NRIs have always been keen on investing their money in India. Buying a property in one’s home country will always have its own advantages. Occasions like wedding, anniversary or a misfortune may want them to visit their homeland to keep the Indian connection alive.
Another thing that dominates an NRI’s mind is that he might want to return home after some years, and the very next thought after that is the purchase of property here.
FEMA and RBI on NRI Investing in Indian Property:
The Indian laws too have made the task of NRIs investing in Indian property, much simpler, with attractive schemes under the purview of FEMA (Foreign Exchange Management Act). In India, all such transactions are under the control of the RBI (Reserve Bank of India).
NRIs too have been optimistic about these schemes by the government, as these will help them fetch good results. Real estate is also one lucrative sector that has been in demand among NRIs since long. According to a RBI rule, any person of Indian Origin and having an Indian passport can invest in real-estate (both commercial and residential).
Prospects for Indian Property:
Property prices in India have always kept on rising without a halt, so having a thought of investing in an Indian property is quite natural. Also with the declining rupee and the real-estate sector ensuring good returns, the number of NRIs investing in this sector seems to be rising. Another good reason for this is that investing in Indian property gives a feeling of support and security.
Points to Ponder over by NRIs before investing in Indian Property:
While it is really beneficial to invest in an Indian property, it is also vital to pay heed to certain points for a lucrative deal. Check out below factors to know more.
The place one would like to return to:
City has always been one big question for determining your return. A good choice in deciding the place depends on factors like: where one can find employment, your children’s good and least disruptive education, suitable climatic conditions, and of course the closeness of family members. If one has plans to move back after some years, then these points should also be kept in mind.
While you decide to rent your property, it is important to find a good tenant. Alternatively, it is also wise to hire a trustworthy and professional property manager, who will take care of all the property related matters.
Looking for source of funds:
Financial Institutions are always an easy option for the NRIs, and also these bodies consider the NRIs as their major potential clients. These financial institutes provide easy home loans in a simple and efficient way, so that the repayment can also be done with the help of a proper banking channel. The RBI has laid certain norms for the NRI loans from financial institutions in India which include:
The financial institutions are allowed to finance at most of 80% of the total amount and the rest is to be given by the NRI seeking the loan.
The remittance of the down payment amount should be done via normal banking channels such as NRO/NRE account in India.
The repayment of the principal amount, as well as the interest calculated should be from the same channel.
Tax Implications:
When buying property in India, the NRI is supposed to pay registration and other charges. He is then eligible for all benefits equivalent to an Indian citizen in terms of interest paid for the loan. For a leased property, the NRI’s income received through its rent will come under the income from the property and there will be some percent of deduction applicable to it. The person is also liable to pay tax in his country of residing, unless he is residing in a country that has ‘Double Tax Avoidance Agreement’ with India. Also, the interest paid towards the NRI’s loan will be exempted from the tax slab.
Some other key points:
Buying and investing in real-estate is always accompanied with certain hurdles, so it is recommended to be safe about any of your moves towards property purchase. Certain things that should be kept in mind: whether your seller actually has the rights to sell the property (especially applicable in the case of a joint account). Always seek a no-dues certificate from the seller. Also verify the property’s approval from all the civic authorities.
After looking through all the above factors, the next step is finding a good real estate advisor, who will be able to understand your needs and recommend the most suitable choices according to that. One should always remember that property prices do not have any sustainable patterns of rising or falling. Therefore, one cannot trust this for the returns from their property in the short term.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in
