Fillip to NRI investment in the country

In an elaborate interaction with Realty Plus,Ram Chandnani, Head, Advisory and Transaction Services, CBRE, revealed that for the longest time, NRIs have preferred investing in the residential real estate segment due to good return on investment owing to significant capital appreciation and low rental yields. Thanks to the eased regulatory environment and clearer and transparent policies, the Indian Real Estate Segment is witnessing an increased interest from NRIs with regards to investing in both residential and commercial real estate properties.   Since the commercial real estate segment has been on an upswing over the past couple of years, it has emerged as an attractive investment class for domestic as well as NRI investors. On the other hand, the residential segment has been reeling under inventory pressures and RERA implementation challenges and hence is lower on the investor radar.

1. How opening of FDI & REITs will impact NRI investment in the country?

The opening of various sectors to FDI investment as well the provision of REITs will give a fillip to NRI investment in the country. The FDI reforms will facilitate foreign investment into technology, defence, aviation, food processing and the retail sector. It will alsobe a boon for the realty sector especially office, retail, logistics and warehousing among others. If implemented correctly, both FDI reforms and REIT norms have the potential to boost consumer and investor sentiment.

2. Which are the key regional markets for NRI investments?

As per the most recent trends in this space, cities such as Kochi and Coimbatore, Ahmedabad, Vadodara, Pune, Nashik, Noida and Ghaziabad remain bolstered by NRI investments. Besides offering properties in both affordable and premium luxury segments, various government regulations including RERA, have boosted NRI’s trust in the Indian realty sector.  

3. Which asset classes are most favorable among NRI investors?

Shares have emerged as the most preferred asset class among NRI investors. This trendcan be attributed largely to rupee depreciation and a dull performance of other asset classes such as equities or bonds. In fact, NRIs have emerged as net buyers of Indian shares at ?78.50 crore in May 2018, which is the highest since June 2013. Surprisingly, this comes at a time when foreign investors have been selling Indian shares in huge quantum.  

4. How government policies, rules and regulations have changed to enable foreign investments in Indian real estate?

A slew of reforms undertaken by government such as RERA, GST have made processes much more     transparent, time-bound and increased accountability. As the sector becomes more streamlined on the back of GST and RERA, the investor and consumer sentiment has been positive and should further boost the ecosystem in future. The resultant mechanism has infused confidence among buyers and investors alike. Overall, this is a good time to invest in the real estate sector and overall investments are expected to cross $10 billion-dollar mark by 2020.  

5. The tax implications and other financial considerations

The Indian government has simplified real estate regulations to facilitate NRI investment. However, NRIs must have a sound understanding of the Indian financial landscape if theyareplanning toinvest in India. Anyone with an Indian passport does not require any prior permission to make an investment in India. Also, there is no restriction on the number of commercial or residential properties one can purchase in India except agricultural land, a plantation or a farmhouse. Additionally, an NRI is entitled to various tax benefits such as a deduction of INR 1 lakh under Section 80C under the Income Tax Act, 1961. If he sells his property within three years of purchase, the earnings through sale is entirely taxable. If he sells his property after three years of purchase, he can recue capital gains tax by investing in another property. The Confederation of Real Estate Developers Association of India (CREDAI) regularly organizes property exhibitions for NRIs to help them scan different investment options and avail spot loans from top banks.  

6. What are the main challenges that are faced by the NRI investors, while purchasing the property in India and what are the remedial measures for the same?

International markets are mostly regulated with minimal risk of default or delayed projects. However,in theIndian scenario, foreign exchange fluctuations, high maintenance costs of property and tax implications remain key challenges for NRIs. Also, there is a lack of clarity on legal rights of NRI homebuyers, and illegal possession of property or gatecrashing is common. To avert such a situation, investors should deal with certified real estate brokers only and should get into legal agreement with the real estate broker or with the local relative before allowing them to use their property.