Guide for NRIs Investing in Indian Real Estate

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Non-Resident Indians (NRIs) are increasingly investing in the Indian real estate markets. The recent surge in NRI investments have much to do with the declining Indian Rupee, lower interest rates and the increasing price stability in the Indian real estate markets. According to market estimates, NRIs contribute nearly 8-10 per cent to the total residential property sales in India. But, even while NRIs are building large businesses abroad, the governing body for NRI investment often restricts investment in Indian real estate.
Residential property – The sentimental preference

NRIs tend to invest in residential apartments in India. For instance, NRIs from Mumbai and Kochi tend to invest greatly in residential property because they are still attached to their city and see it as their second home. Though many upcoming IT projects in Kochi are also driving NRI investments in the region. In cities like Ahmedabad, the NRI investments in real estate are high because the state government is extremely efficient and transparent. But while investing in Indian real estate, there are certain facts that NRIs should consider.

Things to keep in mind
While buying property, NRIs should make sure that the property titles are in the name of the seller and that the seller has paid all his dues as far as the property is concerned. They should also insist that sellers produce the originals of the title deeds. This is important as many sellers tend to produce photocopies of the property papers when the original papers lie with the banks they have received home loan from.
There are several other pitfalls that NRIs should avoid. If an NRI invests in a residential apartment that was built on agricultural land without sufficient permission from the government, the transaction would be considered illegal whether or not the NRI is aware of the nature of the property he is investing in. NRIs should also make sure that the seller has obtained all the required clearances by the environment ministry and local municipalities. They should also make sure that the seller has an undiluted right to transfer the property to the buyer once the construction is completed.
NRIs are also expected to pay stamp duty on property like other Indian citizens are. The stamp duty varies from state to state. For instance, the stamp duty is 1-2 per cent lower for female NRIs in some Indian states. 

How to utilize the property you are investing in?

NRIs are allowed to invest in the residential property in India for their own uses. While investing in Indian real estate, the payment should be made in Indian currency and through normal banking channels using an NRI account. NRIs are not eligible for a home loan in India if they are not graduate. But, for those who acquire the home loan, they are eligible for a tax deduction of up to Rs 2 lakh on the interest paid on the home loans, like other Indian citizens. So, while investing in residential property, it is advisable to procure home loan and claim income tax deduction on the interest paid.
It is also wise to rent out the property that NRIs invest in. A good 30 per cent of the rental income will not be taxable because it would be considered as expenses spent on repair and maintenance. But even without spending on repairs or maintenance, NRIs can claim tax deductions on rental income. So it is advisable and lucrative for NRIs to invest in property that they can eventually rent out.

According to the norms stipulated by the Reserve Bank of India (RBI), NRIs should pay 20 per cent of the value of the property they choose to invest in and not the financial institutions. Currently, NRIs cannot purchase agricultural land, farm house or plantation property in India. But, they have a right to such properties if they inherit it or receive it as a gift.
If you are an NRI, investing in property in India, the process is only likely to become easier. As the current National Democratic Alliance (NDA) government is keen on strengthening the Indian economy by making it easier to invest, including NRI investments, which are likely to rise in the next few years.