WHY INVEST IN INDIA?

Despite its inbuilt paradoxes, India has been in a strong economic position and has witnessed accelerated growth, manifesting itself in an unprecedented manner in the real estate industry. From survival to revival, the Indian property market has exhibited unique resilience and upsurge resulting in great opportunities to be taken advantage of by NRI’s.

There are three important vital forcesacknowledgedto help contribute the above statement. These are the following:

  1. HIGH URBANISATION RATE
    • 590 million Indians will live in cities Nearly twice the population of US today
    • By 2050, in India 843 million people will be living in cities
  2. RAPID GROWTH OF THE MIDDLE CLASS IN INDIA
    • Ever-increasing per capita income
    • High Saving-to-Spending ratio 22% -24% of savings
    • 91 million urban households will be middle class
  3. YOUNG DEMOGRAPHY
    • Higher degree of Consumerism
    • 64% of population is between 15yrs – 64yrs
    • By 2020 the average age in India will be 29

These three factors define the real demand for realty in India. With this strong internal demand for real estate, India is one of the fastest growing property markets in the world and the ideal place to invest in.

HOW CAN NRIS INVEST IN REAL ESTATE?

According to theregulations of FEMA and RBI , a NRI is permitted to make specific investment in real estate. A NRI is allowed to do the following investments in property:

  1. Any immovable property can be purchased by a NRI in India other than any agricultural land, farm house and plantation property
  2. A NRI can get any immovable property as mentioned above by gift from an Indian resident, Indian citizen residing outside India or person of Indian origin.
  3. Obtain any property by inheritance.
  4. A NRI can transfer immovable property to any resident of India by sale.
  5. A NRI can transfer any agricultural land, farm house or plantation land to any resident of India by gift.
  6. A NRI can also transfer his residential or commercial property by means of gift to any person either residing in India or abroad or person of Indian origin.

FINANCE OPTIONS

As a NRI, it is important to identify your reasons for investing in a property in India and to understand what you hope to achieve from this investment. The obvious goal from any investment is to yield the maximum returns possible. With diligent planning of your strategy and goals, unesta can help with finding specific deals that meet your requirements and will help you make a profitable investment in India.

SOURCES OF FINANCE:

NRIs consider financial institutions as an easy option available in India for purchasing property. At the same time financial institutions consider NRIs as worthy potential clients. Financial institutions provide home loans easily, efficiently and sooner to such people as they are very much prompt at the time of repayment. Furthermore, the repayment can readily be done by inward remittance through the proper banking channel. If someone is already getting income in India from sources like rent or dividend, he/she can directly repay the loan as well.

Now RBI has also predetermined these norms in home loans for non-residents who are looking forward to buying any property:

  1. A maximum of 80 per cent amount is financed by the financial institution. The rest should be given by the NRI.
  2. The remittance of the amount for down payment can be done from the place of residence by normal banking channels, i.e., NRO/NRE account in India.
  3. The NRI has to repay their principal amount as well as interest part from that similar channel only.

Payment options:
When investing in India, it is important to understand the payment plan options made available by the developer concerned. Typically, one has to pay about 10% of the total sale price as a deposit. As the property being purchased is as yet incomplete, there are several options one can choose from as far as the remaining payment is concerned:

Down Payment Plan:
In a down payment plan, the buyer would be required to make a payment of 10% of the purchase price upfront with another 85% within 30 days of the booking date. The remaining 5% has to be paid at the time of possession, which could take several years. The advantage to this plan is that the buyer would almost certainly avail a discount of 10 to 12% on the Basic Sale Price. However, a down payment plan is not generally recommended as construction – and consequently possession – might be delayed, but the buyer would have already parted with the bulk of the purchase price.

Construction Linked Payment Plan:
In this plan, payments are made to the developer in installments over a period of time spanning the time taken for construction of the building. The buyer pays 10% at the time of booking and another 10% after 30 days from the booking date, and thereafter installments of 8 to 10% at each stage of construction. This is the most practical payment plan as the installments are linked to stages of construction, and therefore the buyer’s capital is not blocked if the developer delays construction.

Time Linked Payment Plan:
This plan is also based on payment in installments, usually with payments being made approximately every 2 months over a period of 20 to 24 months. However, the payment schedule is decided by the builder and is structured based on time and not the stages of construction, and the buyer would have to pay the installments on schedule irrespective of whether the construction is proceeding on schedule or not. This option is not as viable as opting to pay under a construction linked payment plan and should ideally be avoided.

Flexi Plan:
The flexi plan includes features from both the down payment and the construction linked payment plan. Under this plan, the buyer would, as in a down payment plan, have to pay 10% at the time of booking and another 30-40% within 30 days of the booking date. Thereafter the payments are structured as with the construction linked payment plan. A flexi plan can earn a buyer a discount of 5 to 6% of the purchase price.

Tax implications for NRIs looking for property in India:
NRIs has to shell out stamp duty as well as registration fees at the time of purchase. They are entitled to avail all sorts of benefits at par with Indian residents on the interest paid for the home loan. However, the tax process becomes full of twists and turns if the property is leased.

As the amount of income received from such action falls under the heading of ‘Income from Property’, standard deduction is applicable as per the standard slab. In this case, the NRI will have to pay the applicable tax if he/she is residing in the country where worldwide income is taxable unless the country has a Double Tax Avoidance Agreement with India.

The special advantage for a NRI is the amount paid for the interest of a home loan is deductible from NRI’s taxable income without any upper limit. The NRI is legally responsible for the payment of capital gains tax as prescribed under the Income Tax Act, in case he/she sells off the property at a later date.