NRI Investment In Real Estate in India (Step By Step Guide)

So, you have decided to invest in immovable properties or real estate in India but, you are not quite sure about the Indian government rules and regulations, policies, and taxation involved in buying or selling a property. This happens with everyone and the list of questions is more when you are an NRI i.e. Non-Resident Indian.

NRI investment in real estate in India - NRI Guide

Investment in immovable properties i.e. real estate properties in India sounds a very lucrative investment opportunity and it’s the first choice of many NRIs when it comes to investing money wisely. Being an NRI gives you many benefits and profitable investment opportunities but there are many government rules and regulations you have to follow to avoid any trouble later on.

In this article, I will focus on the process and key things to know before you decide to invest in any immovable properties like residential units, commercial land, business properties, etc. These steps are only applicable for the NRIs i.e. Indian origin people staying and working in other countries.

Can NRIs Invest In Real Estate Properties In India?

Yes! they can.

As per the RBI rules and regulations, any non-resident Indian i.e. NRI or a person resident of outside India who is the Person of Indian Origin i.e. PIO can buy or sell immovable properties in Indian. However, unlike Indian residents, NRIs or Person Of Indian Origin cannot buy or sell all types of immovable properties in India.

NRIs can buy real estate properties India by coming to India personally for all the legal formalities or they can simply assign a power of attorney i.e. POA for the same. You can make your relatives or close friends, the power of attorney who can finish all the transactions and paperwork on behalf of you.

Also, there are no restrictions on the number of real estate properties that an NRI can purchase. However, one should always aware of the RBI and rules and regulations and must follow to avoid any trouble or penalties later on.

Following chart shows the distribution of NRI investment in primary real estate across India in 2017 (credit Statista)

NRI investment in primary real estate chart

Who Cannot Buy Immovable Properties in India?

As per the RBI rules, people cannot purchase or acquire immovable properties in India if they fall into the following criteria;

  • A citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan.
  • Foreign nationals of non-Indian origin resident outside India, however, they can acquire any immovable property is received as an inheritance from a person who was resident in India.

What Type Of Properties an NRI Can Buy or Sell?

There are mainly four types of Real Estate Property;

  1. Residential Property – This includes the residential units like building, row houses, duplex, etc. It also includes the new construction and resalable houses.
  2. Commercial Properties – Commercial properties are nothing but the malls, shopping centers, hotels, offices, education, and medical building, etc. These properties are built to generate income.
  3. Industrial Properties – Properties like manufacturing and production units, warehouses, research centers are called Industrial properties.
  4. Land or Plot Properties – Properties like vacant land, plots for residential units, agriculture or plantation lands, farmhouses, etc comes under Land properties.

Now, we know the major types of real estate properties, let’s see what types of properties can NRIs buy;

Property TypeNRI/PIOIndian Residents
Residential PropertyEligibleEligible
Commercial PropertiesEligibleEligible
Industrial PropertiesEligibleEligible
All Type Of Land or Plot PropertiesNot EligibleEligible
Land or Plot Properties (excluding Agriculture, Plantation Properties and Farm Houses)EligibleEligible

As shown in the above table, NRIs or PIOs can buy all types of real estate properties except Agriculture Lands, Plantation Properties, or Farm Houses.

But there might be chances that you may acquire properties like agricultural lands, plantation trees, or farmhouses as an inheritance that you want to sell. Fortunately, selling of such type of immovable properties are possible but only to Indian citizens who are permanently residing in India.

Payment Options For Acquiring A Real Estate Property In India?

Before you decide to buy an immovable property or real estate property in India as an NRI, you must know the following RBI rules for making the payment.

Payment Could be made only in Indian Rupees i.e. INR

  • If you have funds in your foreign bank account, you can transfer the fund to India through normal banking channels.
  • You can transfer the fund from foreign bank to your NRE, NRO or FCNR account and then complete the transaction from that account in India.
  • If you are a salaried NRI and want to apply for a home loan to buy real estate property in India, you can apply in any of the nationalized and RBI approved banks. You can reach out to the bank for the loan requirement, they will guide you through the process and also list out the required documents for the home loan. You can check in the same bank where you have the NRE or NRO account.

Once you become an NRI, it is advisable to have an NRE, NRO or FCNR account (that comes under the foreign exchange management act (FEMA) and the Reserve Bank of India (RBI) regulations) to manage the fund transaction To or From India.

However, you can also acquire a real estate property as a gift from the Indian resident residing in India or Other NRIs / PIOs.

Taxation On Selling a Real Estate Property In India?

Being an NRI or PIO, you can sell or transfer immovable properties in India to any Indian Residents residing in India, NRIs, or another PIO. You cannot sell properties like agriculture land, plantation properties, or farmhouses unless you have acquired it as an inheritance from other Indian Resident.

Similar to other investment instruments, you make either a Short Term Capital Gain or Long Term Capital Gain on your investment in real estate in India.

  • If you are selling any real estate property in India within the 2 years of buying it, any capital gain on the transaction will be considered as Short Term Capital Gain i.e. STCG.
  • If you are selling any real estate property in India after 2 years of buying it, any capital gain on the transaction will be considered as Long Term Capital Gain LTCG.

Note – The taxes will be applicable on both the types of capital gain;

Short Term Capital GainLong Term Capital Gain
TDS i.e. Tax Deduction at Source will be applicable at the rate of 30% on the capital gain.TDS i.e. Tax Deduction at Source will be applicable at the rate of 20% on the capital gain.

RBI Rules For NRI Investment In Real Estate In India

Non-Resident Indians can invest in immovable properties like land, residential units, plots, commercial and industrial properties similar to any Indian residents. However, following are key RBI rules and regulation which needs to be followed and NRIs must understand the same before taking any further steps in real estate investment.

  • NRIs can buy any type of real estate property except agriculture land, plantation properties, and farmhouse.
  • Acquisition of the property could be done only in Indian currency i.e. INR.
  • Taxation on the short term capital gain and long term capital gain will be applicable once NRIs decide to sell the property.
  • Any citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan cannot acquire any type of real estate properties in India.

These were only the bullet points you must know before investing in real estate properties in India however, there are many more things to know that I have discussed throughout this article so that you can understand better and take better decisions.

Key Documents To Verify While Investing in Real Estate

The following are the key documents to check and verify before investing your hard-earned money into a property.

  1. Sale Deed of the property – It is a legal document that has complete details of the immovable property. It is an evidence that the sale of a property has been made in favor of the buyer from the seller.
  2. Chain of Title Document – This document shows the transfer history of the property, starting from the first owner to the last.
  3. Encumbrance Certificate – This documents will confirm if there is any other party that has the claim on the property. You can appoint a local lawyer to get this document.
  4. Allotment Letter and Possession Letter – Property developer provide the allotment letter once you purchase a property and possession letter will be provided once you get the possession.
  5. Property Mortgage Records – You should ask for the mortgage record of the property from the owner. You can verify if there are any loans due on the property.
  6. Property Tax Receipt – This document will confirm if all the due property taxes were paid or not?
  7. Utility bill – You should also check all the utility bills like electricity, water, gas bill, etc are paid or not. You should look for the owner’s name on these documents.
  8. Parking Allotment Letter – If you are buying a residential or office units then you should look for the parking allotment letter

You should ask for as many documents as possible before making the deal and ask for the original copies from the property owner.

Things You Shouldn’t Miss Before Investing In Real Estate Properties In India

The process of Investment in immovable properties has become easy and sometime NRIs invest in real estate properties without even visiting the site location and locality near the property. Like all other investments, you must make sure that you are investing in the right property at the right price. Following are the key points to know before investing in real estate properties in India

  • Verify Developer’s Track Records – If you are investing in real estate properties in India then make sure to check out the track records of the developer or builder first. This will avoid many issues in the future and give you peace of mind after the investment. Many NRI investors get stuck with bad properties and once they buy such property, it is very difficult to get out of it.
  • Get aware of the property rates in the area – NRIs are after end up paying more than the actual rate of the property. There are many reasons for it like, they hardly aware of the property rates, incorrect information provided by the broker or seller, or don’t have enough information about the area where they are buying the property. So, what are the different ways to get the right price of a property?
    1. Explore the internet and inquire in various forums. Don’t rely on the information provided on any single portal.
    2. Get in touch with your friend or relatives residing in India and ask for their help.
    3. If you are dealing with the broker, then consider checking out the developer’s office directly and show your interest in the property. You can also send an email asking for a quotation.
    4. If you have any social medial friends living in the area where you are planning to buy property they reach out to them.
  • Gather Builder or Developer Information From the Web – If you are dealing with a reputed builder or property developer then you will find them online. Usually, they promote properties online and sometimes they offer promotional offers. It could be a good opportunity for you to book your property on discounted rates or you can get additional amenities.
  • Identify the trustworthy POA – If you can’t visit India to finalize the deal then it is a good approach to have someone assigned to do so. You can assign your close and trustworthy friends, family member, or relatives as a power of attorney who will manage all the work on behalf of you.
  • Find out the legal issues in property – If you are buying a plot or a land then it is very important to know the legal issues with that property. It is a very difficult and time-consuming process if you stuck with a property that has a legal issue linked to it. You can hire or get help from the local lawyer for this.

I avoid investing in any residential properties that are at its initial stage and the construction is yet to start. We as investors hardly have visibility to the project approval from the government authorities or legal risks involved.

Read Also.

Real Estate Investment in India sounds interesting and it is a good opportunity for NRIs who are working abroad. However, you should be aware of the latest RBI rules and deal with only reputed builders or property owners. Be vigilant about real estate property investment in India because there have been many cases of fraud reported every year.

I hope, you found this article useful and it helped you in your investment planning. Please share your experience or what else an NRI should know before investing in real estate properties.

Do you have any further questions? Let me know in the comment section of this article.

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