Non-residential Indians (NRI) 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 NRIs have taken advantage of these rights and favorable 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, requires 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: NRIs are advised to understand their risk appetite and invest in Indian Real Estate with a clear purpose. If it’s returns that they are interested in, they can get direct exposure by buying real estate units in a developed area and then renting them out. They could also buy equity shares of listed real estate developers which could give them indirect exposure. NRI buyers sometimes also look for a future retirement home, and this could lead them to invest in a developing area.
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.
Reputation of developer: Any customer must do a thorough check of the track record of the developer if it’s a primary sale. Past delays in project implementation and a history of complying with laws will give a good indication of the reliability of the developer.
Government policies: Real estate in India is susceptible to changing government regulations. Investment in forest, plantation, and agricultural areas is a no-go for NRI’s. Policies related to leasehold, freehold, and zoning areas require careful understanding in addition to plans of the government for that location.
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 the current owner, history, any legal disputes, and local regulatory approvals before any deal.
Tax implications: NRIs 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 NRIs 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.