Should NRIs buy property in India now?

The tepid real estate market in the country and a weakening rupee are making property investments more lucrative for non-resident Indians.

The dipping rupee in the past few months has brought a lot of cheer to US-based NRI Tarun Arora. His loyalties are not misplaced, but his glee is justifiable. With the rupee weakening consistently, he will now be able to buy a house in India. "I have been planning to purchase a house in Mumbai as an investment for some time, but since the property prices have been going up steadily, I kept postponing the decision," says the 35-year-old hardware engineer. 

    However, as the real estate market has now turned sluggish and the depreciating rupee adds more power to Arora's dollars, he is likely to acquire a property at a cheaper rate. "I expect the developer to offer a good discount as the demand for real estate is low. Also, my mortgage payments will be lower compared with the sum I would have had to pay a year ago," he adds. 
Preferred option 
Anuj Puri, chairman & country head, Jones Lang LaSalle, reveals that realty purchases by expatriates constitute about 8% of all property transactions in the country. "NRIs prefer to buy real estate as it is considered one of the safest investment avenues. It is also a source of rental income and there is surety that the capital value will appreciate," he adds.
    Another reason is that there is a slowdown in most economies worldwide, while a few sectors are still lucrative in India. So, for the Indians who are living abroad and plan to return if they get better job opportunities here, investing in real estate while the prices are stagnant, makes sense. 
Cheaper payouts 
If an NRI finances the property through a bank loan, he would have to pay much lower monthly payouts compared with the amount he would have had to dispense a year ago (see How weak rupee benefits NRIs). The rupee was valued at 45.04 against the dollar on 22 June 2011, while it was trading at 57.15 as on 22 June 2012. So, the buyer ends up saving nearly 27% on his monthly payouts. Also, in case he remits his savings to India, he can get more rupees for his dollars. While last year, he could have got 45,040 for every $1,000 that he sent, he now stands to receive 57,150 for the same amount. 
How an NRI can buy property 
What are the things that NRIs need to keep in mind while buying property in India? They can purchase any number of residential or commercial properties, but cannot opt for agricultural land, plantation land or a farmhouse. They cannot acquire such property even as a gift, though there is no bar on inheriting it. 
    If you are of Indian origin with a US or UK passport wanting to buy a property in the country, you need to have a Person of Indian Origin (PIO) certificate as eligibility proof. If you do not have this, you can produce your mother's or your father's birth certificate. You will have to submit these documents at the Indian 
    embassy of your country. 
    An NRI can avail of a loan 
    from a bank in India or its branch abroad to buy a property here. Says Sandeep Sadh, chief executive officer of Mumbaiproperty.com, a Mumbai-based real estate 
    portal: "An NRI can get a loan 
    of up to 80% of the property value just like ordinary citizens. The loan, however, will be disbursed only after the NRI registers the property." Most Indian banks have set up branch offices overseas to help the NRIs process these loans through their Indian offices. 
    There are some additional documents that an NRI may need to submit with the loan application form. These include a copy of the passport and visa, and a general power of attorney in favour of a local person as drafted by the bank and duly attested by the Indian consulate at the place of residence. If he is employed abroad, some banks may ask for a copy of the appointment letter and contract, salary certificate, specifying name, date of joining, designation and salary details, as well as bank statements for the last six months (both domestic and international), and a copy of local income tax returns filed in thecountry of residence. 
    The down payment can be made through a direct remittance from abroad, traditional banking channels or deposit accounts in India. "Banks take into account the NRI's repatriable income, along with any other income he might have earned in India, while calculating his loan eligibility," says Sadh. 
    An NRI can also transfer funds through his Foreign Currency Non-resident (FCNR) account, Non-resident External (NRE) account or a Nonresident Ordinary (NRO) account to buy property. An NRE account can be opened by depositing foreign currency in the account. This currency can be tendered in the form of traveller's cheques or notes. An NRO account is similar to the usual bank account and can be opened by an Indian who is going abroad with the intention of becoming an NRI. An NRI can also open this account by sending remittances from his home country or by transferring funds from another NRO account that he holds. Such an account offers the same facilities as an NRE account, except that any repatriation done through this account needs be reported to the RBI by filling up forms that have been prescribed by it. 
Applicable taxes 
Other than the mandatory stamp duty and registration charges, the NRI buyer is also required pay taxes on the property if it is let out on rent. As for the rental income, the rules applicable to resident Indians are valid for NRIs as well. 
    However, the NRIs living in countries with which India has a Double Taxation Avoidance Agreement (DTAA) can avail of lower tax rates. So, if you work in the US and receive income from India, you will have to pay taxes only in the US. You can inform your Indian payer not to deduct tax at source by submitting a Tax Residency Certificate, issued by the US IRS to the payer in India. If you do not submit this and tax is deducted, you can claim credit in the US return. However, you will not be able to avail of tax deduction on home loan repayments unless you file your returns in India.