Right time for NRIs to buy residential or commercial property in India

After the recent regulatory changes, the interest of non-resident Indians (NRIs) in the real estate market in India has revived. They typically visit the country around this time of the year. Inquiries from them are on the rise, say property brokers.  

On his recent visit to India, US-based Pankaj Kalra noticed a significant change when dealing with developers. “After demonetisation and introduction of goods and services tax (GST), developers now prefer transactions through banking channels, instead of cash. Many projects are offering subvention schemes with upfront payment of only 5-10 per cent, compared to 20-25 per cent last year. But, what got me interested in buying a property was the Real Estate (Regulation and Development) Act (Rera), which takes care of the biggest concerns,” says Kalra.

The case for buying: With real estate prices at multi-year lows in most markets and developers offering attractive schemes, property consultants say NRIs stand to gain if they buy in December or January. “To generate cash flows, developers are focusing on completing their existing projects and delivering. Prices may start rising in another four-six months, once developers have exhausted their current inventory,” says A S Sivaramakrishnan, head–residential services (India), CBRE South Asia.

Despite the slowdown, experts feel there is a good case for investing in Indian real estate, since it is a growing market, with sound long-term prospects. Historically, the price escalation of real estate in India has been much higher than in most other countries. The market may have slowed in the past few years but the long-term appreciation that NRIs can get in India is likely to be much higher than what they can get in the country they live in.

Slowdown in the real estate market is not over yet. Property consultants say it will take another four-six months. If NRIs invest now, they will have to wait out the period of slowdown. However, the attractiveness of investing in a slow market is that you can get good valuations. “Along with the deals on offer, developers are also willing to be flexible,” says Mona Jalota, director–international and NRI, residential services, Colliers International India.

Counter currency risk with long horizon: NRIs have to contend with currency risk when they invest in India. At the time of investment, a strong rupee can raise the cost of purchase. At the time of exit, a sharp decline in the value of the rupee could impact the return on their investments. “We tell NRI buyers not to time the market either based on currency movements or property prices. If they try to time it, they can never get it right. If they remain invested for the long term, the currency impact is not likely to be much compared to the appreciation,” says Piyush Bothra, chief financial officer, Square Yards.

Choose the right location: If you are investing for returns, choose a location where economic growth and job creation are likely to be high or where infrastructure projects are underway that will result in a drastic improvement in connectivity, suggests Jalota. She cites the example of the Eastern Freeway in Mumbai. After its construction, property prices in Wadala shot up. In Bengaluru, brokers are recommending areas where industrial corridors are coming up.

Affordable housing segment is attractive: This is the segment of a residential real estate where the level of activity is the highest. Owing to high demand, affordable housing is expected to do very well over the next few years, given the impetus provided by the government through various incentives and subvention schemes, according to Rajeeb Dash, head, Tata Housing Development Company. “The segment will spur growth in the overall sector and will provide better returns on investments,” says Dash. But, look within city limits. Projects situated on a city’s periphery might lack infrastructure, and the quality of construction may also not be high grade. 

Commercial properties offer higher rental yield: Many NRIs have started investing in the commercial real estate, owing to the higher rental yield (annual return on the investment). Brokers say the average annual rental yield for residential property is around 1.5 per cent, while one could expect seven-eight per cent from commercial property. Absorption of the commercial real estate has been healthy over the past two years. NRIs investing in the country purely for investment may, therefore, consider commercial properties.

To diversify the portfolio, NRI investors can also look at fractional ownership of commercial property. There are websites like propertyshare.in, which cater exclusively to fractional ownership.

Opt for properties registered with the regulator: Not all states have implemented Rera. Choose only those projects registered with the real estate regulator, as it ensures the developer delivers exactly what he promised, and on time. If you are in a state that has not implemented Rera and still want to buy a property, go for ready-to-move-in projects. Even the best brands in the industry have faltered due to the slowdown. You might risk project delays if you buy an under-construction flat in a state that has not implemented Rera.

Many NRIs shortlist properties by researching on the internet. “Don’t go just by the information on websites and brochures of developers. When visiting India, go to the site and see the construction activity. Study the pace of construction for at least 10-14 days,” says Sivaramakrishnan.

NRIs should preferably invest in a city with which they have some connection. They should have relatives or friends living nearby, who can manage and keep a watch on the property on their behalf. If they invest in a city where they don’t know anybody, even carrying out minor repairs or paintwork could become an ordeal and they could be overcharged.

Regulations NRIs must follow
  • NRIs are allowed to invest in residential or commercial property
  • They are not allowed to invest in agricultural land, farmhouse, or plantation property, though they can inherit such property
  • NRIs can sell a residential or commercial property to an NRI, PIO or resident Indian
  • If an NRI has to repatriate money, he should do so via the same route through which he got the money into India, after payment of taxes 
  • For property purchased using local funds, the money from the sale goes into an NRO account. The same holds for rental income 
  • NRIs can repatriate a maximum of $1 million each financial year from the NRO account
  • Proceeds of only two residential properties can be repatriated