$ 70.38, US$72.2 billion in 2013-14 and US$69 billion in 2015.
A substantial portion of the remittance goes towards investment in real estate across India. This is because NRI investment norms have now been considerably eased. The government recently approved a proposal allowing investments made by NRIs to be deemed as domestic investments on par with resident investments. NRI includes OCI cardholders and PIO cardholders.
Due to the impact of recession over the years, property prices have plateaued and are now stagnant in most Indian cities. Home loan lending rates have been reduced with special rates for women buyers. Above all, there is no differential pricing for projects, whether sold in India or abroad.
NRIs holding land parcels or inherited property in cities can enter real estate development. Joint venture agreements with leading developers would enable them to convert their land into productive and income-generating assets. A number of developers are undertaking luxury apartment projects and ultra-luxury villa projects for globe-trotting Indians accustomed to the luxuries of life abroad. Such niche homes are marketed through exclusive road shows abroad.
For NRIs looking to invest in apartments or row houses, the timing is right as pre-launch offers are made by several property developers to minimise the working capital needs. An NRI investor can look for a return of 20-25% on his investment while investing in such projects, which takes at least 18-24 months for implementation. Medium-term investors in plotted development projects will get a compounded growth rate of 25-30% per year.
For NRIs looking to invest in leased commercial property, availability of commercial property investment options is limited, particularly in smaller units. The threshold limit for retail investors in commercial property varies from `5 crore to `10 crore (US$770,000 to US$1.5 million), though smaller investments are accepted by a few developers. The yield varies from 9-11% depending on the building, developer, tenant, location, specification and amenities offered.
Investment Norms Eased
The Reserve Bank of India has considerably eased investment norms by NRIs/PIOs who want to invest in real estate. They can buy, sell, gift and inherit immovable property. However, the prohibited categories include agricultural land, plantation property and farmhouses. In the event of sale of immovable property, the authorised dealer may allow repatriation of sale proceeds upto two residential units.
An NRI/PIO may remit an amount, not exceeding US $1 million per financial year out of the balances held in NRO accounts. However, the repatriation is subject to production of documentary evidence in support of acquisition, inheritance or legacy of assets and payment of applicable taxes in India.
Residents can now remit home loan EMI for NRIs.
On the taxation front, wealth-tax has been abolished. On the capital gains received while selling immovable property, the cost inflation index will enable NRIs to minimize tax liability. For instance, if an NRI sells a plot of land bought at `1 million in 1978 at `4 million in 2012-13, resulting in a capital gain of `3 million liable for tax, the indexed cost price would be `8.5 million, leading to complete exemption from tax.
NRI investors are advised to follow the ground realities while investing in real estate. Property management companies have entered metros to provide a wide range of services. Even leading developers extend similar services as they are keen to tap the vast Indian diaspora market. Verification of title deeds, revenue documents, encumbrance certificate for a minimum of 30 years, planning permission and proof of documents to get basic amenities would enable them to minimise hassles while investing in real estate.
(The author is a property consultant in Chennai.)