NRIs Investment in Property Appreciates as Rupee Depreciates

Residential market will remain cautious over short-term: Ravi Saund
Source: IRIS (12-JAN-12)

In an exclusive interview with, Ravi Saund , chief operating officer, CHD Developers, says “Real estate segment has become a lucrative investment option for NRIs.“

While the real estate prices in the world are sinking, the real estate investment in India is ringing. What factors NRIs should consider before investing in Indian real estate?

With the depreciating rupee, the Indian Real estate segment has become a lucrative investment option for NRI`s.  There are several key aspects that a buyer should consider while making his investment decision. These aspects fundamentally remain the same for both residential and commercial projects. If the project has to be evaluated for investment I would lay down dimensions on which a buyer should think.

While the sector has matured from what it was say 10 to 15 years ago, property investors need to be watchful about fly-by-night operators and even the more established players who are unable to fulfill their commitments to the buyers.

Taking keen interest in knowing the legal background of the developer will help the buyer ensure that the developer has not been in any legal hassles. Of prime importance is the location of the project. The real estate development in the surrounding areas and the accessibility of the project to important centers in the city is something NRI`s should consider before planning to invest. Return on investment is another important factor. Cities like Mumbai, Delhi, Bangalore, Gurgaon, Noida and Pune are the most favored investment options among NRI`s as they have witnessed a considerable realty price hike over the past few years and ensure good rental income as well. Barring the likely correction of 10-15% in a few of these cities, this trend is likely to continue.

Before investing, NRI`s should also consider the credibility of the developer. A careful study of the track record of time taken to complete projects, legal documentation, quality of the work of the developer, land title documents, amenities being offered, financial leverage, delivery versus commitment, internal and external focus, etc should be carefully studied.

NRIs focusing on Delhi-NCR market for real estate investment. Please comment.

Factors like commercial prominence, proximity to Delhi, increased net profitability, good connectivity and  ROI are some of the main reasons for NRI`s favoring investment in the Delhi-NCR region. In the last couple of years Gurgaon has witnessed tremendous growth in terms of appreciating real estate value. The NH8 expressway, recent metro rail link and the upcoming Dwarka expressway or National Periphery road (NPR) have impacted areas that otherwise remained unconnected earlier in a big way, adding to the already booming real estate development in this sector. The growth of commercial sectors in areas near Gurgaon has also given a boost to development of the real estate properties thus adding to increased NRI investments in this sector.  Since August 2011, the rupee has depreciated 25% against the dollar, 15% against the euro, 10% against the Singapore dollar and more than 15% against the  UK pound. So, NRIs from all over the world are showing a lot of interest in properties in Delhi, Gurgaon, Noida and Greater Noida. The NRI investment in this region has cumulatively increased by 40% in 2011 especially since August 2011 as compared to the same period last year. The steady growth in the mid and affordable housing segment will further increase NRI  investment in 2012.

What is subvention scheme and why did CHD Developers choose to offer a subvention scheme for Avenue 71?

The act or process of providing aid or help of any sort is termed as subvention. In real estate industry, the developers have taken a step to grant a financial aid to the interested customers. We have collaborated with HDFC bank in order to offer Subvention scheme, where the customers will just have to pay 15% of the property cost during the purchase. Till 21 months, the customers can enjoy 0% interest as the bank will pay the EMI on behalf of the customer. Only after the completion of 21 months, the customers are entitled to pay the EMI. We would like our customers to enjoy this win-win situation while investing their money in CHD Avenue 71.

The realty market experts have been opining that Realty Properties in Delhi and NCR are in over bought condition. If yes, why is the realty price not decreasing?

I tend to disagree.  Supply is far less than the total theoretical demand. Basic indicator of overbought condition is apartments/ houses remain unoccupied. If you do a general survey of the NCR market, you`d realize majority of the dwelling units are occupied by the property owners or rented out.

The proposed government regulation bill and its impact on Indian real estate market?

The proposed government regulation bill will boost transparency in the Indian real estate sector by standardizing practices & streamlining Government procedure systems. This will help bring about a greater level of trust between buyers & sellers, landowners & developers and also developers & financial institutions that fund them. It will be a big step in recognizing the Indian real estate as an industry, since it means that the real estate sector is perceived to have attained a certain degree of scale which warrants a regulatory agency with transparent rules, regulations, safeguards & redressal systems.

Depreciation in rupee has resulted in price rise of import, especially of iron. How much it is going to affect the realty market since further rise in property price would force the buyer to postpone their dream home plans?

Though the cost inputs into building projects have increased, there is still a captive market for iron in the country which is enough to sustain us for the next fiscal so we don`t foresee any drastic or immediate change in the demand for property in the near future.

Key real estate trends in 2011 and forecast for the Delhi-NCR market for the year 2012.

A few key trends that affected the real estate segment are:

Liquidity concerns: During 2011,limited access to funds, increasing cost of debt and high construction costs remained a concern for developers. Decrease in gross bank lending (RBI data shows, gross bank lending to real estate sector has grown by 11.6%, compared to 15.7%during the corresponding period last year) and comparatively lesser influx of FDI due to a weak Europe market led to a liquidity crunch for developers in 2011.

Regulatory changes: The sector saw many events which had both political and social impact for the nation. The Noida Land Acquisition problem, demand for separate state for Telangana in Andhra Pradesh, land scams like Adarsh Co-operative Housing Society, LIC Land scam have been events which will mark the start of fresh reforms in the sector.

Not all was gloomy in the real estate segment. Commercial sector grew healthier and stronger in 2011. Retailers continued to expand their footprints. NCR showed highest absorption rate.  Mid-income and budget housing segment saw maximum launches and were a success all through.

In the year 2012, the residential market will remain cautious over the short term because of global uncertainty, inflation. A welcome signal is that now there is little chance of further interest rate hikes by the RBI in the first quarter of 2012. The borrowers are not likely to postpone their buying decisions. The possible slowdown in India`s GDP growth rate act as a dampener. But relative to other countries still this will look decent. Still investors will shake off their hesitation when the Indian stock market again becomes a favoured investment destination.

There might be a fall in the sales as we assume that the ratio of sales over the inventory would not be proportional.  The construction activities will temporarily slowdown. Hence, there will not be much new project launches in the premium category. However, the mid-segment and affordable-segment are likely to grow. In order to benefit in the long run, developers would have to concentrate on timely execution of projects.


Rupee dip raises NRIs' hopes for India home

A weakening rupee is leaving Indians abroad with more cash to invest in properties back home.

J itendra Parikh, a New York-based IT professional, is among many NRIs who want to take advantage of the rupee depreciating against the dollar. Just a fortnight ago, he closed the deal on a 2BHK house in a multi-storeyed residential project, Star City, in Jaipur.

“Since I belong to Mumbai and own a house there, I was looking for a holiday home in India. This seemed to be the right time so I did some research and bought a flat in Jaipur for around R24 lakh.

Due to the rupee depreciation, I saved around 20%. Had I gone for a similar buy in June or July, 2011, it would have cost me around R30 lakh,“ says Parikh.
A California-based NRI, who doesn't want to disclose his name, has just finalised a deal in Sobha International City in Gurgaon. “The cost of a 3BHK flat is R3.5 crore, but against a strong dollar it came to around R2.8 crore,“ he says.

So, what's happening? Will this mean that NRIs will now flock to India in droves to buy properties here?

Suneel Hali, chairman and founder of Buy Indian Properties Inc, based in the US, says right now there are mainly two types of NRI buyers in the US, especially in New York, California and New Jersey.

“One section is of end-users who have been planning to buy properties in India for some time. The depreciation factor has encouraged them to put that plan in action as, with the rupee cheaper, the time seems right to invest here. Some of them have started buying while others have initiated a house hunt,“ he says.

The other section, adds Hali, comprises big investment groups that usually prefer to wait and watch. “This is due to three reasons ­ first, they expect the rupee to depreciate further; second, they assume that the Indian property market will go for a correction of 10-15 % by the end of March; and, third, they feel that the political atmosphere in India is not

investment-friendly due to several reasons ­ forthcoming elections in five states, the government's disappointing stand on FDI in retail etc,“ he says.

Though the rupee has registered a sharp slide against the dollar, many real estate experts feel that besides the US, NRI buyers from across the globe are looking at the Indian real estate market as a favourite destination.

“In approximate terms, since August 2011, the rupee has depreciated 25% against the dollar, 15% against the euro, 10% against the Singapore dollar and more than 15% against the UK pound. So, NRIs from all over the world are showing a lot of interest in properties in Delhi, Gurgaon, Noida and Greater Noida,“ says Pradeep Mishra, a Gurgaonbased property consultant who has sold a many residential units to NRI buyers.

Commenting on the trend, Prem Prakash, senior vice president, Jaypee Greens, says, “In October and November, we witnessed a 37% rise in the number of units being booked by NRIs, as compared to the same period last year. The response has been very positive, especially from the Middle East and Singapore.

“It's true that the depreciation is one of the factors but our successful execution of the Formula One race at the Buddh International Circuit in Greater Noida is also a major pull for a huge percentage of NRIs because awareness of this region went up immensely, which translated into higher sales,“ he adds.

Many experts feel that the demand will go up in a few weeks as more buyers complete their research before zeroing in on a particular residential unit. Geetamber Anand, chairman and managing director of ATS, says, “As far as ATS is concerned, we are witnessing a 4-5% rise in sales to NRI buyers“.



Hot Indian property destinations for NRIs in 2012

Deepa Venkatraghvan Dec 23, 2011, 08.20PM IST

The Non Resident Indian (NRI) might as well remember 2011 as the year of the 'lazy investor'. For NRIs have gained 18% since August 2011, simply by remitting money to India; no effort at all. But as we approach 2012, NRIs must take stock of how best to use their remittances. The traditional favorite has always been real estate. But in this volatile market, how great an investment is it? Is this a good time to buy property in India? What kind of property is a good bet? Let's try to find answers.

Commercial property

Is it a good time to invest in commercial property in India?

"Yes," says Sanjay Dutt, CEO – Business, Jones Lang LaSalle India. "There are a number of reasons that come to mind. Firstly, India's growth story remains intact with just some relatively minor turbulence in the short term. Secondly, for NRIs, right now there is the straight advantage of exchange rate. The rate will eventually stabilize with Government intervention. Thirdly, property valuations, especially in the commercial space, have come down and are currently undervalued by 15-30%. Fourth, some of the developers are significantly leveraged (paying 13% interest rate for construction and 15% to 21% for land from NBFCs and private lenders). As a result they now want to take some cash out and invest in mid or low market fast moving residential. In short, there is pressure on developers. Lastly, vacancy rates in the office space are expected to be high. For instance, out of the 60 million square feet of supply that is expected to come in by the end of 2011, 25% is expected to be vacant. This will force developers to either lease cheap and/or sell cheap," he explains. "If you want sustainable yields and capital appreciation, this is the best time," Dutt concludes.

Having said that, Berinder Sahni Associate Director, Investment Services, India – Colliers International, advices that investors must stay invested in a property for at least the next 5 years to see a good return.

Which are the top cities for commercial real estate investment?

Sahni and Dutt, both list the following cities: Mumbai and Pune in the West, Delhi and NCR in the North and Bangalore, Chennai, and Hyderabad in the South.

What kind of commercial property should NRIs opt for? What are the potential yields?

There are 3 broad options in commercial property: front office space (like banks, MNCs), IT office space and high street retail space.

The kind of property that you choose would depend on your budget and risk profile. "In the case of office space, a good quality unit in Delhi and Mumbai would come at a budget of at least Rs 15-20 crore. In other cities like NCR, Pune, Bangalore, Chennai and to an extent in Hyderabad, you would have to put in at least Rs 10-15 crore. These properties would generate a rental yield of 10.5-11%," says Dutt.

Sahni adds, "The minimum size for a good commercial office space will be 2500 square feet. IT office space may come at a lower purchase price but the risk in IT spaces is higher right now. We believe that commercial office space can give you rental yield of 8-9% pre tax while IT spaces can generate slightly higher yields of 10-11% because of the inherent risk. Also, as you go closer to prime locations like Central Business District (CBD) areas, yields for all kinds of properties will drop to around 7%. Retail properties are slightly easier to handle because it's easier to find a tenant. Therefore, yields also tend to be lower at 6-7%. Moreover you can buy smaller spaces, as small as 500-600 square feet, in retail properties."

You can also choose the property based on your risk profile. For instance, you can buy a space in an under construction or new unit where you will be able to buy for cheap but you will also have to put in efforts to find a tenant and lease out the property. "We usually recommend our NRI clients to invest in 'pre-leased' properties, that is, those properties that already have a lease agreement in operation. You might have to pay a little more as compared to under construction or fresh properties but you are assured of lease rentals. Pre leased properties usually have a 3-5 year lock-in with a lease term of 9 years. Even smaller office spaces will have a 3 year lease term," explains Sahni.

What is the kind of capital appreciation one can expect from commercial property?

Both Sahni and Dutt believe that the commercial market is depressed right now. According to Sahni, you can expect a total annual return (rental yield plus capital appreciation) of at least 12% from commercial property right now. Dutt believes that commercial properties that are currently undervalued by 15-20% would rise to fair value within the next 2 years.

Having said that, in the property investment game, everything depends on location. "Outer ring road in Bangalore for instance will do better than Whitefield in terms of capital appreciation. Lower Parel and BKC in Mumbai will do better than Thane," Dutt explains.

Residential property

Is it a good time to invest in residential property in India?

"Anytime is a good time to buy a residential property in India," says Poonam Mahtani National Director, Residential Services, India – Colliers International, and she is quick to add, "It all depends on the location, developer and your risk appetite." We will come to these 3 factors in the next few points.

What are the key locations for residential property?

"Suburban locations of every metro are great investment options. So for instance, you have Gandhinagar near Ahmedabad, Nalasopara, Dahisar, Panvel, Pen and Kalamboli near Mumbai," says Dutt.

Mahtani places her bets on GST road, Porur and OMR in Chennai, North Bangalore largely Hibbal, Saha Shivnagar, Sarjapur Road and Whitefield in Bangalore, Dwarka Expressway in Gurgaon, Bandra East, Goregaon, Panvel in Mumbai and certain select developments in Lower parel, Mahalaxmi and Parel in Central Mumbai.

What kind of residential property should NRIs invest in? What are the potential yields?

"Under construction properties are great bets for those investing in residential property. There are risks of delays and often these delays are beyond the control of the developer. For instance, there may be policy changes or genuine raw material shortages. But if you choose a reputed developer and are mentally prepared for a delay of about 24 months, I assure you, the returns will be handsome," Mahtani says.

Yields from residential property are not high, "Yields can be as low as 3% but in the case of residential property, the important thing is capital appreciation," Dutt explains. Mahtani agrees, adding, "In residential property, giving your house on rent will be for reasons other than great returns. Your house will be maintained, your EMIs if any would get covered."

What is the capital appreciation one can expect?

Mahtani gives us an interesting matrix that explains the risk return paradigm.

As Rupee falls, NRIs 'home’ in on realty in Mumbai

Published: Friday, Dec 23, 2011, 8:30 IST
By Sudhir Suryavanshi | Place: Mumbai | Agency: DNA

The record decline in the value of the Indian rupee and the sluggish realty market have proved to be a double delight for overseas Indians investing in property here.

Sunil Sequira, a resident of Kuwait, has zeroed in on a property in Thane at a rate nearly 30% lower than usual. “This is the right time to buy property,” he said. “Many of my friends have also decided to buy property in India. We are expecting an annual 10% to 15% appreciation.”

Sandeep Reddy, co-founder of, a real estate brokerage firm, said it has been getting a good response from overseas buyers. At the recent property exhibition in Dubai, many people booked flats on the spot, and several showed interest in flying to Mumbai to check out property and finalise their decisions.

“NRIs are mainly interested in Navi Mumbai and Bangalore properties. This time, there was a slightly lower demand for the Delhi market. Going by this response, we have decided to organise and participate in exhibitions in Singapore and other international places that have a large Indian population,” said Reddy.

Niranjan Hiranandani, managing director of the Hiranandani Group, said, “The decline in the rupee value against the dollar/dinar in the international market has helped to attract more and more NRI buyers. If the cost of the flat is Rs1 crore as per the Indian market, the NRI has to pay only Rs85 lakh— 15% less, thanks to the record decline in the rupee value.”

Commercial opportunities in the West are on a downturn. So, people are looking at the Indian market for investment and business purposes, he added. “Once the RBI brings down its high interest rate, the city property market will surge again. There is a huge demand for houses, but the high costs and interest rates have discouraged buyers temporarily. People are awaiting the low interest rate loan.”

Sukhraj Nahar, managing director of the Nahar Group concurred. “Many NRIs have shown interest in buying property. They will come to India around the end of December and in January 2012 to see and finalise the properties. Our city developer body is also organising a property exhibition in Dubai to attract more NRI buyers,” he said.

“We were unhappy with the poor response from domestic buyers,” said Manohar Shroff, general secretary of the Maharashtra Chambers of Housing Industry, Navi Mumbai. “Now this void has been filled by overseas buyers. During this crunch period, it’s a blessing for developers, who were reeling under the immense pressure of high interest rates, low property sales and high construction and labour costs. NRIs will help us sustain the market. Once the slump is over, our local buyers will turn up in greater numbers to rejuvenate the market.”

20 Dec, 2011, 02.36PM IST, Kailash Babar,ET Bureau
NRIs home in as falling rupee makes realty cheap
MUMBAI: The spiraling rupee is resulting in a windfall for builders around the country who were struggling for more than a year to sell new homes.

In a three-day property show in Dubai last weekend, Indian builders were able to generate bookings for homes valued at over $50 million (around Rs 250 crore), which has prompted them to hop to other cities with large Indian population like London, New York and Singapore.

Ever since the rupee started depreciating there has been increased activity by the non resident Indian ( NRI) buyers as they pay in dollars. The benefits of the rupee depreciation, if added to the discounts being offered by developers, makes new homes in India cheaper by almost 30% in dollar terms. At the Dubai show, 70 companies including Unitech, Hiranandani Group, Vatika, Nirmal Lifestyle, Ansal Housing and Ireo showcased their 200 projects from Mumbai, Pune, Gurgaon and Ahmedabad.

"International real estate investment destinations, especially Europe and the Middle East are increasingly becoming uncertain. This, along with sharp depreciation in rupee, is attracting more NRIs towards Indian property markets," said Niranjan Hiranandani, managing director of Hiranandani group.

Since August, the Indian currency has weakened nearly 20% against the US dollar. This, in addition to developer and project specific discounts has provided benefit of 25-30% to NRIs who are considering this as a good bargain. "Dirham, the currency of United Arab Emirates, being fixed to the US dollar is also helping Indian property market receive more attention from investors and buyers from the region," Hiranandani added.

He expects the NRIs contribution in company's revenue to jump over 8% in the ongoing financial year, as against 3-4% earlier. "In three days most of the buyers have shown interest in paying the entire amount upfront to get the benefit of current currency rate. Of these, 53% people have booked these properties for own use while rest have bought with investment objective," said Sunil Jaiswal, chief executive of Sumansa Exhibitions, which organised the Dubai show.

The Maharashtra Chamber of Housing Industry (MCHI), the representative body of developers from Mumbai and the Mumbai Metropolitan Region, is planning to organize a property exhibition in Dubai between January 12-14. And developers, who are witnessing fall in sales volume from local homebuyers, are hopeful of a strong rebound from there.

The MCHI exhibition in Dubai will showcase around 300 properties developed by around 35 developers. "Prospects of sales to NRIs are bright this year, and therefore we are going to Dubai, London, Singapore, Doha and Hong Kong," said Zubin Mehta, CEO at MCHI. He expects the Dubai show to generate 15-20% higher bookings than last year's exhibition that saw bookings around Rs 70 crore and housing finance companies business at Rs 107 crore.

NRIs on a property buying spree

Dilasha Seth / New Delhi

December 18, 2011, 0:01 IST

To cash in on the rupee depreciation, non-resident Indians (NRIs) are making a beeline to buy property in India. Most developers Business Standard spoke to claimed a 25 to 30 per cent spurt in sales to NRIs over the last two months.

Since August, the Indian currency has fallen by around 20 per cent against the US dollar. According to real estate companies, brokers, analysts and consultants, this has triggered a substantial rise in the volume of property-related enquiries from NRIs. The actual deal numbers have also gone up considerably. Many NRI buyers are even buying multiple units for investment purposes. Since NRIs earn in foreign currency, their buying capacity has gone up manifold with the rupee weakening against the dollar.

“In the last three months, we have sold more than 100 units to NRIs, a clear increase of more than 20 per cent over the previous quarter,” said R K Arora, chairman and managing director of real estate developer, Supertech. Arora said while the domestic demand had slowed due to high interest rates, interest from NRIs had shown a great surge.

Similarly, Sunil Dahiya, managing director of Vigneshwara Developers and senior vice-president of real estate association National Real Estate Development Council (Naredco), said some of his company’s existing NRI customers were wanting to invest more in property. Vigneshwara has already recorded a 25 per cent increase in sales to NRIs over the last two to three months. “Most buyers who were planning to buy two-bedroom apartments earlier are now switching to three-or four-bedroom apartments,” he said.

Raheja Developers, which is building tall residential structures in Gurgaon and Delhi, has also noted a similar trend, where every fifth booking of its recently launched project has been from an NRI.

At least 25 per cent of the bookings in the project has been from NRIs, compared with just 10 per cent in our earlier projects, said Director Nayan Raheja. “I attribute this trend to the decline of the rupee against the dollar. Now, to leverage on the trend, we are marketing ourselves in the US and Canada, as this is just the right time to invest in India.”

Lalit Jain, chairman and managing director of Kumar Builders and the chairman of another real estate association, the Confederation of Real Estate Developers’ Associations of India (Credai), agreed that NRIs were making the best of the opportunity. According to Credai, there has been a 30 per cent rise in enquiries from NRIs and 20 per cent increase in actual buying.

Yet another developer, BCC Infrastructure, has sold 100 of its 800 units to NRIs this quarter. “Yes, we can say this is partly attributable to the falling rupee,” said BCC Infrastructure Managing Director Kumar Bharat. He added that NRIs were also showing interest in industrial plots, as they wanted to establish business centres in the country, against the backdrop of the global economic meltdown.

“Owing to the uncertain econominc environment, Indians living in the West do not want to put their savings in banks. They are investing in the Indian real estate market at a time when the rupee is ruling at record lows,” Dahiya noted.

A top representative of the Global Organisation of People of Indian Origin confirmed the trend of NRIs putting their money in the Indian property market more at this point due to the rupee dip. “There’s no better time than this to invest in Indian real estate,” he said. NRIs took quick decisions on buying residential property, he added, explaining how they reacted so quickly to the rupee-dollar development.

Anshuman Magazine, chairman and managing director, CB Richard Ellis (South Asia), told Business Standard the trend was positive as India had the highest appreciation in real estate. “However, real estate decisions take time to transact, unlike stocks, so it is difficult to give an industry figure,” he said.

Sanjay Sharma, managing director, Qubrex, a real estate consultancy, said: “It is difficult to assess how much of an increase in NRI buying has been because of depreciating of the rupee and how much because of seasonal trend.” He argued this time of the year usually saw NRIs buying property.

  NRIs home in on property as rupee crashes; look for safe investment

Ravi Teja Sharma, ET Bureau Nov 25, 2011, 06.19pm IST

NEW DELHI: When Navin Raheja, a Gurgaon-based builder, launched the city's tallest residential tower earlier this month with apartments priced between Rs 1 crore and Rs 3 crore, most real estate analysts scoffed at the timing of the launch.

The robust response, especially from non-resident Indians who stand to gain from the sharp slide in the rupee, however holds out fresh hope for domestic builders saddled with piling inventories. Raheja says he was himself pleasantly surprised as he managed to sell within a fortnight 240 of the 300 apartments on offer in Revanta in the first phase — 40% of them to NRIs.

"I was a little sceptical myself," Raheja admits, "But, to my surprise, our mailbox was flooded with inquires. We realised most of those writing to us were nonresident Indians, and soon they were buying our apartments."

The rupee has depreciated by more than 16% against the dollar since July. This has made homes in India increasingly cheaper in dollar price terms, an attractive proposition especially at a time the real estate sector in the developed markets remains depressed.

Add the 10-15% discount that builders offer on down payment and the effective price for an NRI buyer drops by more than a fourth. Little wonder then, NRIs have been looking at homes back home with renewed interest, reflected in their rising share in the domestic real estate market.

NRIs now account for about 12% of the sales for Unitech, up from 6-7%, says Anuj Malik, who heads international sales for the company and is based in Dubai. "A lot of money that was being invested in Dubai and the US is being moved to India as there is total lack of confidence in these markets," he says.

Indian real estate, even during the global economic turmoil over the past three years, has given returns of 30-40%.

Surge in Enquiries by NRIs

The number of NRIs investing in Indian real estate started dropping as the markets in the West seemed to improve between 2009 and 2010. Now, however, their share in domestic sales has nearly doubled to 15%.

In Mumbai, especially, where the inventories of apartments will take 40 months to clear, the builders are looking at NRIs to bail them out. "We have seen a 250% jump in the number of NRIs buying homes in the past few months," says Vikas Oberoi, managing director of Oberoi Realty, a listed company, which has several residential and commercial projects in Mumbai.

"Today, developers in most markets are also more amenable to giving discounts, which makes for a good deal for an NRI," says Kaustuv Roy, executive director at property advisory firm Cushman & Wakefield. This means at least a 30% discount for the NRI buyers, he.

There has been a surge in enquiries from NRIs in recent weeks, mostly from the Middle East and the US, says Rajesh Goenka, chief executive officer of Axiom Estates, which provides real estate brokerage services to NRIs from offices in India, the UK and the US.

Oberoi points out that while his company does not take 100% payments upfront as a policy, he is advising NRI clients to transfer their money into a non-resident bank account and pay the rest of the instalments from there. In doing so, the NRIs can also get close to 10% interest on their money parked with the banks.

An NRI who recently bought two ready-to-move apartments from Oberoi wanted to give out the flats on rent, which could fetch him 6-7% returns. "This is better than parking money in foreign banks where they usually earn only 2-3% interest," says Oberoi.

In Bangalore, NRIs are evincing interest predominantly in the upper mid-income and luxury projects, says Nitesh Shetty, managing director of Nitesh Estates, who has seen a number of NRIs buying into his luxury apartments. "A lot of these NRIs are senior executives and entrepreneurs who want to have a base back home," he says.

This is music to the ears of builders who have seen sales drop by as much as 40-45% over the past yearand-a-half in Mumbai and some parts of the National Capital Region, even as sales have been steady in Bangalore and Chennai. Since March 2010, the Reserve Bank of India has raised interest rates 13 times to rein in inflation, making it costlier for domestic buyers to buy homes.


How can NRIs benefit from investing in Indian real estate

Published on Fri, Dec 09, 2011 at 14:12 |  Source :

Updated at Fri, Dec 09, 2011 at 16:02

Subhash Lakhotia

The fact remains that the real estate prices in the world are sinking. But the real estate investment in India is ringing. This is the reality of the situation.  To encash of this reality the Non-Resident Indians (NRIs) should now think of making investment in India in the real estate sector.

Believe me when I say that the investment by Non-Resident Indians if made today in the real estate sector, then surely it will bring higher appreciation in the years to come and that the investment made today will not bring any regret.  Before venturing into investment in real estate in India, the Non-Resident Indians in particular should take care of the provisions contained in the Foreign Exchange Management Act as well as the Income-tax Act.

A fair knowledge of these two enactments will help the Non-Resident Indians to take a wise decision of investment in real estate keeping in view the provisions of law affecting such real estate investment.

As per the said Foreign Exchange Management Act an Indian citizen who resides outside India is permitted to acquire any immovable property in India other then agricultural/plantation property or a farm house.  Thus, it is very clear that Non-Resident Indians enjoy almost all the privileges which are enjoyed by a resident Indian with reference to purchase of immovable property in India.

As per the said Foreign Exchange Management Act an Indian citizen who is a resident outside India popularly known as Non-Resident Indian has the permission for the following activities with reference to acquisition and transfer of immovable property in India :-

1. acquire immovable property other than agricultural land/plantation property or a farm house by way of purchase subject to the conditions regarding RBI rules mentioned in clause (a) of the Regulation;

2. acquire any immovable property other than agricultural land / plantation property / farm house by way of gift from an Indian citizen resident outside India or from a PIO;

3. acquire property by inheritance;

4. transfer by way of sale any immovable property other than agricultural / plantation property of a farm house by way of sale to a person resident in India;

5. transfer agricultural land / farm house or plantation property way of gift or sale to an Indian citizen resident in India;

6. transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

Before making any investment in real estate the Non-Resident Indian should very carefully prepare the basic objective or the purpose of making investment in real estate sector in India.  The strategy will be different in case the investment in real estate is made for acquiring a residential property for self use.

Likewise, the strategy for investment will be different in a situation where the Non-Resident Indian would like to buy real estate with the objective only of making money at the time of selling the property.

Reversely the strategy will be still quite different if a Non-Resident Indian who is interested to invest in real estate just with the sole objective of receiving a regular flow of money by way of rental income.  Hence, the first strategy with reference to investment by a Non-Resident Indian in real estate would be to shortlist the specific purpose or objective of making investment in real estate.

Purchase of Property by NRI for Self Use

The Non-Resident Indian can make investment in a residential property for his own use.  This property can be in the form of ownership  flat or it could be in the form of buying a piece of land and constructing a house thereon.  In both the situations it is of advantage for a Non-Resident Indian to make investment in a residential self occupied property by taking a loan.

The Non-Resident Indian would be very happy to note that if he takes loan for a self occupied house property, then he would enjoy a deduction from his Indian income in respect of interest paid on loan taken for such self occupied residential property. This loan can be taken either from the bank or financial institution so also the loan can be taken from any member of the family or friend or relative. The maximum deduction in respect of interest on loan that is allowed for self occupied house property is Rs. 1,50,000.

Similarly, as per the provisions contained in section 80C of the Income-tax Act, 1961 within the overall deduction of Rs. 1 lakh the Non-Resident Indian just like a Resident Indian would also enjoy deduction in respect of repayment of the housing loan for self occupied property. However, the deduction for repayment of the loan would be permissible only in respect of loan taken from bank, financial institution etc., etc. Hence, whenever the Non-Resident Indian is contemplating to purchase a residential house property for self use, then surely the best investment strategy would be to take loan and make investment in your lovely self occupied house property.

Real Estate Investment for Rental Income

The Non-Resident Indian can make investment in a residential property or in a commercial property with the objective of receiving a regular flow of rental income. The provisions of taxing rental income are simple, easy and investor friendly.  Broadly speaking, from the rental income derived by a Non-Resident Indian deduction is available in respect of actual payment of house tax as also a special 30 per cent deduction is available towards repairs, maintenance and collection charges of the property.

This special deduction is permissible irrespective of the fact whether you spend on the repairs or you do not spend on repairs.  Thus, this is a big deduction available from rental income which is instrumental in cutting down the tax payment by a a Non-Resident Indian on rental income.

Another important feature of taxation relates to complete deduction without any upper limit of the interest paid by the Non-Resident Indian for purchase of property which is given on rent.  Thus, the entire interest payment for purchase of property which is given on rent is allowed as a deduction from the rental income.  This is a great big advantage.  Hence, it is worthwhile for the Non-Resident Indian to make investment in real estate specially the real estate acquired for receiving a fixed flow of rental income by taking a loan for such purchase.

Buy and Sleep for Three Years  –  The Tax Saver Formula

If the objective of a Non-Resident Indian is to make investment in real estate, with the sole objective of making money by selling such real estate, then for such Non-Resident Indians, it is strongly recommended that they should not sell their real estate at least within three years of purchase of the real estate.

To make the things very simple and clear it may be noted that whenever the property whether commercial or residential is sold by a Non-Resident Indian, then just like Resident Individual income-tax is payable on the Capital Gains amount received by selling the real estate.  In case the property is sold for holding it for a minimum period of three years, in that situation the Capital Gains arising to the Non-Resident Individual is known as Long-Term Capital Gain.  While reversely if the real estate is sold within a period of less than three years from the date of purchase, in that situation the profit arising on such transaction is treated as Short-Term Capital Gain.  Under the Income-tax Law Short-Term Capital Gain is liable to tax and is to be added with other income of the Non-Resident Indian.

Reversely, in case the property is sold after holding it for three years, it becomes Long-Term Capital Gain for which innumerable tax advantages can be achieved by a Non-Resident Indian.  For example, if the property is sold after holding it for three years, the benefit of Cost Inflation Index is made available to a Non-Resident Indian whereby substantial tax on Long-Term Capital Gain can be reduced.  Similarly, the maximum income-tax payable on Long-Term Capital Gain is just 20 per cent and finally if the property is held for more than three years, then it is possible for the Non-Resident Indian to save such Capital Gains Tax by making investment in new residential property based on the provisions contained in the Income-tax Law.

Thus, it makes a sense for all Non-Resident Indians to purchase real estate in India and sell the same only after holding it for three long years.  This small activity if implemented by the NRI in reality will help them to save a substantial amount of income-tax on their Long-Term Capital Gain.

Repatriation of Rental Income and Sale Proceeds of Property 

Within the provisions of the Foreign Exchange Management Act, it is possible for a Non-Resident Indian to repatriate the rental income received from investment in real estate in India. Similarly, it is possible within the framework of the Foreign Exchange Management Act to repatriate the proceeds of sale of immovable property in India more particularly in a situation where such property has been purchased by remittance from abroad or from a NRE Account.

Income-tax Compliances

Whenever a Non-Resident Indian makes investment in immovable property in India, he is not required to comply with any formality of the law.  Just buy the property, complete the registration formalities and relax.  However, it is advisable that the Non-Resident Indian should obtain a PAN Card i.e. Permanent Account Number Card so that if the Non-Resident Indian has certain income by way of rental income from property in India, then it is easy for him to make tax compliances.

Also please do remember that the Non-Resident Indian should also file Income-tax Return in India in respect of his rental income specially when rental income coupled with other income of the Non-Resident Indian arising in India exceeds the basic income-tax exemption limit.  For the benefit of the Non-Resident Indians it may be noted that for the current Financial Year 2011-2012 the basic income-tax exemption limit for individual tax payers is Rs. 1.80,000 and for women tax payers the same is Rs. 1,90,000 while for a senior citizen of the age of 60 plus the basic income-tax exemption is Rs. 2,50,000 and finally for very senior citizens who are of age group of 80 years and above the income-tax exemption limit happens to be Rs. 5,00,000.

Hence, the Non-Resident Indians should take care to file their Income-tax Returns specially if the same exceeds the basic exemption limit.  Generally the last date of filing Income-tax Return happens to be 31st of July each year.  If the Non-Resident Indian is having substantial big income by way of rental income, in that situation Advance Tax must be paid in advance during the Financial Year itself which is to be calculated  on the estimated income of the Financial Year.

Reverse Mortgage Benefit for NRIs

The concept of Reverse Mortgage which is very popular and prevalent in USA and other countries of the world is also now popular in India.  Now the senior citizens in particular can take advantage of Reverse Mortgage in respect of the real estate owned by them in India.  The amount taken from the bank consequent to Reverse Mortgage is not added as income of the Non-Resident Indian.  Thus, in old age this concept of Reverse Mortgage really happens to be a wonderful tool of enjoying your property in India on the one hand and on the other hand taking money from the bank consequent to Reverse Mortgage of the property.

The Importance of Circle Rate

In whole of India Circle Rate has been announced by the Government in respect of properties in different parts of India.  At any point of time whenever the Non-Resident Indian is interested to purchase the property in India, he should take care to ascertain the Circle Rate of the property and this is mainly because of the fact that the Stamp Duty will be payable on the minimum value of the Circle Rate or the actual price whichever is higher.  Likewise, the importance of Circle Rate is also to be noted specially when the Non-Resident Indian is interested to sell the property.  In case the property is sold by the Non-Resident Indian at a price lower than the Circle Rate, in that situation whatever is the Circle Rate, the same will be treated as the minimum sale price and consequently the Capital Gain will accordingly be calculated.

Finally, the Non-Resident Indian while making investment in real estate in India would find their decision of making investment in real estate in India a really rewarding proposition because now a days hassles are less, tensions are less, tax provisions are simple, innovative vistas are available to save your tax and finally repatriation becomes easy and simple.  However, whenever the new real estate is proposed to be purchased by the Non-Resident Indian, to achieve optimum tax planning the Non-Resident should ascertain the purpose of the purchase of the property.

Depending on the purpose of acquiring real estate the new real estate Investment should be made in the names of different family members keeping in view the tax angle.  Wishing all the Non-Resident Indians a wonderful time in the wonderland of investment in real estate in India.  The author feels that the investment made by the Non-Resident Indian specially in Indian real estate will be a rewarding experience for them and would make them proud owner of real estate in India with real great rewarding experience on their investment.

The author is tax & investment consultant at New Delhi for last over 40 years. He is also Director of M/s R.N. Lakhotia & Associates & The Strategy Group.  He can be reached at