Guide to NRI Buying Property in India
It is predicted that India's real estate sector will be worth $ 180 billion by 2020. By 2025, it is expected to evolve into a $ 650 billion industry. This will also mean that the contribution of real estate sector to the GDP will double from 7% to 13%. The Indian government's initiative to provide Housing for all by 2022 is also offering a fillip to this sector. Due to all these factors, in spite of issues such as regulatory overhauls and liquidity crunches, Indian real estate is an important investing destination for most NRIs.
An Indian national who has been away from India for more than 180 days in a year is considered to be an NRI as per the Indian government. The total NRI population is estimated to be 2.84 crore. Out of these, a little less than ten percent – 2.36 lakh are dollar millionaires. The average wealth held by a millionaire NRI is around $ 3.83 million.
1,33,564 of these millionaires who comprise a whopping 56.5 percent of worldwide NRI millionaires are based out of the US. 12.7 percent of NRI millionaires are settled in the UK and the remaining, who make up a substantial share, are spread across countries such as the UAE, Canada, Singapore, Hong Kong, Indonesia and Japan. By 2019, the total wealth of this NRI has been expected to touch $ 1.4 trillion. To put this in perspective, as of 2018, India’s GDP was around US $ 2.72 trillion. If NRIs wish to transact in India, they are required to open an NRE account, like HDFC Bank NRE Savings Account.
Presently, India's real estate market comprises residential, commercial, retail and hospitality sub categories. Real estate has always been a preferred investment destination for NRIs. Traditionally, sales propelled by NRIs have contributed around 8% to 10% of annual property sales in India. During the first eight months of FY 2018-19 itself, the total value of investments by NRIs had exceeded $ 10 billion.
Let us evaluate six important factors that have facilitated NRI investments in India’s real estate sector
The Real Estate Regulation and Development Act, 2016 (RERA) has played an important role in encouraging NRIs to invest in India. RERA has offered clarity in regulations as well as a stable pricing environment.
Thanks to RERA, developers are thoroughly responsible for completing a project on time. This will ensure a less-stress experience for NRIs. Developers will have to keep authorities updated about project status
Mismanagement of funds has been eliminated
Funds received from prospective buyers have to be deposited in an escrow account which prevents mismanagement.
Developers will have to keep buyers informed about every detail regarding the project. Hence there is higher transparency for NRIs planning to purchase the project.
Clarity in the carpet area
Before the introduction of RERA, the super built-up area used to be pitched to buyers. This would include certain unnecessary elements which would lead to buyers getting a smaller area than expected. With the advent of RERA, carpet area is being pitched to prospective buyers which enables the latter to get clarity about the size of the property.
Repercussions for delays
If NRIs face delays, builders will be held responsible for paying the interest amount due until delivery of the project.
Presence of a robust regulator
Thanks to the presence of a regulator, NRIs can file complaints regarding any instance of fraud or delay committed by the developer.
Favourable currency exchange rate
From Rs 65 during the beginning of October 2017, the rupee depreciated by 14% to reach Rs 74 by the end of 2018. This has not only enabled NRIs to spend more but has also made residential properties in India cheaper for them. The rupee has not only depreciated against the dollar but also the pound and UAE dirham. Leading property analysts admit that this had led to an increase of around 15% in enquiries and transactions by NRIs.
Emotional connect to home towns
More than 75% of NRIs prefer to invest in their hometowns. NRIs are not limiting their options to metros. Destinations such as Kochi, Coimbatore, Ahmedabad, Hyderabad, Trivandrum, Chandigarh and Pune have also become popular. Even smaller cities such as Vadodara, Nashik, Noida and Ghaziabad are emerging as preferred destinations for NRIs to invest.
By investing here, NRIs can also expect to earn favourable rental income as rental yields in non-Metros can be higher than the rental yields in metros.
NRIs are also keen on getting back to their hometowns once their children start growing up so that the latter can imbibe Indian traditions and values. Certain NRIs miss the Indian way of life and their families and friends, which cause them to return after living abroad for a few years.
According to a survey, nearly two-thirds of the respondents made it clear that they would want to settle in India after retirement. To cater to this audience, senior living is another prominent factor that has manifested. The same survey reveals that close to 90% of NRIs are ready to invest in senior housing.
Uncertainty in residency regulations
Visa regulations are becoming tighter in countries like the US, UK and Australia. Due to stringent processing, unprecedented scrutiny and zero tolerance for minor errors, it has become excruciatingly tough for highly-skilled workers, especially from the technology domain, to settle down in foreign countries.
Hence NRIs are keen on creating a back-up plan to settle down in India in case visa regulations continue to remain stringent.
Builders are constructing projects, especially for NRIs. The building material used is of high quality. Superior quality tiles and fixtures are used in the apartments. These projects contain all types of modern amenities such as fast moving passenger elevators, state of the art Olympic-sized swimming pools, fantastic club houses etc. Online real estate aggregator platforms are also offering online 3-D views of the project as well as assist with handholding to invest in properties. PAN card generation, repatriation issues and PIO cards are facilitated by these platforms. Banks such as HDFC Bank are offering specialized services for NRIs such as NRI Home Loan which makes it a breeze to acquire a Home Loan.
As India blazes along to become the fifth largest economy in the world in 2019, NRIs can be expected to bump up their investments in residential real estate to get a piece of this action.
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* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.