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Important checks for NRIs investing in Indian real estate

Saturday, April 27, 2019

By Deepak Vazirani, Head of International Business, Rustomjee Group

Indian real estate has emerged to be extremely lucrative for NRIs. They buy property for investment or out of their emotional connection with the country or for settling back, once they retire. NRIs have been significant contributors to the Indian forex reserves. With rupee value stabilizing, there has been an upswing in demand from NRIs which is paving way for price negotiations. Moreover, regulatory reforms such as RERA and GST have brought in transparency in the sector thereby increasing NRI homebuyer’s confidence for investments. However, since they live abroad, it becomes more critical for them to do a proper check before investing.

Adhering to laws for NRI transactions
NRIs that are planning to invest in India must be aware of the rules that govern real estate transactions. There are, for example, limitations on how quickly the profit from a real estate transaction can be repatriated. Also, it is essential to understand whether or not their gains will be subject to double taxation. Real estate transactions are governed by the rules under the Foreign Exchange Management Act (FEMA).

Being aware of the market you plan to invest in
The real estate sector in the developed countries is better administrated and more evolved. In India, however, there is a list of processes. Unless an NRI has a trusted person living and working in India, buying real estate in India could be exigent. Furthermore, there is a requirement for management of the property since there are not many companies in India offering such services. This creates a hassle for NRI to hire an agent to collect the rent as well as look after its maintenance.

ROI expectations for NRIs
Recognizing the structural shift in India’s economic and political landscape, foreign capital has been competing to find opportunities to invest in this country’s potential growth. NRIs are investing in residential real estate at this point look at reasonable return expectations over a long-term period. Affordable housing has emerged to be the most lucrative investment for NRIs on account of higher rental yields from lesser capital investment, property appreciation value, and better return. However, there is demand for mid-segment and luxury housing as well depending upon the age group the demography falls.

Choosing the location
While metros have always been preferred investment location, Mumbai is the most promising real estate investment destination owing to its fastest infra development. Mumbai being the commercial hub of India attracts a lot of working population to the city from Tier 2- Tier 3 markets. This populace mainly looks rental properties, and they do not mind moving to farther places since the city is witnessing massive improvements in terms of infra developments such as freeways and metro lines.  NRIs now must consider investing in locations such as Virar and Thane because of excellent connectivity. These locations are also gaining more NRI traction because the price appreciation of the locality is higher and the rental yields for the location are good.

Ensuring seamless transactions
Homebuyers largely face the brunt of delayed projects. Escrow is a useful medium that helps in saving funds which upholds trust amongst the NRI home buyers. The money parked in these accounts ensures timely completion of the project and proper use of fund utilisation. To provide hassle-free home buying and leasing process, nowadays, real estate developers offer subvention schemes and also help them to rent out the property.

Brand Trust
Lastly, the Brand value of developers is an important benchmark to drive purchase decision of NRIs. With various government reforms such as RERA and GST has brought about much-needed transparency in the sector, it has somehow managed to eliminate the fraudulent and unorganized players in the market. Nevertheless, it is essential that the NRI buyers must first get a background check of the developer before investing and also track their past delivery records.

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