Moneycontrol PRO
Upcoming Event:Attend Algo Convention Live, 2 Days & 12+ Speakers at best offer Rs.999/-, exclusive for Moneycontrol Pro subscribers. Register now!

Here’s a look at tax implications for NRI homebuyers invested in senior living project

The senior living segment has also caught the fancy of non-resident Indians who wish to settle in India after retirement or want to invest in a senior living project for their parents

May 10, 2022 / 11:19 AM IST
One should keep in mind that the monthly maintenance/service fee for senior care living units is often high when compared to other residential units.

One should keep in mind that the monthly maintenance/service fee for senior care living units is often high when compared to other residential units.

The senior assisted living sector is gaining ground, particularly in Southern and Western Indian markets, after three waves of COVID-19.

According to a ResearchAndMarkets.com report, the global retirement communities market touched $189.3 billion in 2020 and is expected to hit $285.1 billion in 2025 and $374.7 billion by 2030.

In India, the retirement and second-home market is expected to grow annually by 23.63 percent in the next five years, showed a report by 360 Realtors. It estimated the market size to reach $4.021 billion by 2026 from the current size of around $1.4 billion.

The segment has also caught the fancy of non-resident Indians (NRIs) who wish to settle in India after retirement or want to invest in a senior living project for their parents.

V Narayanan, (name changed), who used to work with a global pharma giant in the US, invested in a senior living project as he had plans to settle in India after retirement. He has invested in a project in Coimbatore called Serene Shenbagam by Columbia Pacific and has been residing there since retirement.

Close

An octogenarian who relocated to India in 2009 after retirement, Narayanan is among the early investors in the project.

NK Rama (name changed), 75, who was a professor at an African University, moved to his senior living home in Kanchipuram in December last year. Rama said he invested in the assisted home facility for a hassle-free retirement life.

There are many like Narayanan and Rama who have invested in senior living housing for self-use. While planning to invest in this segment, NRIs must be mindful of tax obligations.

Taxes implications for NRI investors

Suresh Sadagopan, Founder and Principal Officer of Ladder7 Wealth Planners, said that senior care homes are not different from conventional residential properties and an NRI buying such a property for investment purposes will have to pay 20 percent Long Term Capital Gains (LTCG) tax on it if he intends to sell the property after holding it for at least 24 months.

"Let's say someone bought a home for Rs 1 crore and is selling it for Rs 1.10 crore after 24 months. If after indexation (inflation adjustment), let's assume that the property is valued at Rs 1.07 crore and the owner sells it for Rs 1.10 crore, then he will be required to pay the LTCG tax on the difference amount/profit, in this case, it is Rs three lakh," he said.

If an NRI is buying the property for his/her personal use or for their parents, they are not required to pay any tax, he added.

Sadagopan also said senior assisted living is not something that one can look at purely in financial terms. He said that assisted living has both advantages and disadvantages.

"The first negative is that assisted living is much more expensive than conventional housing. It'll be useful for people who have that kind of money to pay. The cost of such homes is perhaps 1.5-2 times more than conventional residential units depending on the facilities on offer," he said.

Real estate experts said that senior living segment is yet to receive any help from the government at the policy level.

Anuj Puri, chairman of property consultant Anarock, said the government had not given senior living the benefit of recognition as a priority segment. Such recognition would attract more entities into the sector.

Is demand for assisted living on the rise?

Industry trends have shown a growing interest in senior assisted living homes as a preferred option for a second home or retirement home for senior citizens living alone. According to some estimates, there are around 20 million seniors who stay alone and the number is likely to increase in the coming decade.

Mohit Goel, MD of Omaxe Ltd, said the three waves of COVID-19 have necessitated the need for a better lifestyle and healthcare for seniors. There is also an increasing trend of NRIs investing in such projects in their hometowns and cities.

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and PropTiger.com, said India’s population of senior residents is projected to increase 130 percent between 2020 and 2050 and is likely to reach 320 million from the current 139 million. Developers are upbeat about the industry's potential.

Ankur Gupta, JMD of Ashiana Housing, noted that the sector had witnessed improved demand amid the pandemic; COVID-19 highlighted the significance of senior living services at a time when the elderly require healthcare and other basic services at home.

New retirees want to lead an independent life and there is greater acceptance of senior living spaces, he said.

Mohit Nirula, CEO of Columbia Pacific Communities, said that more seniors are now staying alone - primarily on account of their children being abroad. States like Tamil Nadu, Karnataka, and Andhra Pradesh already have several senior living housing projects. There is pent up demand for such spaces in states like Maharashtra and West Bengal.

Factors one should look at in buying a senior care living unit

While there has been an increase in demand for senior assisted living homes, Gupta says people investing in senior living projects should principally look at it from the 'service and care' lens.

"This is not a regular property investment and the buyer needs to evaluate the services offered by the project. The project should be conceptualized and designed in a way that it can adapt to the changing requirements over time, as the needs vary at different stages and for different residents who are senior citizens. Hence when planning to invest in a senior home, one must consider the facilities such as flexibility of food arrangement, a helpdesk to assist with concierge services, provision for indoor games, cultural programmes, security, availability of assistance and health services, quality of life and general infrastructure," said Gupta.

Nirula said the design of a senior living community must necessarily allow for every square inch of the community to be accessible and usable by residents, whether they are 55 or 95 years of age.

"The most critical physical feature that distinguishes a senior living community from general flats is the medical support infrastructure and a paramedical team that addresses the proactive and emergency medical needs, providing residents and their families with the peace of mind they all desire," he added.

Also Read: 70% senior living real estate projects in South India: Report

One should keep in mind that the monthly maintenance/service fee for senior care living units is often high when compared to other residential units. Besides, the capital investment required to purchase such a real estate asset, residents will have to spend on a monthly service fee that includes services like medical aid.

Is it a good investment option?

Puri of Anarock said: "The senior living sector in India is still at a very nascent stage and not many developers have tried to explore this opportunity to its full potential. This is unfortunate since this sector has immense potential if approached strategically."

Mohit Nirula of Columbia Pacific Communities feels that for an asset where demand outstrips supply, chances of returns are higher than the residential norm for both resale and rentals which in turn makes for a great investment.

Ankur Gupta of Ashiana Housing echoed the sentiment. "The return on investment in the senior living segment is quite robust. With demand going up and the supplies not rising at the same rate, there has been considerable appreciation in prices. Although the appreciation varies across locations and projects, prices have gone up by up to 30-40% compared to regular housing projects," said Gupta.

Sadagopan thinks otherwise. He said that buying an assisted living house may not be a good investment option.

"If you are buying a home in Mumbai or Chennai, that home will attract a lot of people. Now if you look at assisted living units or retirement homes, they will be not in the city but somewhere outside of the city. From a senior citizen's point of view, it's fantastic but nobody else will come and purchase a house or live there, because it's far from the city and designed for senior citizens. Other facilities like schools and colleges won't be there, making it impractical for young couples with children to live in. The people who would be willing to buy that home will only be senior citizens. Therefore, the market for that kind of property will be limited and thus the appreciation potential will be limited."

He also said that buying a senior assisted living home or retirement home 10-12 years in advance of one's retirement is also a bad idea.

Also Read: The Moneycontrol Real Estate show | Need to plan for your senior living asset at least 5-10 years before retirement? Tune in!

"If they buy a retirement home of Rs 50-60 lakhs and want to rent it to a person who will be a senior citizen, the potential for them to get a decent rental, inflation-adjusted, is going to be limited. The rental potential itself will be limited. While they may have an intention to live in that house after retirement, but by the time they retire, the property would have gotten old and one may have to carry out repairs/renovation and might not like it for living. New properties would have come with better facilities by that time," said Sadagopan.

People should consider buying such homes for residential purposes one or two years in advance of their retirement, he said.



Download your money calendar for 2022-23 here and keep your dates with your moneybox, investments, taxes

Akash Sinha
first published: May 10, 2022 11:19 am
Sections
ISO 27001 - BSI Assurance Mark