It’s a triple benefit for NRIs to invest in the Indian property market with a liberalised tax regime provided in the recent interim budget, exchange rate advantage and falling mortgage cost coupled with depressed property prices.
India offers a wide choice for property investment, in terms of location as well as asset class, which NRIs can cash in on now.
“The time (for investing in property) is now as the rupee is likely to strengthen, property prices will not remain low for long, and increasing demand will push property prices up, above all a possible reversal in housing finance rates,” said Ajay Mehta, director, Dubai-based investment and property consultants Vision Ventures International.
The latest triggers are the tax breaks proposed in the recent interim budget and the interest rate cut announced by India’s central bank, the Reserve Bank of India, which on 8 February slashed the benchmark interest rate to 6.25% from 6.50%.
The country’s largest bank State Bank of India and other lenders have passed on this rate cut to customers in the form of lower rates on home loans, which range between 8.8% and 9.75% pa.
“The best option is to avail a housing loan as the interest rates have been slashed recently. NRIs in the UAE can use HDFC, LIC Housing and all nationalised banks with rep offices in the UAE”, Mehta said.
They also have the exchange rate advantage as the rupee is hovering around 51.73 dirhams for INR1,000 ($14.05, £10.89, €12.42) as against 55 dirhams last year.
Low property prices
The current low property prices are slated to see an uptrend with the interim budget proposing to extend the benefit of self-occupied property to two houses, if it is not let out. At present an individual can only do this with one house property. The current income tax laws require that notional rent is payable if an individual has more than one self-occupied house.
The new benefit means that the income tax on notional rental income will not be taxed on the second house property. This will result in at least some increased interest in buying homes with the specific purpose of earning rental income.
As per the existing tax rules, interest of up to INR 200,00 on a housing loan for one self-occupied house can be deducted from the annual income for calculating income tax. The interim budget has extended this facility to one more self-occupied house.
The budget has proposed 100% tax rebate for individuals whose annual income does not exceed INR500,000. Individuals are expected to use this tax benefit to invest in property, thus boosting demand for mass housing and a resultant property price increase.
Further, the TDS (tax deducted at source) threshold for deduction of tax on rental income has been raised from INR180,000 to INR240,000, which will result in increased interest in buying new homes with the specific purpose of earning rental income. Again, the net effect will be property price appreciation.
Falling rupee
The rupee has depreciated almost 14% in 2018 and is likely to remain at the current levels, at least till the general elections in three to four months, providing a boost to both NRIs and developers.
“Developers will see more interest from NRI buyers as long as they have the exchange rate advantage and low capital cost. At current rupee levels and with a sort of uncertainty prevailing in several host countries, NRIs would prefer to invest in the home market unmindful of the returns,” said A.S. Elvarasan, chairman, ASPA Management Consultancy.
Against a backdrop of reported rising interest from NRI businessmen for commercial property in major business centres and ‘B class’ cities in India, he concludes: “Those who plan to buy property should do so before the expected price increase.”
