Nris In India: Home Prices And Investment Impact

Non-Resident Indians (NRIs) have been major contributors to the growth of the Indian real estate sector over the last decade. NRIs are increasingly investing in Indian real estate due to various factors, including the depreciation of the Indian rupee, favourable currency rates, high potential returns, and the desire to own a home in their home country. This trend has led to a surge in demand for homes in India, which, in turn, has impacted property prices.

The falling value of the Indian rupee against the US dollar has been a significant motivator for NRIs to invest in Indian real estate. Since 2018, the rupee has been on a downward trajectory, and NRIs benefit from this depreciation as they can get more value for their money when investing in Indian properties. This advantage is especially prominent for NRIs residing in countries with stronger currencies.

Additionally, NRIs see Indian real estate as a profitable investment opportunity. They seek to capitalise on the potential for high returns and the diversification of their investment portfolios. NRIs often prefer investing in cities like Gurgaon, Bengaluru, and Hyderabad and are also showing increased interest in Tier 2 cities, where they can buy larger homes in their hometowns.

The Indian government's infrastructure investments have improved connectivity and boosted the development of Tier 2 cities, making them more attractive investment options. The implementation of government reforms, such as the Real Estate Regulation Act (RERA), has also increased transparency and confidence in the real estate market, benefiting both local and NRI homebuyers.

With NRIs playing a significant role in the Indian real estate sector's growth, it is essential to explore the potential impact of their investments on home prices in India.

Rupee depreciation

Improved Affordability

The depreciation of the rupee against foreign currencies has made it more affordable for NRIs to buy properties in India. For example, if an NRI earning in US dollars wants to purchase a property worth 1 crore Indian rupees, a 5% depreciation in the value of the rupee would make the property approximately 5 lakh Indian rupees cheaper, thus increasing their purchasing power.

Higher Rental Income

Capital Appreciation

Diversification of Portfolio

Impact on Costs

Cautious Approach

While rupee depreciation offers benefits, NRIs should also be cautious as there are risks involved. The real estate market can change once the rupee stabilises, and investing in the wrong property without proper research can lead to potential losses.

In conclusion, rupee depreciation has made Indian real estate more attractive to NRIs, offering increased purchasing power, higher potential returns, and opportunities for portfolio diversification. However, NRIs should carefully consider all factors, including economic growth, infrastructure development, and government policies, before making investment decisions.

High profits and portfolio diversification

Non-Resident Indians (NRIs) have been a significant driving force behind the phenomenal growth of the Indian real estate sector over the last decade. NRIs view real estate investment in India as a lucrative opportunity to achieve high profits and diversify their investment portfolios. Here are some reasons why NRIs are attracted to the Indian real estate market:

High Profits

The Indian real estate market has witnessed a significant increase in property values over the years, and this trend is expected to continue. NRIs can take advantage of this growth by investing in properties that offer excellent potential for substantial returns on their capital over the long term. The depreciation of the Indian rupee also plays a crucial role in making real estate investment attractive to NRIs. The fall in the rupee's value against foreign currencies, especially the US dollar, means that NRIs can get more value for their money when investing in Indian properties. This is particularly advantageous for NRIs residing in countries with stronger currencies.

Diversification of Investment Portfolio

NRIs find the Indian real estate market appealing as it allows them to diversify their investment portfolios. Real estate is often considered a stable and secure asset class that can protect investors from market volatility. By investing in Indian real estate, NRIs can balance their portfolios, which typically include stocks, bonds, and other financial instruments. Additionally, the Indian government's initiatives, such as the Real Estate Regulatory Authority (RERA), have improved transparency and boosted confidence among NRIs considering real estate investments.

Favourable Rental Income

The rising demand in the Indian real estate market translates into higher rental income potential for NRIs. Investing in rental properties in India can provide NRIs with higher returns compared to other investment options like fixed deposits or bonds. The combination of increasing property values and rental income makes Indian real estate a compelling choice for NRIs seeking to maximize their investment returns.

Rental income potential

Rental income is an important consideration for Non-Resident Indians (NRIs) investing in Indian real estate. Here are some key points about rental income potential:

High Returns on Investment

Due to the rising demand in the Indian real estate market, NRIs can expect high returns on their investments. Indian real estate offers greater returns compared to other investment options such as fixed deposits or bonds. The average rental yield for commercial real estate is around 8-11% per annum.

Favourable Currency Rates

The depreciation of the Indian Rupee offers NRIs more value for their money. With the rupee falling against major currencies like the US Dollar, NRIs benefit from favourable exchange rates when investing in Indian real estate. This allows them to purchase properties at a lower cost.

Robust Rental Yields

Indian real estate, especially in Tier-2 cities, is experiencing robust growth. Cities like Gurgaon, Bengaluru, Hyderabad, Pune, and Ahmedabad are attracting NRI investments due to their infrastructure development and improving connectivity. This growth provides NRIs with the potential for steady rental income.

Tax Considerations

Rental income earned in India is taxable for NRIs. The tax must be paid according to the marginal income tax rate, and TDS (Tax Deducted at Source) applies. However, if the country of residence has a Double Tax Avoidance Agreement (DTAA) with India, there will be no double taxation. NRIs can also claim tax deductions on interest payments for home loans and can set off losses from rental income against other sources of income.

Investment Options

NRIs can invest their rental income in various options such as mutual fund schemes, equity funds, or ultra-short-term debt funds. By creating an investment plan based on their financial goals, NRIs can maximise their returns and build a stable source of passive income.

Streamlined Process

The Indian government has simplified the investment process for NRIs, making it straightforward to invest in Indian real estate from anywhere in the world. NRIs can also seek professional advice from reputable real estate agents to guide them through the legal and regulatory environment.

Simplified buying process

The process of buying property in India as an NRI (Non-Resident Indian) is simplified due to various factors, including legal reforms, technological advancements, and the availability of diverse property options. Here are some key aspects of the simplified buying process:

Legal Reforms

The implementation of the Real Estate Regulatory Authority (RERA) Act has been pivotal in boosting NRI confidence in the Indian real estate market. RERA has introduced greater transparency and stability in the sector. It ensures that developers provide clear and accurate information about projects, including the carpet area, and are held accountable for completion timelines. The presence of a robust regulator allows NRIs to file complaints and seek redressal in case of any fraud or delays.

Technological Advancements

Technological advancements have transformed the real estate experience for NRIs, making remote investing more accessible and transparent. Virtual property tours, online due diligence tools, and digital payment options enable NRIs to make more informed decisions and efficiently navigate the buying process from abroad.

Diverse Property Options

The Indian real estate market offers a wide range of property options, including premium apartments, individual villas, and gated communities, catering to different budgets. NRIs can choose between ready-to-move-in properties, which offer immediate possession, and under-construction properties, which are usually more affordable.

Simplified Tax Regime

NRIs benefit from a simplified tax regime in India, where properties held for more than 24 months are classified as long-term capital gains assets and are taxed at a flat rate of 20% with indexation benefits. Certain tax deductions are also allowed under Sections 80C and 80TTA of the Income Tax Act of India.

Streamlined Funding Options

NRIs have several streamlined funding options for their property purchases. They can utilise their NRE (Non-Resident External) accounts, which allow for the free repatriation of funds after the sale of the property. NRO (Non-Resident Ordinary) accounts can also be used, but with certain tax deductions and RBI regulations for repatriation. Additionally, NRIs can explore home loans specifically tailored for them by Indian financial institutions.

Efficient Documentation Process

The documentation process for NRIs buying property in India is well-defined and straightforward. Essential documents typically include a valid passport, a Permanent Account Number (PAN) card, OCI/PIO card (if applicable), and power of attorney (POA) if the NRI is unable to be physically present during the transaction.

In summary, the simplified buying process for NRIs in India is facilitated by legal reforms, technological advancements, diverse property options, a streamlined funding process, and an efficient documentation framework. These factors collectively enhance the ease and attractiveness of investing in Indian real estate for NRIs.

Demand for larger homes

The demand for larger homes in India has been rising despite increasing property prices. The average flat size in the top seven cities in India rose by 7% in the last five years, reaching approximately 1,225 sq. ft. in Q1 2023, up from 1,150 sq. ft. in 2018. This trend is driven by a combination of factors, including the desire for more space to accommodate the shift to remote work and the appeal of investing in real estate during a time of rupee depreciation.

The COVID-19 pandemic significantly influenced homebuyers' preferences, with a sudden shift towards larger homes in 2020 due to the normalisation of remote work and study. This trend has persisted even as property prices have continued to rise in 2023.

In the first half of 2024, at least 51% of property buyers preferred 3-bedroom homes, and 39% opted for 2-bedroom homes, according to an Anarock-FICCI survey. This demand for bigger homes is particularly prominent in Chennai, Hyderabad, Delhi-NCR, and Bengaluru, where over 50% of respondents in the survey favoured 3-bedroom homes.

The pandemic also led to a change in the type of properties sought by Non-Resident Indians (NRIs). NRIs have been taking advantage of the depreciation of the Indian rupee to invest in real estate, particularly in tier-two cities, where they seek to buy large homes in their hometowns. The work-from-home trend has further fuelled this demand for larger homes, as professionals seek additional space for workstations.

The rise of hybrid work formats and the desire for a better quality of life have also contributed to the demand for larger homes. This shift in preferences is expected to continue driving the growth of the real estate sector in India, making it a profitable investment opportunity for both local and NRI buyers.

Frequently asked questions