Indian real estate has emerged as a lucrative haven for NRI investment in India, backed by strong urbanization, positive exchange rates, and a robust economic climate. For Non-Resident Indians (NRIs), and particularly for Dubai-based NRIs, NRI real estate investment in India is a unique mode of portfolio diversification, rental returns, and link retention. The book covers the opportunity, regulation, challenges, and NRI-specific solutions for NRI investment in India real estate, with specific reference to Dubai-based NRIs.
Why NRIs are investing in Indian Real Estate
Indian realty will also witness growth on an enormous scale, as it will reach USD 650 billion mark by 2025. There are several reasons why NRI investment in Indian realty is a good idea:
- Capital Appreciation: Properties in Metro and Tier-1 cities like Mumbai, Delhi NCR, Bangalore, Hyderabad, and Pune are experiencing healthy long-term appreciation on account of sustained demand and urbanization.
- Rental Yields: Owing to a growing population and urbanization in India, rental yields in key cities are between 3-5%, which is a consistent flow of income.
- Favourable Exchange Rates: In the case of the NRIs, especially the Dubai-based NRIs, the exchange rate (e.g., AED to INR) allows them to buy luxury property at relatively lower prices than in foreign markets.
- Emotional Connection: NRI buying property in India is usually driven by a desire to retain their heritage or retire in India.
- Portfolio Diversification: Real estate investment in India is safe in this context as against volatile assets such as equities, and therefore the best wealth generator for inter-generational wealth transfer.
For NRIs staying in Dubai, it is convenient if they are Indian or OCI and thus, real estate NRI investment in Indian property is convenient for them compared to other foreign nationals.
Can NRIs purchase property in India?
Yes, NRIs can buy property in India under the Foreign Exchange Management Act (FEMA), 1999, that governs foreign exchange transactions. The Reserve Bank of India (RBI) permits NRIs to buy residential property and commercial property without its approval. But with some conditions:
- Approved Properties: NRIs are permitted to invest in residential (luxury homes, apartments, villas) and commercial property (office space, shops) but not in agricultural land, plantations, or farmhouses except under RBI approval.
- No ownership limit: There is no limit on the quantity of property that can be owned by an NRI and thus NRI investment options in India are not restricted.
- Financing: The payment can be made through banking channels through NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foreign Currency Non-Resident) accounts. The payment cannot be made through cash, traveler’s cheques, or foreign currency notes.
- Home Loans: NRIs can avail home loans of up to 80% of the property cost, repayable in Indian rupees from NRE/NRO/FCNR accounts.
For Dubai NRIs, ease of Dirham-pegged investments eliminates the risks associated with exchange rate volatility, and hence NRI investment in India is safer.
Can foreigners buy property in India?
Can foreigners buy property in India is a different question altogether. Foreigners are under stricter regulation under FEMA:
- NRIs and OCIs: Non-Resident Indians and Overseas Citizens of India (OCIs) have greater rights to purchase residential and commercial property without approval from RBI.
- Other Foreign Nationals: Foreign nationals of nations like Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan require advance RBI approval to buy or sell property, except for lease for a duration of less than five years.
- Inheritance: Foreigners can inherit properties but are required to satisfy FEMA for sale transactions.
For NRIs staying in Dubai, it is convenient if they are Indian or OCI and thus, real estate NRI investment in Indian property is convenient for them compared to other foreign nationals.
Top Most Trending NRI Investment Options
NRI investment options in India in the real estate NRI industry are diverse and appropriate for all risk classes and investment time frames. Key opportunities are:
Residential Properties:
- Apts, Villas, and Luxury Houses: High demand in metro cities (Mumbai, Bangalore, Gurgaon) and Tier-2 cities (Jaipur, Coimbatore) makes them the most suitable for rental income and capital appreciation.
- Motivation: Wealth creation, emotional value, and long-term growth.
- Dubai NRIs: Choose luxury apartments from well-known developers to subtly showcase wealth, as indicated in the paragraph.
Commercial Properties:
- Office Floor Plates and Malls: Provide exponential returns on investment, particularly in high-growth locations such as Pune and Gurgaon.
- Motivation: Higher rental yields (8-10% in some sectors) and portfolio diversification.
- Dubai NRIs: Drawn to anchor stores to guarantee secure returns, riding the familiarity of Dubai’s commercial property.
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Real Estate Investment Trusts (REITs):
- Overview: REITs provide NRIs with an opportunity to invest in real estate India with less capital than physical property. REITs are liquid and transparent and are audited by Big 4 accounting firms.
- Motivation: Diversification and hassle-free investment.
- Dubai NRIs: Drawn by their history of performance and minimal management requirements, which are appealing to their taste for safe, high-yielding instruments.
Under-Construction Projects:
- Deferred Payment Plans: Plans like 20-80 or 30-70 are attractive to NRIs who seek affordability.
- Motivation: Potential for high appreciation upon project completion.
- Dubai NRIs: Seeking smart city investments (e.g., South Mumbai, GIFT City in Gujarat) due to their international-standard infrastructure.
Smart City Projects:
- Overview: Tax advantage and regulatory ease in government-sponsored projects like GIFT City draw NRIs.
- Motivation: Strong sense of appreciation and identification with India’s urbanization vision.
- Dubai NRIs: Attracted to such ventures as they are akin to Dubai’s master-planned city ventures.
Best NRI Real Estate Investment Locations
Location is among the most critical choices in the process of securing the highest returns on NRI real estate investment in India. Put in the language of market trends, the prime locations are:
Metro and Tier-1 Cities
- Mumbai: Business capital with increasing need for business and luxury space.
- Delhi NCR (Noida and Gurgaon): High-growth clusters with high-end residential enclaves and IT clusters.
- Bangalore: The first choice among NRIs because of its IT-based economy and reasonably priced luxury.
- Hyderabad and Pune: The new hotspots with financially feasible properties and good ROI prospects.
Tier-2 Cities
- Jaipur, Kochi, Chandigarh, Coimbatore: These have lower entry points, better connectivity, and 3-5% returns in the form of rentals.
- Mysore: Sustained NRI real estate market with forthcoming residential schemes.
Gurgaon and Pune are especially appealing to NRIs in terms of business park proximity and luxury property grade of Dubai.
Key Issues for NRIs
NRI buying property in India is beset with problems calling for careful handling:
- Regulatory Controls: FEMA prohibits investment in agricultural land, and RBI regulations must be adhered to.
- Risk of Double Taxation: Double taxation is a risk that can be faced by NRIs in India and their home country as well, though Double Taxation Avoidance Agreements with over 85 countries minimize the risk.
- Currency Fluctuations: Even though favorable exchanges are a boon, exchanges do impact returns. Investment in Dirham (which is USD-pegged) reduces this risk to a minimum for the Dubai NRIs.
- NRI Property Management: Managing property from a distance is challenging, with issues like maintenance, dealing with tenants, and legal matters.
- Fraud and Project Delays: Opportunities for fraudulent developers or project delays are high, especially for NRIs who are overseas and not in a position to monitor transactions.
- Price Transparency: The failure to use transparent pricing can lead to overcharging.
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Tailored Solutions for NRIs
In order to address these issues, NRI property management services have emerged. The overview encapsulates solutions that are particularly pertinent:
- NRI-Dedicated Investment Desks: Dedicated desks assist NRIs in investment procedures while making them RBI and FEMA compliant.
- Remote Property Management: Professional upkeep, tenant handling, and rent collection are taken care of, freeing NRIs overseas of the trouble.
- Tax Advisory: Experts take advantage of DTAA benefit and suggest long-term capital gains tax (20%) and slab rate for short-term.
- Secure Digital Documents: Websites offer electronic tours and secure document management for transparency and accessibility.
- End-to-End Asset Management: Legal due diligence service, rental management, and resale service are included to provide a hassle-free experience.
- Flexible Investment Products: Co-investment products and REITs are liquid with lower capital requirements, best for diversified portfolios by Dubai NRIs.
To the NRIs of Dubai, coordination with companies operating in Dubai and also in India assures because one already has experience dealing with unscrupulous Indian brokers.
Tax Relief for NRIs Investing in Indian Real Estate
- Section 80C Deduction: Claim up to ₹1.5 lakh annually on repayment of home loan principal.
- Section 24(b) Deduction: Claim up to ₹2 lakh annually on interest paid for a self-occupied or vacant property.
- Note: These deductions are available only under the old tax regime.
DTAA Advantage
- Under the Double Taxation Avoidance Agreement (DTAA), NRIs can claim tax credits in their country of residence (like UAE) for taxes paid in India, ensuring they don’t pay tax twice on the same income.
Dubai NRI Advantage
- The UAE does not impose personal income tax, making tax planning easier.
- However, Indian tax compliance is still mandatory on Indian-sourced income, including rental and capital gains.
Steps to Invest in Indian Real Estate as a Dubai-Based NRI
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- Research and Shortlist Locations
- Focus on high-growth cities like Mumbai, Gurugram, or emerging Tier-2 markets.
- Always verify the developer’s credentials, RERA registration, and construction status.
- Finance the Investment
- Fund your purchase using NRE, NRO, or FCNR accounts.
- NRIs can also apply for a home loan in India, with repayment routed through these accounts.
- Ensure compliance with FEMA (Foreign Exchange Management Act) guidelines.
- Legal Due Diligence
- Appoint a lawyer to verify title ownership, no-dues certificates, and all statutory approvals.
- Check for litigation history or encumbrances.
- Power of Attorney (PoA)
- If you can't visit India, issue a PoA in favour of a trusted person to act on your behalf.
- This must be attested by the Indian Embassy/Consulate in Dubai.
- Execution and Registration
- Finalize the Sale Deed and get it registered at the Sub-Registrar’s Office in India.
- Ensure payment of stamp duty and registration charges as applicable in the state.
- Property Management
- Hire a professional NRI property management firm for renting, upkeep, and legal documentation.
- This ensures peace of mind while living abroad.
About Realsta
With over ₹1,360 crore in advised capital and 22 lakh sq. ft. of commercial real estate in Gurgaon our strategy is anchored in disciplined, high-conviction commercial real estate investment across Gurgaon’s most prolific micro-markets. We invest alongside our clients in nearly every transaction - ensuring true alignment and shared upside. By combining deep operating insight, on-the-ground intelligence, and robust capital capabilities, we build and scale strategic CRE assets with enduring value.
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