NRI Investing in Commercial Real Estate in India: Direct Offices and Warehouses, Fractional Ownership, and Listed REITs Compared

A reader in Toronto messaged me in January about a pre-leased office floor in Hyderabad. The numbers on the brochure were hard to argue with: Rs 3 crore for roughly 6,000 square feet, leased to a listed IT services company on a nine-year deal at a 9% gross yield, Rs 27 lakh of rent a year landing in his account while he sat in Mississauga. Against that, the two-bedroom flat his family already owned in Pune was throwing off a net 2.4% after the society maintenance and the months it sat empty between tenants. His question was the one almost every NRI asks once they discover Indian commercial property: is the yield real, and can I, sitting abroad, actually own and run this thing without it becoming a second job?

The 30-second answer: Under FEMA, an NRI or OCI can buy any number of commercial properties in India, offices, retail, warehousing, with no RBI approval and no quantity cap, funded from an NRE or NRO account; only agricultural land, plantations and farmhouses are off limits. Commercial assets yield 7% to 9% gross against a let-out flat's 2.5% to 3.5% net, which is the whole reason NRIs look at the sector. Rental income is hit with 31.2% TDS under Section 195, then taxed at slab after the 30% standard deduction under Section 24(a), with refunds common. Three routes exist: direct ownership (control, Rs 1 crore-plus, active management), a fractional SM REIT (Rs 10 lakh, one building, thin liquidity), and a listed REIT (a few hundred rupees, daily liquidity, around 7% to 8%). Repatriation is clean via NRE; via NRO it is capped at USD 1 million a year.

This guide is about the whole commercial real estate decision, not just one route. If you have already settled on fractional and want the SEBI mechanics in detail, the fractional commercial real estate guide goes deeper there, and the REITs and InvITs guide covers listed trusts. What follows is the layer above all three: the FEMA rules that let an NRI own commercial property at all, the yield story that makes the sector tempting, how the rent is taxed and repatriated, the honest comparison of direct ownership against fractional against a listed REIT with the arithmetic shown, and the risks that the brochures leave out.

What FEMA actually permits, and the one line that catches people

Start with the rule, because everything else sits on top of it. The acquisition and transfer of immovable property in India by a non-resident is governed by the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, which replaced the older FEMA property notifications. Under those rules an NRI or OCI can acquire any immovable property in India other than agricultural land, a plantation, or a farmhouse. Commercial property, an office unit, a shop, a warehouse, an industrial shed, a co-working floor, sits squarely on the permitted side. There is no cap on how many commercial properties you can own, and no Reserve Bank approval is required for the purchase. You do not file anything with the RBI to buy a commercial building. It is a general permission.

The funding rule is the part to get right. The purchase consideration must come through normal banking channels by inward remittance from abroad, or out of funds held in your NRE, NRO or FCNR account. You cannot pay in cash, and you cannot pay in foreign currency notes handed over at the table. Which account you draw on, though, is not a paperwork detail, it decides your repatriation rights years later when you sell, and I will come back to that.

Now the line that catches people. The prohibition is on agricultural land, plantation property and farmhouses, and the trap is that a chunk of what gets marketed as "industrial" or "warehousing" land is still classified as agricultural in the local land records, especially on the fringes of cities where logistics parks are coming up. If the land use has not been formally converted to non-agricultural (the "NA" conversion), an NRI buying it is contravening FEMA, and the penalty under Section 13 of FEMA can run to three times the sum involved, with the property itself liable to confiscation. So before you buy a warehouse or an industrial plot, get the land-use certificate read by a lawyer. A completed office or retail unit inside a commercial building almost never raises this issue; raw land on the outskirts often does. The deeper land-classification problem is the same one covered in why NRIs cannot buy agricultural land, and it is worth reading before any land deal.

One more permission worth knowing: an NRI can let out commercial property freely, and the rent is a permitted current-account transaction. You do not need anyone's approval to be a commercial landlord in India. You can also gift or sell a commercial property to a resident, another NRI or an OCI; selling to a foreign national who is not an OCI needs RBI approval.

The yield story: why commercial beats a flat, and by how much

The reason an NRI even looks at commercial real estate is the yield gap, and it is large enough to matter. Residential property in India is a capital-appreciation asset that happens to throw off a little rent; commercial property is an income asset that happens to appreciate. A let-out flat in a metro yields a gross 2.5% to 3.5%, and after the society maintenance, property tax, periodic vacancy and re-letting brokerage, the net rental yield often lands at 2% to 3%. The number is so low because residential prices are bid up by buyers who are paying for a home and an appreciation story, not for the rent.

Commercial is a different market. As of 2025, Grade A office yields in the big leasing hubs, Bengaluru, Hyderabad, Pune, Gurgaon, Noida, sit around 7.5% to 8.5% gross. Warehousing and logistics assets, which have been the hottest commercial sub-segment on the back of e-commerce and the China-plus-one supply-chain shift, yield roughly 8% to 10%. Retail is more bifurcated: marquee high-street and luxury-anchored mall space can yield below 5% because the rents are stable and the assets are scarce, while ordinary retail can run higher. The honest range to carry in your head for institutional-grade commercial is 7% to 9% gross, and because a single commercial tenant typically pays their own maintenance and the leases run long with built-in escalations, the net yield stays much closer to the gross than it ever does for residential.

That is the heart of it. A flat gives you maybe 2.5% net and a lot of emotional comfort. A commercial asset gives you 7% to 9% with a single corporate tenant who signed a multi-year lease and escalates the rent automatically. On pure income, commercial wins by a factor of three. What you give up is the deep, liquid resale market that residential enjoys, and you take on commercial-specific risks I will lay out later. The flat-versus-commercial-yield arithmetic, including why the residential net number collapses, is worked through in rental yield versus REIT for NRIs.

The three routes, and who each one is for

There is no single "right" way for an NRI to own commercial real estate in India. There are three structurally different routes, and they suit very different cheque sizes and temperaments.

Direct ownership means you buy the office, shop or warehouse outright (or a defined undivided share with a co-owner), take the title in your name, and become the landlord. You control the asset, you choose the tenant, you keep the whole yield, and you capture the whole appreciation. The cost of entry is high, usually Rs 1 crore and up for an institutional-grade pre-leased unit, and you are running the asset from abroad: chasing the tenant, handling the lease renewal, paying the property tax, dealing with the building society. It suits the NRI with serious capital who wants control and is willing to either do the management remotely or pay someone to.

Fractional ownership through an SM REIT is the regulated version of the "buy a slice of a building" pitch you see on LinkedIn. Since SEBI's Small and Medium REIT framework, notified in March 2024, these platforms are no longer an unregulated grey market; they are exchange-listed schemes, each typically holding one building or a small cluster, with a Rs 10 lakh minimum subscription and yields around 8.5% to 9%. You get commercial yield without managing anything, but you carry single-building concentration risk and the secondary market is thin. It suits the NRI who wants a commercial-grade yield, has Rs 10 lakh-plus per scheme, and can hold for years. The full mechanics are in the fractional real estate guide.

Listed REITs are the mass-market route. There are now five listed in India, Embassy Office Parks, Mindspace Business Parks, Brookfield India, Nexus Select Trust (the retail-focused one) and Knowledge Realty Trust, between them holding a diversified portfolio of dozens of buildings worth over Rs 2.7 lakh crore. A unit costs a few hundred rupees, trades daily on the NSE and BSE, distributes roughly 7% to 8%, and needs zero management. You buy it through a demat account exactly like a share. It suits almost every NRI who wants commercial real estate exposure without a large cheque or any operational burden, and it is the route I default to for most readers. The detail sits in REITs and InvITs for NRIs.

The trade-off across the three is consistent: as you move from listed REIT to fractional to direct, you gain control and (sometimes) yield, and you lose liquidity, diversification and convenience. Match the route to what you actually want, not to the highest headline yield.

How an NRI buys, and the NRE-versus-NRO decision

For direct ownership, the buying process mirrors a resident purchase with two NRI-specific layers. You will need a PAN, the funding routed from your NRE/NRO/FCNR account or by inward remittance, and ideally a registered power of attorney to a trusted person in India to handle the registration and ongoing management if you cannot be physically present (the mechanics and the risks of doing this are in power of attorney for NRI banking and property). Crucially, when you buy a property worth over Rs 50 lakh, you as the buyer must deduct TDS; if you are buying from a resident seller that is 1% under Section 194-IA, but if you are buying from another NRI seller the buyer-side TDS jumps to the much heavier non-resident rate, the same trap covered in TDS when buying property from an NRI.

For fractional and listed REITs, the route is the boring, clean one: a demat account, a trading account, and a bank account on the PIS or non-PIS route, funded from NRE or NRO. No FEMA approval, no special property route. If you can buy a share as an NRI, you can buy these units.

Across all three routes, the decision that quietly governs your repatriation for the life of the holding is which account you fund the purchase from. Fund from your NRE account, and both the income and the eventual sale or redemption proceeds are fully and freely repatriable, no cap, no per-transaction approval on the principal. Fund from your NRO account, and the proceeds are repatriable only within the USD 1 million per financial year ceiling that pools across all your NRO remittances, with Form 15CA and Form 15CB needed each time. For a Rs 10 lakh REIT position the NRO cap rarely bites; for a Rs 3 crore direct office sale, it absolutely will, because the whole sale proceeds have to squeeze through that USD 1 million annual gate over multiple years. The default for any fresh commercial position you intend to repatriate is to fund it from the NRE account and keep the headroom clear. The full process is in NRO repatriation process and repatriating investment proceeds.

Rental income tax: the 31.2% TDS, the 30% deduction, and the refund you should expect

Here is where the brochure 9% yield meets reality. When an NRI lets out commercial property, the tenant is legally required to deduct TDS at 31.2% on the gross rent under Section 195 before paying you, because you are a non-resident landlord (that 31.2% is the 30% base rate plus the 4% health and education cess; higher surcharge applies if your income crosses the surcharge thresholds). There is no minimum-rent threshold for this, unlike the 5% TDS on rent to residents; any rent to an NRI attracts Section 195 withholding. The tenant must also hold a TAN and file the TDS return, and you, the landlord, should give the tenant your details so they do it correctly. The compliance side, including the Form 15CA the tenant files, is laid out in NRI tenant TDS on rent.

But 31.2% withheld is almost never your real tax. The income is taxed under the head "income from house property," and the computation is generous. You start with the gross annual rent, subtract the municipal taxes you paid, and on the balance (the net annual value) you get a flat 30% standard deduction under Section 24(a) that requires no bills or proof, it is a blanket allowance for repairs and upkeep. You also deduct interest on any loan taken to buy the property under Section 24(b), with no cap on a let-out property. What remains is taxed at your slab rates.

Because the 30% deduction and any loan interest shrink the taxable rent so much, the tax you actually owe is usually well below the 31.2% the tenant withheld. So you have two ways to handle it. The common one: let the tenant withhold 31.2%, then file your Indian return, claim the 30% deduction, and get the excess refunded. The cleaner one for a large rent: apply in advance for a lower or nil-deduction certificate under Section 197 (Form 13) so the tenant withholds at your true effective rate from the start and you are not handing the government an interest-free loan for a year. That route is covered in lower TDS certificate Form 13. The full rental-tax mechanics, including the municipal-tax and loss treatment, are in tax on Indian rental income for NRIs.

Capital gains when you sell

Sell a directly-owned commercial property and the gain is taxed like any other immovable-property gain. Held for more than 24 months, it is long-term, taxed at 12.5% without indexation (the post-July 2024 regime; resident sellers of property acquired before July 23, 2024 get a choice between 12.5% without indexation and 20% with indexation, but for an NRI the 12.5%-flat rate is the operative one in most cases). Held for 24 months or less, the gain is short-term and taxed at your slab rate. The buyer, whether resident or NRI, must deduct TDS on the sale consideration under Section 195 at the long-term rate plus surcharge and cess, and that withholding is on the whole sale value unless you obtain a lower-deduction certificate, which on a large commercial sale is well worth the effort. The long-term gain can be sheltered using Section 54F (reinvest in one residential house) or Section 54EC (invest up to Rs 50 lakh in NHAI/REC bonds within six months), the same exemptions detailed in capital gains exemptions 54, 54EC, 54F.

For fractional SM REIT and listed REIT units, the gain follows listed-security rules: held 12 months or less is short-term, and held longer is long-term at 12.5% on gains above Rs 1.25 lakh a year, with no indexation. That shorter holding period and the daily liquidity are a structural advantage of the unitised routes over a directly-owned building, where you are locked into a 24-month clock and a slow physical sale.

A worked example: Rs 3 crore office, the SM REIT, and the listed REIT compared

Take the Toronto reader's actual choice and put real money on it. He has roughly Rs 3 crore to deploy, funded from his NRE account, and he is weighing the direct Hyderabad office against putting the same money into commercial real estate through units.

Route 1, the direct office. He buys the pre-leased floor for Rs 3,00,00,000 at a 9% gross yield, so the gross rent is Rs 27,00,000 a year. The tenant pays the maintenance and property tax directly under the lease (typical for Grade A office), but say he pays Rs 1,00,000 of municipal tax himself. Net annual value is Rs 26,00,000. The 30% standard deduction under Section 24(a) is Rs 7,80,000, so the taxable rent is Rs 18,20,000. He has no loan. At slab rates, with this as substantially his only Indian income, the tax (new regime, including cess) works out to roughly Rs 3,30,000. So his after-tax rent is about Rs 22,70,000, an after-tax yield of roughly 7.6% on the Rs 3 crore.

Now the cash-flow catch. The tenant withholds 31.2% of the gross Rs 27,00,000, which is Rs 8,42,400, far more than the Rs 3,30,000 he actually owes. He files his return and reclaims roughly Rs 5,12,000 as a refund, but he is out that cash for several months. The fix is the Section 197 lower-deduction certificate, which would let the tenant withhold near his true 12% effective rate instead of 31.2%.

Route 2, the SM REIT. He puts the same Rs 3 crore into fractional commercial units across two or three SM REIT schemes at a projected 9% pre-tax, which is Rs 27,00,000 a year, the same headline. The distribution arrives in components under Section 115UA; say it is 70% interest and 30% return of capital. The Rs 18,90,000 interest is taxable at slab with 5% TDS under Section 194LBA, costing him roughly Rs 2,40,000 in tax at his effective rate; the Rs 8,10,000 return-of-capital portion is untaxed on receipt (it lowers his cost base for later). After-tax cash is about Rs 24,60,000, around 8.2%, and he manages nothing, no tenant, no property tax, no lease renewal. The catch is the thin secondary market: if he needs the Rs 3 crore back in a hurry, he may not find buyers at fair value.

Route 3, the listed REIT. The same Rs 3 crore into Embassy/Mindspace/Nexus-type units at a 7.5% distribution is Rs 22,50,000 a year. Listed REITs distribute a similarly interest-heavy mix; assume an effective tax of about Rs 2,00,000 on the taxable portion. After-tax cash is roughly Rs 20,50,000, about 6.8%, but it is fully diversified across dozens of buildings, trades on the exchange every day, and is the lowest-effort, lowest-concentration option of the three.

So on the same Rs 3 crore: the SM REIT delivers the highest after-tax cash (around 8.2%) but on one or two buildings with poor liquidity; the direct office (around 7.6%) gives control and appreciation but demands remote management and slow, TDS-heavy repatriation on exit; and the listed REIT (around 6.8%) trades a little yield for diversification, daily liquidity and zero hassle. The "best" depends entirely on whether he values control, yield or liquidity most, and the honest answer for an NRI living in Mississauga with a day job is usually the route that does not call him at 2 am.

Edge cases

Industrial and warehousing land is the FEMA landmine. The single most common way an NRI gets a commercial real estate deal wrong is buying land that is still recorded as agricultural and assuming "it's for a warehouse, so it's commercial." Land use is a legal classification, not a function of what you intend to build. If the NA conversion has not happened, an NRI cannot buy it, full stop. Get the revenue records and land-use certificate verified before any land transaction; a completed unit in a commercial building is safe, raw peripheral land often is not.

GST applies to commercial rent, not residential. Renting out commercial property is a taxable supply of service. If your annual commercial rental receipts cross the Rs 20 lakh GST registration threshold, you are liable to register and charge 18% GST on the rent (the tenant usually claims it as input credit, so it is not a dead cost, but it is a compliance obligation residential landlords never face). An NRI letting out a single Rs 27 lakh office crosses this threshold and needs to deal with GST registration, often through a representative in India.

The US and Canada reporting overlay is real for the unitised routes. A US-resident NRI holding SM REIT or listed REIT units faces the PFIC question (a foreign trust generating passive income can be a passive foreign investment company), the same trap that complicates Indian mutual funds, covered in the PFIC trap. A Canadian NRI must report foreign property above CAD 100,000 on Form T1135. Directly-owned Indian commercial property is also a reportable foreign asset in both countries. A UAE or UK NRI has a lighter overlay. Price the home-country filing cost in before you decide the yield is worth it.

Repatriating a large direct-property sale takes years through the NRO gate. If you funded a direct purchase from NRO (or it was inherited), the sale proceeds can only leave India at USD 1 million per financial year. A Rs 3 crore sale (roughly USD 360,000) clears in one year, but a larger portfolio sale, or a sale stacked on top of other NRO remittances in the same year, gets spread across multiple years. Funding from NRE at purchase avoids this entirely. Inherited commercial property carries its own repatriation route, covered in NRI receiving inheritance funds.

Tenant concentration is the risk the yield hides. A 9% direct-office yield rests entirely on one corporate tenant honouring one lease. A single-asset SM REIT carries the same single-tenant exposure. Read the lease lock-in, the escalation clause, and the tenant's credit before the yield seduces you. A listed REIT spreads this across dozens of tenants, which is precisely why it yields a little less.

The closing read

The honest read on Indian commercial real estate for an NRI is that the yield gap over residential is real, 7% to 9% against a flat's 2.5% to 3%, and FEMA makes the asset class genuinely open to you: you can own as much commercial property as you like, with no RBI approval, provided you stay clear of agricultural land and fund through the right account. The mistake is treating "commercial real estate" as one decision when it is three.

For most NRIs, the right starting point is a listed REIT, because it gives you diversified commercial exposure at roughly 7% to 8%, daily liquidity, zero management and clean repatriation through your NRE account, for the price of a few hundred rupees a unit. If you want a higher commercial yield and can commit Rs 10 lakh per scheme and hold for years, a fractional SM REIT adds yield at the cost of concentration and thin liquidity. Direct ownership of an office or warehouse is for the NRI with Rs 1 crore-plus who wants control and appreciation and has either the time to manage remotely or the budget to pay someone, and who has read the FEMA land-use rules and priced in the slow, TDS-heavy repatriation on exit.

Whichever route you take, three things are non-negotiable: fund from your NRE account if you ever want to repatriate freely, get a Section 197 lower-deduction certificate so you are not lending the government 31.2% of your rent interest-free, and on any direct purchase, verify the land use in writing before you sign. The yield is worth chasing. The compliance is worth getting right, because on a Rs 3 crore decision the FEMA and tax details are not a blog's word, they are a chartered accountant's afternoon.

Related guides

• Fractional commercial real estate and SM REITs for NRIs
• REITs and InvITs for NRIs
• Rental yield versus REIT for NRIs
• Buying property in India as an NRI
• Why NRIs cannot buy agricultural land
• Selling property in India as an NRI
• Repatriating investment proceeds
• Tax on Indian rental income for NRIs
• NRI tenant TDS on rent and Form 15CA
• Lower TDS certificate, Form 13
• TDS when buying property from an NRI, Section 195
• Capital gains exemptions, Sections 54, 54EC, 54F
• NRO repatriation process
• Power of attorney for NRI banking and property

This guide is educational and general in nature. It is not individual investment, tax or legal advice. FEMA property rules, TDS rates, the GST threshold, capital gains rates and repatriation limits change, and the right route and tax outcome depend on your residency, your treaty position, the land classification of the specific asset, and your home-country reporting obligations. Verify the FEMA permissibility and land use of any commercial property with a lawyer, and confirm your tax and repatriation position with a qualified chartered accountant, before you commit capital.