Investing directly in commercial properties in India is possible for non-resident Indian (NRI) investors, who can buy units of commercial property on the basic premise of adhering to the legal conditions set in the Foreign Exchange Management Act (FEMA). The nature of the investment rules can be the same for both NRIs and persons of Indian origin (PIOs).
Before NRI investors invest, it is better to get a holistic overview of the factors affecting the Indian real estate market first.
It is important to clarify that investing in commercial real estate will need to be done under the regulations pertaining to the Reserve Bank of India (RBI), etc, meaning it must stay within the FEMA framework.
What properties can NRIs purchase?
Non-Resident Indians (NRIs) holding valid Indian passports can invest in both residential and commercial real estate in India. Investments can be made without the need for special approval from the Reserve Bank of India (RBI), which makes it much easier for NRIs to invest in real estate in India.
The RBI does not require NRIs to notify them of their property acquisition, so this means that NRIs can purchase as many properties as they like.
NRIs can designate a legal power of attorney to appoint a person in India to do property transactions for them. This can be extremely useful for NRIs because it allows them to invest in property in India without having to travel to India.
There are restrictions on the acquisition of agricultural land. NRIs are not allowed to invest in agricultural plots or farmhouses unless they seek permission from the RBI. Obtaining that approval is not guaranteed, which further complicates investments involving agricultural land.
What is the process for an NRI to invest in property?
NRIs can purchase real property either individually or jointly with another NRI.
If the NRI cannot physically be in India, the best method of acquiring such property is via a legal power of attorney.
An NRI can appoint a power of attorney as a personal legal advisor. This person will advise on all transaction matters and assist with the verification or other related formalities. It will be less of a hassle because the legal professionals will be accustomed to those systems in these instances.
Since the legal people will know all the rules and laws, they will help NRIs to get the safest and best possible transactions. A GPA or SPA should be appointed only after ascertaining whether the person is trustworthy or not.
Why should NRIs invest in commercial property? 1. Higher ROI
One consideration for NRIs to consider purchasing commercial property is the much greater ROI versus residential property. Commercial properties, such as office spaces, retail showrooms, and warehouses, can provide rental yields of 6–10% compared to residential properties, which have a 2–4% yield.
In addition, the capital appreciation of commercial properties in developing cities such as Ahmedabad is appealing to NRIs to invest in as a long-term investment. The recently launched commercial projects in Ahmedabad are already attracting Indian and international investors, due to the location and modern project specifications. 2. Steady rental income
Unlike residential properties that may sit vacant for months at a time, with pre-leased commercial properties, NRIs will see monthly rental income from the second they purchase the property! With pre-leased properties, commercial properties are already leased out to tenants, giving NRIs peace of mind and relatively hassle-free rental income.
NRIs can avoid guessing who their next tenant is by taking advantage of pre-leased property investments. NRIs can earn money immediately after they buy, and many commercial leases are long-term leases with corporate tenants. So, there is also a very low risk of waiting for the property to become vacant. 3. Booming demand in tier 1 and tier 2 cities
Cities such as Ahmedabad, Pune, Hyderabad, and Bangalore have experienced rapid commercial development that is driven by the startup boom, IT companies, co-working spaces, and retail expansion.
NRIs looking for wealth creation and long-term capital growth should always consider areas and cities that have infrastructure projects being developed and an urban plan for their growth. Ahmedabad, on the other hand, is a great place to invest in commercial real estate.
It has a range of commercial real estate investments from shelf office units for sale to ground floor showroom space for sale that will appeal to a diverse audience. 4. Favorable government policies for NRIs
The government of India has announced a number of NRI-friendly reforms to encourage foreign investment in real estate. In particular:
NRIs can invest in commercial real estate without prior approval under FEMA regulations.
Earnings in commercial real estate can be repatriated subject to applicable tax.
Investments through NRO/NRE accounts will make the transaction more efficient and more transparent.
These relaxations and a more subservient investment process have meant there is now huge interest from NRIs in Indian commercial real estate. 5. Tax benefits and financial flexibility
NRIs who invest in commercial property in India can benefit from tax deductions on loan interest, depreciation, and maintenance expenditures.
Moreover, NRIs can repatriate rental income and capital gains, subject to taxes that can ensure that financial excess is available and manageable.
In addition, owning commercial property often allows joint investment, fractional ownership, or working through REITs to give more flexibility for NRIs of different budgets.
Final Thoughts
The Indian commercial real estate sector is booming, and there has never been a better time for NRIs to become involved in this story of growth. Million-dollar returns in terms of rental yields and great property management due to their association with a corporation, while government incentives and urban jump start boost rents, make these types of investments an unbeatable investment option for NRIs.
Whether you are looking for a pre-leased property or a high footfall ground floor showroom or office space in Ahmedabad, our team at RES Management can help find the right opportunity for your budget and needs.
