An estimated 30 million NRIs living in 160 countries are looking at India for real estate investment opportunities. India has been consistently rising in terms of the quantum of expatriate US dollar remittance for years now from $55.6 billion in 2010-11, $66.1 billion in 2011-12, $67.6 billion in 2012-13 to $ 70.68 last year.
The Indian government recently approved a proposal allowing investments made by NRIs to be deemed as domestic investment on par with resident investments. Thus NRI investment norms have been considerably eased. We use the term NRI here to include OCI cardholders as well as PIO cardholders.
Due to the cascading impact of recession over the years, property prices have plateaued and are now stagnant in most cities in India. Home loan lending rates have been reduced with special rates for women home buyers. Above all, there is no differential pricing for projects whether sold in India or abroad.
A number of developers are undertaking luxury apartment projects and ultra luxury villa projects for globe-trotting Indians accustomed to enjoying the luxuries of life abroad. Such niche homes are marketed through exclusive road shows abroad.
For the average NRI looking to invest in apartments or row houses, the timing is appropriate as pre-launch offers are made by several property developers to minimize working capital needs. An NRI investor can look for a return of 20-25 per cent on his investment while investing in such projects which takes at least 18-24 months for implementation. For medium term investors investing in plotted development projects will get a compound growth rate of 25-30 per cent per year.
For those NRIs holding land parcels or inherited properties in cities, joint venture agreements with leading developers would enable them to convert their land into productive and income generating assets.
For those investors looking to invest in leased commercial property, availability of commercial property investment options is limited, particularly of smaller units and the investment cap for commercial properties varies from Rs 5 crore to Rs 10 crore ($770,000 to $1.5 million). The yield varies from 9 to 11 per cent depending on the building, developer, tenant, location, specification and amenities offered in the project.
Investment Norms Eased
The Reserve Bank of India (RBI) has considerably eased investment norms for NRIs/PIOs in real estate. They can buy, sell, gift and inherit immovable property. The prohibited categories of properties include agricultural land, plantation property and farmhouse. 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 $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.
In a further move to ease norms, the RBI has also clarified that income and sale proceeds of assets held abroad by NRIs need not be repatriated to India and can be retained and invested outside India.
On the taxation front, wealth-tax has been abolished. On 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 Rs 1 million in the year 1978 for Rs 4 million in 2012-13, the resulting capital gain is Rs 3 million liable for tax. The indexed cost price would be Rs 8.5 million leading to complete exemption from tax.
NRI investors are advised to follow ground realities while investing in real estate. Property management companies have entered metros to provide NRI 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 period of 30 years, planning permission and proof of documents to get basic amenities would minimize hassles.
V. Nagarajan is a property consultant and columnist on real estate investment, and represents a PE fund in India. He can be reached at +919176627139 or by email: email@example.com.