Investment in real estate by NRIs gaining momentum across India

V Nagarajan

With the cascading impact of RERA and GST regulations on the economy and real estate sector, Indian realty sector is gaining momentum in particular with a spurt in the quantum of investment by overseas Indians.

Estimates reveal that in 2017, total NRI investment in realty from top eight cities touched nearly Rs1,150 crore as against Rs600 crore in 2013.

A majority of NRI investors are from the UAE, followed by USA and Kingdom of Saudi Arabia. With the recent depreciation of value of the Indian rupee, the current year is expected to see an upswing in realty investments by NRI’s.

Whether it is a turnaround in the aftermath of tighter US immigration policy or favourable exchange rates, there has been a perceptible shift in trend among US NRIs as well towards investment in immovable property in India.

There are others who attribute the demand predominantly emerging from the end users to the price stability, improving regulatory norms, favourable exchange rates and other factors. Limited options for H1B visa holders in the event of implementation of tighter immigration policies, looming uncertainty over revoking authorisation on H4 visas impacting a majority of Indian-Americans and the slowdown in the processing of green cards have all contributed to the sudden uptick in demand among US NRIs towards investment in Indian real estate, say local realtors marketing Indian properties.

With the shrinking supply level impacting demand and a marginal spurt in pricing, select locations are commanding a premium in today’s scenario across select cities. Commercial property absorption has been quite encouraging across major cities which has boosted the overall demand for both rental housing as well as first time homebuyers.

Student housing and senior citizen homes are other categories that have found favour with the developers. Property management services, multiple home loan options, price stability and flexible repayment terms are other factors that have given a boost to the developers to explore land options for housing development.

Q: I bought an apartment in 2012 in Mangalore for Rs 2.5 million and planning to sell it now at Rs6.0 million. What will be the impact of capital gains and tax liability? Please clarify. Selvyn, Sharjah.
You have held the apartment for more than two years and so the gain will be long-term. You can index the cost of acquisition and cost of any improvement made to the asset over the years. The cost inflation index for 2019-20 has not been announced yet. Indexation is normally computed by multiplying the property’s cost by the cost inflation index (CII) of the year in which it is sold and dividing it by the CII of the year in which it was purchased.

You can reduce the indexed cost of acquisition from the selling price of Rs 6.0 million. The resultant capital gain will be taxed at 20.8 per cent. You can invest the gain in certain specified bonds to claim tax exemption within six months of the date of sale of the asset. You can save tax by investing in 54EC bonds such as REC capital gain bonds, NHAI capital gain bonds respectively.

Q: A commercial property has been inherited from our relative in India. Is any permission required from RBI for repatriation of sale proceeds? Dharmadev, Dubai.
General permission is available to NRIs to repatriate the sale proceeds of property inherited from a person resident in India. You need not require any RBI permission as the property has been inherited from a resident Indian. The amount of repatriation should not exceed $1 million per financial year. You should produce documentary evidence in support of the inheritance and an undertaking and certificate by a chartered accountant in the prescribed format. In the event of making the remittance in more than one installment, the remittance of all such instalments shall be made through the same authorised dealer.

Q: My relative is planning to gift a commercial property located in India. She is a PIO and settled in US. Are there any restrictions in this regard? Gopal Krishna, Dubai.
There are no restrictions at all as the Reserve Bank has given general permission to Persons of Indian Origin to 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.