CEO and Co-founder Rentprop4U
Capital gains, Capital appreciations and rental yields have been primary motivators for NRIs to invest in the real estate segment in India. NRIs contribute immensely to the cash flow of funds within the economy, through remittances made for the purpose of supporting their families residing in India or for return on principle and interest payments on home loans. NRIs have an edge when it comes to investing in the Indian real estate, as the strength of the dollar against the rupee remains at an all-time high. NRIs have their eye on this lucrative business and given the current scenario, they are more likely to make further investments in Indian real estate due to recent reforms in this sector, initiated by the government. These reforms such as the RERA, GST and tax rate cuts call for the much-needed demands on transparency within the market between the buyers and developers.
The rental market has hence seen a significant surge of investments with the increase in demand for rental apartments and office spaces, especially in technology-driven cities like Hyderabad and Bangalore. This can be attributed to the growth in employment opportunities as an effect of the newly emerging tech-parks. The industry also witnessed a spike in rental prices of up to to 4% towards the beginning of the year 2019. The rental hike will further encourage the Indian diaspora to pool in their resources into the rental market for better rental returns.
The significant increase in the demand for offices spaces in correspondence with the new rental trends such as the co-working spaces contributes to the growth of the commercial real estate sector. The commercial rental sector which includes malls, retail complexes, factories, office spaces, warehouses etc., lies prey to the hands of NRIs, as the Internal Rate of Return is higher in comparison to the residential sector. This implies that the payback period for the commercial investments made is much quicker with higher rental yields in the range of 6-8% for these commercial properties.
The Indian Realty market offers yet another pragmatic way to invest in commercial spaces through the launch of REIT companies. REITs act as a secondary market for rental properties and help monetize income generating assets. They can even be used to offer exit routes to HNIs and NRIs who are invested in commercial properties equities. REITs are liable to contribute up to 90% of the cash flow distribution to its unit holders on a half-yearly basis according to SEBI rules.
Taxation laws have become favourable for those investing in residential properties. The recent tax reforms state the abolition of income tax on the notional rental income for the second home property. This means that irrespective of whether the second property is lying vacant or let out, it will not be susceptible to tax implications. As such, benefits of self-occupied properties can be extended to two houses and all other residential properties will be considered as deemed to be let out. NRIs can also benefit from tax deductions much like the resident homeowners. They are eligible for tax deductions on the principle and interest payments on home loans. Apart from this, if an NRI wishes to sell his property after 2 years from the time of purchase, he is exempted from paying taxes for the profits earned on the capital gains from the purchase of his property.
NRIs are also eligible for retirement benefits that come as an advantage to owning a rental property in India. The reverse mortgage is a fairly new concept in India but may prove beneficial to senior citizens who may struggle to support themselves. The bank makes monthly payments to the borrower against the reverse mortgage for his/her property and the amounts taken from the bank as a consequence of reverse mortgage will not fall under the taxable income for NRIs.
Property management companies provide end to end online solutions to rental homeowners. NRIs can make use of these property management services that take care of on-time rent payments, finding tenants through promotional marketing activities, and ensuring status update and maintenance of their properties. Such services provide a hassle-free experience for NRIs to rent out their properties and benefit from higher returns.