Majority of the world’s millionaires owe their wealth to real estate which has either been acquired or inherited by them. For any individual, real estate provides the potential to generate returns by both capital appreciation and rental yields.
Non Residential Indians (NRI’s) holding Indian passports, unlike foreign origin people, hold similar rights as Indian residents in property ownership norms under FEMA rules. They can invest and own Land in the form of Residential and Commercial units, except forests, or agricultural land. Smart NRI’s have taken advantage of these rights and favourable exchange rate differentials to buy properties for their investment potential and sometimes a future retirement home.
However, it’s not always smooth sailing for them. Stories are around of NRI’s falling prey to wrong property investment decisions including fraudulent ones. Real estate, like all financial investments require proper due diligence on the part of the buyer. Here are some tips for the discerning NRI investor who wants to invest in the Indian Real Estate Market:
- Purpose: NRI’s are advised to understand their risk appetite and invest in Indian Real Estate with a clear purpose. If its returns that they are interested in, they can get direct exposure by buying real estate units in a developed area and then renting it out. They could also buy equity shares of listed real estate developers which could give them an indirect exposure. NRI buyers sometimes also look for a future retirement home, and this could lead them to investing in a developing area.
- Reputation of developer: It is imperative for any customer to do a thorough check of the track record of the developer if it’s a primary sale. Past delays in project implementation and history of complying with laws will give a good indication of the reliability of the developer.
- Legal title/document checks: It would be advisable for the NRI buyer to also check the legality of the property. Confirmation should be sought about current owner, past history, any legal disputes, and local regulatory approvals before any deal.
- Location: Like any real estate deal the world over, location is important. In a country like India where infrastructure lags demand, a location closer to better infrastructure would yield greater long term returns.
- Government policies: Real estate in India is susceptible to changing government regulations. Investment in forest, plantation and agricultural areas are a no-go for NRI’s. Policies related to leasehold, freehold, zoning areas require careful understanding in addition to future plans of the government for that location.
- Tax implications: NRI’s should also think through the tax implications including withholding taxes, TDS at the time of a purchase, rental taxes and property taxes should be properly understood with the help of a tax attorney. For NRI’s looking for capital appreciation, it is recommended to stay invested for at least three years to avoid short-term capital gain tax.
Finally, property management is crucial. NRI’s would do well to hire a good property manager or a broker as they may not be in the country all the time. This combined with a sound exit strategy at the appropriate time with good returns will provide the peace of mind every deserving NRI should get when they invest in the Indian Real Estate market.