4 Reasons why NRIs should keep investing in real estate

The Indian real estate sector has remained a hot favourite of property investors from across the world. Being a basket of several options in terms of locations, Return on Investments and a propelling economy, India is a promising market for investors. Interestingly, the Non-resident Indians (NRIs) have taken a keen interest in the property market of India. Despite short term challenges due to Coronavirus, the investors are optimistic about the future investment scenario. Here are four reasons as to why the NRI investor must keep investing in Indian real estate.

Falling Rupee Value

The NRI community has a unique advantage of converting their hard-earned foreign income into lucrative investment options in India. With rupee value at an all-time low of Rs 75+ against a dollar, the investment in real estate has become more affordable and approachable. With the rupee value falling further, the purchasing power of the investors will rise manifold.

For example, a piece of land worth Rs 75 lakh would cost around 1 lakh dollars at present. However, at rupee value at Rs 65 against a dollar, the same cost would have been 1 lakh 15 thousand dollars. Moreover, in the case of heavy investments such as real estate, this margin can turn into huge savings for the NRI investors.

Booming Market

Against the backdrop of the Coronavirus challenge, the Indian economy faced severe challenges and economic hardships. However, the pandemic is over, and the Indian economy is resurgent. The pent-up demand has started to come to the fore, and the economy will grow leaps and bounds in the coming years.

This will appreciate the property prices, and the NRI investors can expect a handsome ‘Return on Investment’ on the invested money. New segments of investment such as fractional ownership of land, co-working spaces, commercial real estate, and warehousing present an excellent opportunity for the NRI real estate investors.

Reduced Interest in Other Instruments

Traditionally, the investor community from abroad used to prefer investment tools such as a Fixed Deposit (FD), Gold, and Equity market. However, these investments are subject to market volatility, and the money remains at the perpetual risk of loss. Moreover, the falling returns potential of Gold and Fixed deposits have discouraged expat investors. The interest rate in most of the Fixed Deposits remains at 4-5 percent, which is only comparable or equal to the inflation rate. This translates into poor returns.

The real estate sector, on the other hand, remains a lucrative investment option for the NRI community. An eventual boom in Tier II and Tier III cities is encouraging the NRI investors to invest in the real estate of these cities. As smaller cities will become the engines of growth, a promise of handsome returns over the long term keep the interest of investors intact.

Simplified Tax Regime

As India remains one of the foremost countries to receive foreign currency from abroad, a simplified taxation regime also encourages the NRIs to park their surplus money in India. The NRIs also get an indexation benefit for properties held in India. For example, immovable properties held for more than 24 months is treated as a long-term capital asset and obtain an indexation benefit with simplified taxation at 20%. The Income-tax Act of India also allows certain tax deductions under Sections 80C and 80TTA.

The simplified payment rule also encourages NRIs to keep investing in the Indian real estate market. While purchasing a property, the NRIs can transfer the money in the NRO account and pay the seller from this account. The NRI investor is also allowed to transfer the money directly to the sellers’ account while buying a property in India. With a defined documents checklist, NRIs can invest in the Indian real estate market in a hassle-free manner.

Conclusively, India is a resurgent economy, and the real estate sector is bound to flourish in the near future. The NRI community must keep investing to reap the benefits in the long term.

Authored by Mr. Suren Goel, Partner, RPS Group