In case the NRI gets back to India intending to settle back, one must get the loan account converted into a resident home loan and avail lower interest rates.
According to a recent NoBroker report, non-resident Indians (NRIs) make up 10 per cent of total real estate investments in India, between 2019 and 2020. This number increased to 15 per cent in 2023 and it’s expected to reach 20 per cent by 2025. This surge is owing to several factors which include the real estate space becoming a lucrative investment opportunity.
According to experts, NRIs prefer investing in immovable properties in India, as Indian banking rules are favorable to them. They can easily get loans from leading financial institutions, based on a few terms and conditions. Typically, such home loans cover several things like buying land, building or renovating homes, or purchasing commercial properties. They also pay equated monthly installments (EMIs) through remittances from overseas. And, when they wish to return to their home country, their investments in immovable properties serve as their retirement homes.
Says Rahul Kalyani, senior vice president - partnerships, LoanTap, a digital lending platform: “In India, home loans for NRIs are available and the RBI has laid down clear guidelines for the same. The growth of the Indian real estate market offers many investment opportunities to NRIs and often they look for financing options for property purchases.”
“We have witnessed the Indian real estate market expanding and the rapid urbanization and infrastructure development in cities offering promising investment opportunities to NRIs. Moreover, if there is a currency advantage against the rupee, it enhances their purchasing power making it a favourable investment option. These along with other conditions such as competitive interest rates and ease of repayment make availing home loans a viable and attractive option for NRIs,” adds Kalyani.
Like any Indian resident, NRIs are eligible to get a home loan of up to 80 per cent of the value of the property. The loan sanctioned must be disbursed, and later repaid by the borrower, in Indian currency.
“When NRIs avail of a home loan, the amount is not directly transferred to their account. Instead, the loan amount is credited to the developer’s account. Repayment can be done through various methods such as rental income, inward remittance, or crediting the money to a close relative’s account. Home loan makes it easier for NRIs to purchase a residential property with affordable interest rates. In addition to this, they can also avail tax benefits available under Interest payments (Section 24(b)) and principal repayment (up to Rs 1.5 lakh, Section 80C),” says Atul Monga, CEO & co-founder, BASIC Home Loan.
According to experts, at a time when the Indian rupee is weakening against the US dollar, taking a home loan in India could be a good option for NRIs rather than using up all the money earned in foreign currency.
What’s The Trend Like NRIs are increasingly investing in India's luxury real estate. This sudden surge in NRI investment in the recent past has also bolstered the demand for home loans. Since demand for bigger residential spaces has shot up in the post-pandemic era, NRIs looking to invest in India are resorting to home loans to make the most of it.
“Interestingly, only metro cities are not the target. Tier II and Tier III cities like Bhopal, Bhubaneswar, Nagpur, Mysore, Gwalior, Cuttack, and others are also witnessing investments from NRIs. These places are buzzing with economic activity, offering a lifestyle that combines affordability with high quality. There has been an increase in demand for NRI home loans owing to lowered interest rates in recent times, ease of application, and increase in availability with multiple options at their disposal,” says Monga.
The demand for home loans is also increasing because of the several benefits afforded to homebuyers recently such as government subsidies and concessions on stamp duty rates offered by certain states. It is expected to witness a shot-in-the-arm in the forthcoming times.
An NRI home loan can be availed by both a salaried and self-employed person, either individually or with a co-applicant (not necessarily co-owners). Having a power of attorney ready can ease the overall application process.
Documents that one needs to furnish include proof of income, identity, and residence; photocopies of a valid visa and passport; copies of property allotment letter/buyer agreement or agreement to sell, if the property has been already short-listed; passport-size photographs of all applicants; cheque towards processing fees; power of attorney, wherever applicable.
NRI home loan can be availed for purchasing, constructing, and renovating a new or existing property. However, NRIs cannot purchase more than two residential properties in India. NRIs must first find out about properties that are eligible for home loans in India. While they can avail of home loans for almost all kinds of residential properties including purchasing a plot, NRIs cannot purchase agricultural land or farmhouses.
“RBI regulations stipulate that an NRI home loan must be repaid only through the balances in NRI Accounts, including non-resident (external) account (NRE) and non-resident ordinary rupee account (NRO) accounts. Apart from debits from an NRI account, one can also directly credit the home loan with an international money transfer from overseas,” adds Monga.
Financial institutions usually charge slightly higher credit spreads from NRIs, considering the higher risk perception of the individual staying outside India. In case the NRI gets back to India to settle back, one must get the loan account converted into a resident home loan and avail lower interest rates.
“While home loans for NRIs are mostly similar to regular home loans, there may be some changes depending on the financial institution. NRI should look for RERA-registered property. They also need to carefully evaluate lenders with easy and flexible repayment options since it won’t be feasible for them to visit the lenders' physical offices regularly. They should carefully understand all the eligibility criteria, documentation requirements, loan amount and tenure, interest rates, repayment options, tax implications, and legal compliance. The last important thing to take note of is that almost all lenders require NRIs to have a local co-applicant to jointly take the home loan with them,” adds Kalyani.
Finally, while the loan amount is generally granted based on the property value, the borrower’s existing income, permanency of income, and educational qualifications also play an essential role in determining the loan amount, which can be sanctioned to an NRI.