Revival of the real estate sector during the on-going pandemic has been like a silver lining on the dark and gloomy clouds of Covid. The work from home culture has bought with it an enhanced realization of the importance of owning a home and low interest rates and cut in stamp duty has enabled a revival of this sector. Industry reports suggests that the real estate sector has been resilient during the second wave as compared to the first wave and the sector is now firmly on the growth trajectory. Besides domestic investors, even FPI’s continue to repose faith in the real estate sector.
Former President of the United States Franklin D Roosevelt had said “Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” These words are like divine guidance given by Lord Krishna to Arjun in the Bhagvad Gita and therefore its importance cannot be undermined.
Understanding the regulatory framework and compliance thereof is the first step. Investment in agricultural land by NRI’s/PIO’s is still prohibited and any current holding of such property acquired when the person was a resident is under RBI scanner. The investment can be made through either a NRE or NRO account. Investment made through NRE account is fully repatriable (albeit subject to conditions) whereas repatriation of investment made through the NRO account is regulated by the one million USD remittance scheme. Diligence to ensure clear title, reputation of the seller and whether the subject property has clearances under the environmental laws is critical. Depending upon the nature and purpose of the investment, a SPV could also be used. Investment through REIT’s is also gaining popularity and can be considered as an option.
Interest paid on money’s borrowed for the purchase of property is eligible for tax deduction and therefore deserves consideration when planning for acquisition of the property. An important provision which is often overlooked is that investment in more than two self-occupied properties is subject to notional taxation. If an investment is being made to claim a deduction from capital gains earned from sale of an existing property, then timelines specified in the law need to be adhered. Withholding tax and GST implications on acquisition/sale of property also need to be borne in mind. In case of sale of property by a NRI, the withholding could be as high as 20% of the sale consideration which can be reduced by seeking a lower withholding certificate from the tax authorities. Last but not the least one needs to ensure the timely submission of tax returns both under the income tax law and GST.
Post-acquisition whether the property is self-occupied or leased out, the same would require maintenance. Often there are people in the extended family or friends who are willing to help. In the absence of help being available there are professional agencies who can be appointed to do this task. A power of attorney executed in favor of such person would facilitate this process.
Happy Investing!
