Real Estate Investment in India: Benefits and Restrictions

Published on October 2, 2025 and written by Cyril Jarnias

Investing in Indian real estate presents fascinating potential, blending both attractive tax benefits and unavoidable restrictions that shape this constantly evolving market. This country, recognized for its dynamic economic growth, offers investors a plethora of opportunities through government incentive policies like tax deductions on home loan interest and preferential treatment on capital gains.

However, it’s crucial to navigate a maze of complex regulations, ranging from restrictions on foreign investment to local compliance requirements, which can prove daunting for the less informed. Let’s dive together into the workings of this thriving universe to demystify the facets of real estate investment in India.

Opportunities and Challenges of Real Estate Investment in India

Real Estate Investment Opportunities in India

• Rapid economic growth and impact on real estate:
  • Although experiencing a slight slowdown, the Indian economy maintains steady growth momentum, with a real estate market estimated at $330 billion USD in 2024 and projected to exceed $1 trillion USD by 2029.
  • The housing price index reached a record 122 points in Q1 2025, with a forecast of 134 points in 2027.
  • Housing prices are expected to increase by 6.5% in 2025.
• Urbanization and growing demand:
  • Rapid urbanization is driving demand for residential and commercial properties, fueled by migration to cities for employment and rising disposable income.
  • The residential market is expected to reach $227 billion USD in 2024 and grow at an average annual rate of 24.77% until 2029.
• Government initiatives:
  • Programs like “Housing for All” and tax incentives promote home ownership accessibility and encourage affordable housing construction.
  • Local experts emphasize that these measures support investment while contributing to urban modernization.
• Office market boom:
  • Increased multinational presence is driving demand for modern office spaces, particularly in major metropolitan areas like Bengaluru, Mumbai, and Hyderabad.
  • Industry experts note that the office market remains resilient, fueled by outsourcing and technology startup growth.
• Secondary markets and mid-sized city potential:
  • Emerging cities offer strong appreciation potential, as megacity saturation prompts developers and investors to turn toward less exploited secondary markets.

Opportunity	Key Data / Illustration
Market Growth	$330B (2024) → $1.04T (2029)
Housing Price Index	122 (Q1 2025), forecast 134 (2027)
Urbanization	Rising urban population, increased demand
Government Program	“Housing for All,” tax incentives
Office Market	Demand driven by multinational corporations
Secondary Cities	Strong growth potential, less competition

Real Estate Investment Challenges in India

• Legal and regulatory framework complexity:
  • Multiple land laws, state-by-state variations, and administrative delays complicate property acquisition and security.
  • Foreign and local investors often face permit approval delays.
• Interest rate fluctuations:
  • Frequent changes in RBI policy rates affect mortgage costs, directly influencing loan accessibility and investment profitability.
• Infrastructure issues:
  • Major cities suffer from chronic traffic congestion, irregular water supply, and often saturated public transportation networks.
  • These deficiencies limit long-term appreciation in certain neighborhoods.
• Land disputes and acquisition:
  • Property ownership disputes are frequent, making land acquisition risky and sometimes costly.
  • Local experts recommend thorough due diligence and engagement of specialized firms.
• Transparency and business practices:
  • Despite progress, transparency remains improvable, with cases of unfair practices, delivery delays, and lack of clarity in some contracts.
  • The introduction of RERA law has improved buyer protection, but its implementation remains uneven across regions.

Challenge	Illustration / Impact
Complex Legal Framework	Multiple laws, administrative delays
Volatile Interest Rates	Direct impact on credit and demand
Infrastructure Problems	Traffic jams, water shortages, saturated transport
Land Disputes	High legal risk, complicated acquisition
Lack of Transparency	Delays, unclear contracts, uneven protection

Recent Data and Forecasts

• Housing Index: 122 points (Q1 2025), forecast 134 points in 2027.
• Expected real estate price growth: +6.5% in 2025.
• Residential market size: $227 billion USD (2024), with nearly 25% annual growth rate.
• Secondary cities’ share in growth: increasing, according to surveyed developers, with growing interest in cities like Pune, Jaipur, and Coimbatore.

Local Expert Opinions

Secondary cities currently offer the most attractive rental yields, with less competition and more accessible entry costs.

A project director at a major Indian developer

Despite regulatory complexity, the Indian market’s appeal remains very high, particularly due to demographics and urban growth potential.

An economic analyst

Tax Benefits Related to Property Purchase in India

Tax incentives offered by the Indian government to property buyers are varied and target multiple profiles, particularly first-time homebuyers, foreign investors, and those wishing to reinvest in residential real estate.

Main Tax Incentives for Property Buyers in India:

Tax Deduction on Home Loan Interest (Section 24 of Tax Code)

Homeowners can deduct up to ₹200,000 annually on interest paid for a home loan used to purchase or construct a house.

Concrete example: For a borrower who paid ₹180,000 in interest during a fiscal year, this amount can be entirely deducted from their taxable income, thereby reducing their tax payable.

Long-Term Capital Gains Tax Exemption upon Reinvestment (Section 54)

If a seller realizes capital gains from selling a property held for over two years and reinvests the amount in a new residential property within two years, they benefit from full or partial exemption from tax on these gains.

Concrete example: An investor sells a house with ₹500,000 capital gains and purchases new housing within the required timeframe. They won’t have to pay tax on this gain if all conditions are met.

Specific Benefits for First-Time Homebuyers (Section 80EE)

First-time buyers can benefit from an additional deduction up to ₹50,000 per year on interest paid for home loans (in addition to benefits offered by Section 24).

Concrete example: A young employee buys their first house with bank financing. They benefit jointly from deductions under sections 24 and 80EE.

Potential Impact of Reduced GST Rates (Goods and Services Tax):

Property Type	Previous GST Rate	Proposed New Rate
New Residential Properties	Up to 12%	5%
Other Real Estate Assets	Up to 28%	—

The planned radical reduction in GST rates should significantly lower the total acquisition cost for the end buyer. For example: A property initially sold with 12% GST will see this cost reduced to only 5%. This will make purchase much more financially attractive.

Summary List – Positive Influence of Tax Benefits:

• Decreased effective cost for acquiring primary residence.
• Strong incentive for reinvestment in residential real estate after disposal.
• Direct stimulation of real estate sector through potential transaction increase.
• Increased attractiveness for foreign investors thanks to:
  • General tax rate reduction
  • Relief/gradual removal of additional taxes

These measures significantly contribute to making the Indian market internationally competitive, while facilitating housing access for the Indian middle class and diaspora wishing to invest in their home country.

Regulations on Agricultural Land Investment in India

Overview of current laws and regulations on agricultural land investment in India

Acquisition and investment in agricultural land in India are governed by a complex set of national and regional laws, reflecting the country’s federal structure and the agricultural sector’s sensitivity.

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National Regulation

• Only Indian citizens can generally acquire agricultural land.
• Non-Resident Indians (NRIs) and foreigners cannot purchase agricultural land, plantations, or farms, except through direct inheritance or special cases approved by the central government.
• The central government recently encouraged establishing definitive land titles to secure ownership and facilitate transactions, but implementation legislation remains at state discretion.

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Variations Among Indian States

Each Indian state applies its own rules regarding agricultural land purchase and use, as illustrated in the following table:

State	Acquisition by Non-Residents/Foreigners	Specific Restrictions	Recent Particularities
Karnataka	Ban lifted in 2020 for companies	Area limit	End of direct purchase ban for private companies
Maharashtra	Acquisition strictly reserved for farmers	Area limit	No recent opening
Punjab	Purchase reserved for local farmers	Area limit	Increased monitoring to prevent conversion
Gujarat	Purchase reserved for farmers	Area limit	Strengthened controls on land use change
Uttar Pradesh	Purchase possible under strict conditions	Area limit	Prior authorization required

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Underlying Reasons for Regulations

• Preservation of agricultural land: Prevent massive conversion of agricultural land to non-agricultural or industrial use, thereby protecting the land’s food-producing vocation.
• Food security: Avoid land concentration and guarantee land access for smallholders to maintain food production.
• Farmer protection: Prevent land speculation and farmer dispossession, particularly by private or foreign actors.

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Permits, Authorizations and Procedures

• For any agricultural land investment, obtaining specific permits or authorizations from local or state authorities is often required.
• Companies and investors must sometimes justify actual agricultural activity to acquire or operate land.
• Certain areas require special authorization for land use change (conversion to non-agricultural use).

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Tax Implications

• Income from selling agricultural products on farmland generally benefits from income tax exemption.
• Upon resale of agricultural land, capital gains tax may apply, unless the sale concerns land located in rural areas (definition varies by state).
• Property transfers are subject to stamp duty and registration fees, varying by region.

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Recent Legislation and Reforms

• In 2020, some states, like Karnataka, removed historical restrictions on agricultural land purchase by private companies, sparking debates and protests among farmers.
• The central government promotes establishing definitive land titles to secure ownership and facilitate transactions.
• Sometimes controversial land reforms aim to further open the land market, modernize agriculture, and attract investment, while seeking to balance smallholder protection.

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Summary of Key Points to Remember

• Agricultural land acquisition by non-residents and foreigners: strictly limited, except inheritance or special cases.
• Regulatory variability: each state sets its own rules and access conditions.
• Law objectives: protection of agricultural vocation, food security, speculation prevention.
• Procedures and taxation: permit necessity, conditional exemptions, capital gains taxation.
• Recent reforms: partial opening in some states, land title security, debates on farmer protection.

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Key takeaway: Indian regulations aim for a delicate balance between investment attractiveness, agricultural modernization, and protection of land and local operators.