The Changing NRI Real Estate Investor Landscape.
When it comes to Indian real estate, the topic of NRI investments is pretty much an evergreen one. The fact that Indian developers had, in the past, launched and marketed projects with an almost exclusive eye on NRI customers is certainly no secret. There were many reasons for this, but the primary one was that NRIs – especially NRIs based in the Gulf and the US – were seen as cash cows with more money than sense.
Time has proved this theory erroneous. NRIs are among the savviest property investors on the Indian market today. This is amply demonstrated by how adroitly they have gauged the new investment trends on the Indian real estate market. For a long time, the returns on investments that NRIs could get on residential assets were extremely rewarding, considering the significant capital appreciation whilst the rental yields have always been low.
However, during the last couple of years, the market slowdown resulted in capital appreciation on residential assets no longer being as per NRI investors’ expectations. In the current market conditions, NRIs are now showing a greater preference for investing in Indian commercial properties, which offer good rental yields as well as capital appreciation. This is because there is a continuous rise in demand for commercial spaces in the wake of large-scale requirements and the probability of REITs formation, especially for Grade A offices, IT parks and logistics centres.
The Preferred Cities for Commercial Property Investment by NRIs
Mumbai, NCR, Bangalore, Hyderabad, Chennai and Pune are currently the hottest cities for investments into Grade A offices, co-working office spaces and IT parks. The business being generated in these cities induces a constant upward trajectory on the demand for quality office spaces, while supply is not keeping up with this demand. That means that all available high-quality offices spaces are assured of tenancy.
Meanwhile, the strong start-up culture now unleashing in India is driving up the demand for shared office spaces, also known as co-working spaces. Such spaces are snapped up by start-ups which cannot afford the high cost of conventional high-quality office real estate.
Of course, it is only the more experienced NRIs who have been able to gauge the Indian real estate market. Every year gives rise to new NRIs who still need some basic guidance on what they can or cannot do in Indian real estate. NRIs with a valid Indian passport can invest in the Indian realty market, though there are a few pre-conditions:
• Citizenship: NRIs with a valid Indian passport need no prior approval unless they are citizens of a few neighbouring countries – specifically Pakistan, Bangladesh, Sri Lanka, Iran, Nepal, Bhutan, Afghanistan and China.
• Property Type: They as can buy as many properties (residential or commercial) as they want but are not allowed to buy agricultural land, plantation properties and farmhouses. However, such properties can be gifted to or inherited by NRIs.
• Transactions: Transactions must be done in Indian rupee (INR) through regular banking channels via an existing NRI account.
Just like Indian citizens, NRIs are also eligible to avail of loans to purchase a property in India. The maximum loan amount is generally 80% of the property value. The RBI does not have any rule for immovable property which is inherited or gifted. NRIs can lease or rent such properties without any restrictions.
Legal aspects for NRIs to keep in mind when investing in Indian real estate:
• Hire a reputed lawyer to vet property documents
• Verify the original title deed documents; ensure that the property title is in the name of the seller
• Do a thorough check to ensure that the seller has cleared all the dues related to the property
• Verify that the seller has not diluted the right to transfer the property to a buyer
• Ensure that the property is not built on agricultural land without requisite government permissions. An NRI may get into legal problems in such transactions.
• In case of under-construction property, an NRI has to give a power of attorney to the developer or a trusted associate.