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RM Reports

Declining NRI investment in Indian real estate?

Declining NRI investment in Indian real estate?

by Anushree Ghosh

The Non-resident Indians always had a vested interest in the Indian real estate market. Factors such as higher rate of returns, emotional attachment, decline in the value of the rupee, and the desire to spend time in their homeland after retirement; motivated the NRI’s to purchase land in India. The main investments were received from the NRI’s of USA, Saudi Arabia and UAE.

However, 2017 witnessed a steep decline in the investment by the NRI’s in the real estate sector due to uncertainty related to the sector. Demonetisation, unclear rules, lack of execution of the Real Estate Regulatory Act or RERA, goods, and services tax and the Benami Transaction Act created chaos and doubts in the minds of the NRI investors. The real estate sector was already dense in nature and with the sticky execution of the new rules; dealings in real estate have become trickier.

Also, the rules for the NRI investors are pretty restrictive

  • The NRIs cannot invest in agricultural/plantation lands.
  • In case an NRI wants to purchase an agricultural land, then he/she must get a special approval from the RBI. The RBI also has to get permission from the government before approving anything.
  • The transaction must take place through an NRI account from an Indian bank.

NRI investors showed a credible amount of interest in the Indian properties from 2000 to 2014, which declined with the downshift of the residential property market of India in 2015. Fewer numbers of villas, flats, and new plots were purchased due to the market slowdown and the uncertain policy changes by the government. There were few launches to woo the investors and stagnancy in the prices of the properties at large across the major cities of India could not pull the NRI’s towards the Indian lands.

Waning trust is another important element that held the investors from buying properties. The rising inflation and cost of construction have led to a major delay in the completion of projects in time. This has led the investors to inspect opportunities in other countries with better transparency in real estate. Also, the demand for smart homes has further contributed to the lack of demand for the already constructed older units, which are piling up, adding to the inventory.

The realty plus magazine quoted the following in the report published on 8th Aug, 2017, “NRIs are getting fabulous deals abroad along with various sops like tax rebates,” – Real estate expert Ajay Chaturvedi

Also, when it comes to the NRIs who are settled in the tax-free countries, they find it extremely difficult to calculate the taxes included in the purchase of a property. While one can get information on the facilities and offers by the developers, it is particularly hard to understand the final estimation considering the government taxation policy.

The real estate sector is yet to reach a point where it becomes transparent and easy for the NRIs to invest in Indian properties. The change of policies might smoothen the roadblocks of the opaque system to regain the trust, the glimpses of which we have seen in the past.

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