Reasons why NRIs prefer investment in Indian Real Estate over stock market, NRE/NRO accounts, and bonds

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Continuing with the discussion about Non Resident Indians and their propensity for investing in various investment classes, we recently conducted a survey among NRIs and asked the following question:

“Fall of rupee opens up new vistas for NRIs to invest in India. Which asset class is more likely to see increased investment activity?”

About 43 people responded and 27 chose real estate as the preferred investment asset class, the second preferred choice was NRE/NRO account with 12 people opting for it.

What could be the possible reasons for these results?

Also, have a look at our research report showing returns on investment classes such as real estate, gold, bond, and stocks.

• Volatile stock markets

Let’s face it. For last 2 years, the stock markets have been volatile to say the least. With growth slowing down and investment climate at its low due to poor policy making on part of the government of India, investors are looking for assets that are less risky. Unless, the investment climate gradually improves, we may continue to see retail investors abandoning stock markets and invest in relatively risk free asset class such as real estate or bonds.

• Low returns on bond markets

Bonds are risk free and therefore, returns are lower. However, bonds continue to provide stable return over a period of time and many prefer stability over high returns. With volatile stock markets, Indian investors are either preferring real estate or bond market. Non Resident Indians have been no exception to this rule.

• Rupee depreciation

In last 2 years, rupee has fallen substantially. This presents NRIs with an opportunity to invest in Indian real estate. Because of falling rupee, real estate looks attractive to NRIs and they are able to get property at almost 20% discount. For example, if one were to invest rupees 1 crore in commercial real estate such as Office Space in Gurgaon or housing in Chennai, he/she would have paid about 200000 USD. And since the falling of rupee, the same real estate would cost 170000 USD to an NRI. This is a major factor why real estate prices are still not coming down in India despite the sluggish demand at home. With money flowing in from NRIs, real estate prices are stable, if not appreciating.

• Family considerations

For people living abroad, there is the comfort factor that some of their relatives either parents, siblings are in India. And this leads them to buy a piece of real estate, which can be used in times of need for parents or siblings. Many also cherish the dream of returning to India one day and investment in real estate gives them the luxury to come back without worrying about housing or relocation.

• Hedge against inflation

Real estate has always been a preferred investment destination for Indians. It not only provides them with the availability of land or housing, but at the same time hedges ones savings against inflation. With low interest rates offered in deposit accounts, many prefer locking their money in real estate in order to hedge against inflation.

Our research shows that of all the various kind of investment vehicles, returns on gold and real estate have yielded better results over a 6 year period.

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How can NRIs-PIOs-OCBs open and maintain the NRE-NRO-FCNR-bank accounts in India to buy, sell, rent out immovable property?

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Foreign exchange management act (FEMA) of 1999 allows Non Resident Indians (NRIs), Person of Indian Origins (PIO) to buy, sell, rent immovable property other than agricultural land or plantation property or farm house in India. One can invest in a piece of land and construct it or buy an under construction property directly from the real estate developer. Overseas Indians can invest in commercial or residential property of their choice. The acquisition of immovable property by person resident outside India is governed by terms of Section 6(3) of the Foreign Exchange Management Act (FEMA), 1999, as well as by the regulations contained in Notification issued by RBI vides Notification No FEMA. 21/2000-RB dated May 3, 2000, as amended from time to time.

Persons resident outside India are categorized as Non- Resident Indians (NRIs) or a foreign national of Indian Origin (PIO) or a foreign national of non-Indian origin. A person resident in India who is not a citizen of India is also covered by the relevant Notifications.

To carry out this entire process of buying, selling, renting out the immovable property, NRIs/PIOs are allowed to repatriate an amount up to USD 1 million per financial year (April-March) out of the balances held in NRI account subject to tax compliance. This amount includes sale proceeds of assets acquired by way of inheritance or settlement. Thus, NRIs can purchase property and transfer money earned in India to their country of residence through authorized banking channels.

How can NRIs/PIOs/OCBs open and maintain the bank accounts in India? Find below the detailed document:

NRI-PIO-OCB opening and maintaining NRE-NRO-FCNR-bank accounts in india from Green Realtech Projects Pvt. Ltd

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Indians Buying Property Overseas

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Post 2008 financial crisis and sovereign debt problems in various European countries, the property prices fell down. Speaking to one person familiar with Spanish market, one get the sense that there is huge property overhang in the country and therefore government has relaxed norms for foreign nationals to buy property. Similarly, in Switzerland, one can easily buy a holiday home in upcoming projects in Andermatt or in other picturesque locations. Fall in property prices in US, EU, and Dubai make these places attractive for NRIs as well as resident Indians.

There could be various reasons for buying property in these countries from settling there later in life, or sending kids for education, pure investment, holiday destination, etc. "Dubai, London, New York and Singapore are the most popular property destinations for Indians. In 2013, Indians topped the list of foreign nationals who invested in Dubai Property market.

However, buying property overseas has its fair share of glitches and therefore one should adhere to following tips and RBI guidelines in order to make sure that process is legal and hassle free.

Indians buying property abroad from Green Realtech Projects Pvt. Ltd

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Why 2017 is Likely to Be a Good Year for NRI Property Buyers

Non-resident Indians from all over the world have been fascinated with Indian real estate market. However, they are bothered by the lack of transparency and ways in which business dealings are conducted in India; especially when information is withheld deliberately from the buyers, and there is a lack of scientific process of due diligence. With several key policy changes in 2016 such as demonetization, Real Estate Regulation Act (RERA), the Goods and Services Tax (GST), and the Benami Transaction Act, the debate now is if the NRIs will be interested in investing in the nation.

Here’s why NRI property buyers should invest in Indian real estate in 2017:

Firstly, there are many ready possession properties built at prime locations such as Bangalore, NCR region, Chennai, etc. There are many luxury villas in Bangalore and 2 to 4 BHK apartments in NCR that are ready to be sold. Secondly, India is expected to keep its place among the fastest-growing economies in the world, with the real estate sector steering the wheel. Furthermore, policies like Goods & Services Tax, Real Estate Regulatory Act, Real Estate Investment Trusts, Benami Act, and demonetization are expected to bring about transparency in the sector. Lastly, the amended rules and regulations will ease up the purchasing process. Relaxation of laws by the Reserve Bank of India for NRI buyers is also a major benefit.

Naushad Panjwani, the managing partner at Mandarus Partners LLP, believes that the Indian realty has major credibility issues largely due to the absence of effective regulator, which is present in other sectors (TRAI, IRDAI, SEBI, etc.). He also believes that some other reasons that hold back NRIs to invest in India could be the shortage of funds for projects, the delay in the disposal of court cases, the lack of title insurance and nexus among politicians, developers, and bureaucrats. Panjwani says, “All of these factors kept good business houses away from the realty sector, and the industry as a whole was characterized by many unscrupulous elements. However, things have started to change slowly. The Real Estate Regulatory Act (RERA) and easing of inflow of funds in the form of Real Estate Investment Trusts, External Commercial Borrowings, and Foreign Direct Investment, have attracted the attention of reputed business houses and customers alike.”

The Chairman Emeritus of Sobha Ltd, Mr. PNC Menon believes that Indian realty sector has reached a stage where it offers NRIs a range of options to invest in, from affordable to mid-range to luxury properties. Menon said, "With greater transparency, tighter regulations, more affordability and enhanced price stability, Non Resident Indians will find interesting property investment opportunities, as long as they have a long-term view and are discerning about which realty project to invest in. India is a huge market with over 1.2 billion people and an emerging economy on a global front,”

Rustomjee Group’s brand custodian and chief customer delight officer, Mr. Kaizad Hateria has expressed his opinion that moves like demonetization will bring about transparency in the real estate sector and minimize unaccounted cash dealings. He said, “Greater transparency, will improve the element of trust in the Indian property market and this will make Non Resident Indians more confident about investing in properties in India.”

The marketing director of Sheth Creators, Hiral Sheth mentioned that realty sector has come a long way by becoming the second largest employer in India. Number of rules and regulations have been amended to ease the process of home buying as well as commercial property. Sheth said, “Factors like Foreign Direct Investment in the realty sector, relaxation of laws by the Reserve Bank of India (RBI) regarding property buying by Non Resident Indians and lenient policies via-à-vis the Foreign Exchange Management Act (FEMA), have accelerated real estate investments. Also, the availability of affordable properties, attracts a large number of urban Non Resident Indian buyers from across the globe.”

Industry experts believe that 2017 will be a good year for NRI buyers to invest in properties. New policies that will boost transparency and rules that will simplify the property purchasing process are the main reasons for attracting NRI buyers.

This is a guest post by Dinesh Dawde

Tax Exemptions for NRIs, PIOs, and the process of availing these benefits

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

India is among the top beneficiary of remittances from Indian Diaspora across the world. In 2013, India topped the list in inward remittances from Indians across the world. The total money sent by Overseas Indians in 2013 alone stood at 71 billion US $.



This investment from Non Resident Indians, Person of Indian origins is an important cog in the growth and development of the country. Not just India, economies and administration around the world appreciate investments from overseas as an invaluable and sustainable feature of their economies. India is no exception and successive governments at the center have reached out to this huge audience by offering slew of measures ranging from tax benefits to relaxed visa facilities.

The Indian central government is continuously reaching out to Non Resident Indians (NRI), Person of Indian Origin (PIO), and Overseas Corporate Bodies (OCB) by offering several incentives and exemptions such as relaxations on income tax, wealth tax, gift tax, etc. At the same time, sops are also offered to NRI, PIO to invest in real estate sector and housing. Furthermore, recognizing that NRIs and PIOs pay taxes in two countries, the Government signed the Double Taxation Avoidance Agreement (DTAA) with several countries to lessen the tax burden. Incorporation of the Authority for Advance Ruling has also eased the process for tax payers by avoiding disputes with regards to assessment of Income Tax liability in case of Non-Residents and also specified categories of residents.

At the same time, one must also note that different state governments in India levy additional taxes but also offer exemptions offered by central government. How can an NRI, PIO avail these tax benefits?

Find below the detailed document.

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Will falling Rupee lead to investment in real estate sector in India by Non Resident Indians? How can property developers tap this?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Data Source: Reserve Bank of India, Ministry of overseas affairs

The Indian Rupee has fallen substantially against US dollar, and other international currencies. The value of one US dollar was Rupees 53.289 in Jan-2013, whereas in Jan-2014 it stood at 62.4768. It’s a fall of whooping 17.24% in one year, reaching a low of Rs. 69 odd.

During the course of this one year, at one point of time in August 2013, the rupee stood at 66.5742 against 1 US $. If not for the measures taken by RBI and finance ministry, the free fall of rupee would have continued. Exporters were happy but importers were crying and this had an adverse impact on current account deficit because of India being a net importer country.

Here is the sharp fall of rupee against US dollar in last 6 years.

Now, the question to be asked is if the fall of rupee results in increase in NRI remittances to India? And the answer is resounding ‘YES’. According to World Bank report, in 2013 international migrants (NRIs) will remit $71 billion of their earnings back to India, highest among all developing countries. "With the weakening of the Indian rupee, a surge in remittances is expected as nonresident Indians take advantage of the cheaper goods, services and assets back home.

Here is a look at what NRIs are remitting back to India on a yearly basis:

Now, the second question to be asked is, where is all this money going to? Is an NRI buying Property in India, or investing in NRE/NRO accounts, or investing in capital markets, or bond market, or in entrepreneurial activities? Although, there is little segmented data with regards to the share of each asset class, a quick look at the RBI database highlights that NRE/NRO accounts are the preferred choice by Non Resident Indians.

As per the RBI definition, Non-Resident Ordinary Rupee Account (NRO Account) may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes. The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/PIOs. NRO (current/savings) account can also be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India. Whereas Non-Resident (External) Rupee Account (NRE Account) may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney. Accrued interest income and balances held in NRE accounts are exempt from Income tax and Wealth tax, respectively.

Whereas as per RBI definition; Foreign Currency Non Resident (Bank) Account – FCNR (B) Accounts are only in the form of term deposits of 1 to 5 years. All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also. Account can be in any freely convertible currency. Loans up to Rs.100 lakh can be extended against security of funds held in FCNR (B) deposit either to the depositors or third parties. The interest rates are stipulated by the Department of Banking Operations and Development, Reserve Bank of India. When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him.

There could be various reasons for preference of NRE/NRO accounts by NRIs ranging from volatility in stock markets, risks involved with entrepreneurial activities, low yield on bond market, relative safe nature of NRE/NRO accounts, and poor execution by real estate developers of their projects.

Why is real estate market in India not being able to attract NRI money to ease the current liquidity pressure? Our team debated on this issue and came out with 4Cs.

Cost - No Escalations – costs escalations during the course of the project construction has been a key detriment for NRIs wherein it has been noted that real estate developers escalate the cost of the project arbitrarily on account on various parameters such as rising labor cost, regulatory cost, and raw material cost. Why do we still observe a builder asking for additional funds from buyers for parking slots, development charges, and so on when those were not included in the builder buyer agreement at the time of selling of the project inventory? Why can’t there be transparency as far as project pricing is concerned? There needs to be more transparency in builder-buyer agreements.

Commitment to timeline – It is a common practice that developers sell their projects by claiming that they will deliver the housing units in 36 months at the time of agreement between them and the buyer. And yet, we have noticed umpteen numbers of cases where projects have been delayed by not just by 1 year but by more than 2-3 years. And in some cases, project delays have stretched to 4 years. Why can’t developers stick to their promise which they had made at the time of agreement? Or else, simply state the time it will take to develop the project (say 5 years). This matter needs to be addressed directly in contractual terms or through legislation.

Construction quality – With NRIs living in different parts of the world, it becomes difficult for them to verify the construction quality of the project? What are the construction materials being used? Will the specifications and amenities be as per the builder buyer agreement? To overcome this, a 3rd party periodic construction quality check can be brought in.

Carpet area to sale-able area ratios – maintain a transparent mechanism to calculate carpet area and sale-able area. This is a regulatory function, that authorities need to address. 

Along with the 4 'C', An NRI also worries about who will manage or take care of his/her Property? Sumit Bhargava bought a 3 BHK in Gurgaon, but he had to relocate permanently to UK for his work. Since, there were no Professional Property Management Company in Gurgaon, Sumit eventually sold his apartment at lower rates.

It is widely believed that if real estate developers can focus on these 4Cs, then there is absolute certainty that NRI money will flow in property sector in India at a scale unprecedented in real estate history of India and eventually it can ease the pressure of liquidity on real estate developers, and for that matter speculators, investors, banks, and other financial institutions that finance this huge economic activity.

Are the developers listening??? Real estate developers can reach our team of professionals for advisory at nirrtigo@nirrtigo.com

Data Source: Reserve Bank of India, Ministry of overseas affairs

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Appendix – I
As per the May 2012 estimates by Ministry of Overseas Indian Affairs, the population of Indians living abroad is 21.91 million. However, more than 50% of them live in high income countries and have been the major contributor to NRI money flowing in India. We present below the overall break-up of population of Indians living in high income countries:

• United States of America (USA) – 2.25 million
• United Kingdom (UK) – 1.5 million
• United Arab Emirates (UAE) – 1.75 million
• Singapore – 0.67 million
• Saudi Arabia – 1.79 million
• Malaysia – 2.05 million
• Canada – 1 million
• Australia – 0.45 million
• And in other countries across the globe – 10.45 million

Total Population of Indians living abroad– 21.91 million

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Non Resident Indian (NRI) and Person of Indian Origin (PIO) looking to sale/purchase property in India

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Non Resident Indians (NRIs) and Person of Indian Origin (PIOs) can acquire Immovable Property (either Residential or Commercial) in India by way of purchase, gift, inheritance, or share of joint property received upon partition of family/property, etc. as per the guidelines laid by the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.

There is no ceiling on the number of immovable properties acquired or sold in India by NRIs and PIOs. However, NRIs/PIOs belonging to Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan require a prior approval of the Reserve Bank of India for acquiring Immovable Property in India.

It is mandatory to file a declaration of the acquired property with the Reserve Bank of India within 90 days of acquisition of property, on the prescribed Form - IPI 7.

Below is a detailed list of guidelines that an NRI or PIO must adhere to for selling, purchasing, and financing a property in India:

Non resident indian (nri) and person of indian origin (pio) looking to sale purchase property in india from Green Realtech Projects Pvt. Ltd


Source: National Housing Bank

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