Why Financial Planning?

Planning is bringing the future into the present so that you can do something about it NOW.

If I would have asked this back in 2010, everyone unanimously said: “Dumbo, anytime is good to invest in Real Estate”. But things have changed in the last few years – people have realized that real estate is also one of the asset classes & accepted that prices can also go down.

So let’s revisit the question now “Is It a Good Time for can an NRI buy property in India?

In This Article –

  • NRI can Purchase a Property in India for an NRI?
  • Can NRI purchase land in India?
  • NRI Real Estate Investments Market in India
  • Why should NRI invest in real estate in India?
  • My View on Real Estate Investment
Purchase a Property in India for an NRI
Purchase a Property in India for an NRI

Read – Planning for Retirement in India – 5 easy steps NRI can take

Some updates on NRI Real Estate Investments Market in India

  • The real estate industry went through many changes in the last couple of years. Demonetization in 2016 led to fall in sales. In 2017, RERA and GST were implemented which also led to some destabilization in the supply and demand of real estate. This led to a fall in prices or stagnation in prices which is good for buyers but the market was not stable so people avoided investing in real estate.
  • Developers as of now are trying to complete their projects. Not too many new projects are being launched as there are a supply from investors.
  • Home loan interest rates in most banks have decreased in the last few years as the bank lending rate has been reduced.
  • Developers have realized that many NRIs prefer living in properties similar to the ones they have been living in while they were abroad with designer layouts and world-class amenities. They have therefore started creating such products in India.

These factors make it conducive to look for a good deal in the real estate sector.

NRI issues when it comes to Purchase a Property in India for an NRI

As an NRI, you might be worried to invest a big sum in a relatively less liquid asset. Moreover, there are concerns about problems like illegal possession, lack of clarity on rights and property details.

There are many cases of people taking over property that is lying vacant or even by people whom you have entrusted the property to take care of.

In some cases, the builder does not have appropriate permissions or does not finish the project on time or as per quality standards. Some NRIs feel scared to invest in real estate in India as they are not confident about their rights and the applicable laws. They feel they cannot handle the property matters sitting far away in another country.

These concerns are genuine but if you take all the precautions and gain some knowledge about the real estate market and your rights and duties, that will be good for you in long term.

CheckFinancial Planning for NRIs

Moreover, the government is taking steps to streamline the real estate market in India.

Here are some steps to take to ensure that buy NRI property in India is secure –

  • Invest in properties of reputed builders or brands.
  • Ensure you give (limited) power of attorney to a trusted person to handle your end of the deal when you are not physically present to handle the deal.
  • Understand the market, the project and ask enough questions regarding time, cost, the quality so that you have a fair idea about it.
  • It might be better to take a bank loan as the bank will also do due diligence on the project.
NRI Real Estate Investments
Buying Property In India

Read – Mr. NRI don’t spend for “Keeping up with the Joneses”

Why should NRI invest in real estate in India?

  • The new rules as per RERA aim to regulate the real estate industry which is good for NRI real estate investment. The investment process is more streamlined as there are more checks in place.
  • If you are an NRI, who will be returning home, you need a place to stay. You might want your near and dear ones in India to live well in their own house. It is good to Purchase a Property in India for an NRI now when the prices are relatively flat in many pockets of cities across India. NRI can invest in assets that are priced reasonably and have the potential to appreciate in value. [but bargain hard – there is enough room to negotiate]
  • The rupee has been depreciating in the last year against the dollar. In May 2017, the exchange rate was around 64 for USD 1. In Aug 2018, the exchange rate is touching Rs. 70 for USD 1. If you earn in dollars, you will have more rupees in your hands which means higher purchasing power. You can utilize your earnings to buy your dream house rather than leave the money lying idle and losing value.
  • Getting a home loan is not difficult if you have a steady income, have all your documentation like tax returns and bank statements in place, and the real estate project is reputed.
  • The interest rates on home loans have reduced in the last few years which means lower EMIs and the lesser difference between rental yield and cost of investment. NRIs can take advantage of this factor.
  • Getting a home loan is a smooth process if you avail of the services of a reputed bank and have all the documentation in place.
  • You can use your money to invest in other assets and thus leverage the debt. (based on your risk profile & asset allocation)
  • You can avail of tax deductions too. If your house is self-occupied or occupied by your family members or vacant, you get a deduction of Rs. 2,00,000 on interest paid on housing loan. In case it is rented, all the interest you pay in that financial year is deductible from the taxable income. The principal component of the EMI is eligible for deduction under Section 80C up to Rs. 1,50,000 per year.

“Stamp duty and registration charges paid on the purchase of a property can also be claimed under Section 80C.” wiseNRI

What should I keep a watch for so that I can protect my investment?

  • You should check for these factors – the credibility of a developer, right size and right location of the property, right time to invest i.e. when prices are not an all-time high and loans are available at optimum rates.
  • The property prices will not shoot up like earlier. It will take time for value appreciation as real estate cycles are much longer – so it may take many years before bottom out.
  • You have to pay tax on the rental yield that you earn on your property in India. Tax is on the net annual rent which is the total rent less the municipal taxes. If the total income for the financial year is less than Rs. 2,50,000, then you need not pay tax or file income tax returns in India.
  • Be aware of the real estate market trend and the applicable rules and regulations. Be aware of changes in tax laws and how they are applicable to you. If you do not have the time or inclination to do so, you could hire a property consultant who can advise you on the best course of action regarding NRI investment in real estate and management of the property

My View on Real Estate Investment

I don’t know if it is a good time to invest in the property in India. Asset allocation is a must – real estate, gold, equity, and debt. People with very high exposure to a single asset class should understand that if that asset class will not perform for a few years – that will have a huge negative impact on their financial life.

As an NRI, your decision will depend on your need, rate of return, long-term plan, and currency fluctuations. For example, if you are not going to return to India and may not have dependents living in your house in India, you might be better off NRI Buying Property In India. (more on this later) Consider these factors before you make the investment decision.

Are you planning your first house or an investment property in near future? what are all things that you are considering? Please share in the comment section. 

Published on August 13, 2018

Hemant Beniwal

Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning". 

  • Myself and 2 brothers (all based in the UK) are looking to sell some property in Punjab, India. The house is pretty much in need of demolition due to collapsing roof etc, but we hope to get some return from the land. Are you able to advise or put us into contact with someone that can provide some help with this matter? Can a sale of property be done by using agents in the UK? Is there any contact you could put us in touch with?Appreciate this may not fit with your normal services, but thought it might be worth a try.

    • Hi Ashok

      While I can provide some general guidance, it’s important to consult with professionals who specialize in real estate and property transactions in India for specific advice regarding the sale of property in Punjab. Here are some steps you can consider:

      Engage a local real estate agent: It’s advisable to engage a local real estate agent in Punjab who has expertise in property transactions and knowledge of the local market. They can assist you with property valuation, finding potential buyers, and navigating the legal and procedural aspects of the sale.

      Consult a lawyer: Seek the services of a lawyer in India who specializes in property law. They can guide you through the legal requirements, documentation, and ensure a smooth transaction. They can also provide advice on any specific regulations or laws that may apply in Punjab.

      Power of Attorney: If you are unable to travel to India for the property sale, you may appoint someone as your Power of Attorney (POA) who can act on your behalf in India. This authorized person can represent you in property-related matters, including the sale process.

      Tax implications: Consider the tax implications of selling the property in India. Consult with a tax advisor in both India and the UK to understand the tax obligations in each country and any applicable double taxation avoidance agreements.

      Local contacts: While I cannot provide specific recommendations or contact information, you can search for local real estate agents or property consultants in Punjab through online directories or platforms that specialize in connecting property buyers and sellers in India.

      It’s important to note that real estate regulations and procedures can vary between states in India. Therefore, engaging professionals familiar with the local market and regulations in Punjab is crucial for a successful property sale.

  • If i sell a property in india and if i want to bring the amount abroad where i am living … How to proceed. I have an nro and nre account

  • I bought two properties in india few months ago. I like your article very much. I have not invested in other asset class like gold n equities yet. I have small investment in debt mutual funds in india.. My question is that, now in future, may i invest in real estate or other asset class?

  • Hi Hemant,
    I feel NRI should only buy the property if he/she intends to return and live in India or for parents/children who live in India.
    My advice – Buy only ready to move in property , keys in hand. Well known developers have defaulted and continue to do so. Registration/stamp duty/brokerage and other taxes will increase the cost. If and when you sell, you will pay short term or long term capital gains/brokerage. Rentals are low and maintenance service charges are high . Rental income is taxable. Tenant may run down or misuse your apartment. You will never know sitting far away. NRIs keep your money in USD even at low interest or low risk equity/debt funds (USD) you will be better off with USD exchange rate appreciation. Real estate is never going to appreciate as in the past.

  • HI Hemnant, thank you for taking the time to put in this article and this really helps. I am a new investor and an NRI looking to shift to India in the next 10- 15 years. Is it wise to buy a flat or purchasing a land at this time ? Thanks

    • Hey Jerry,
      Taking into consideration the one parameter its good at this time you buy property if you don’t have any property in India.

  • Dear Hemant,
    I am an NRI and planning for back to India and live there permanently.
    -What are the IT implications I will have on my FD balances in Indian banks.
    -What are the possible ways to save Tax on interest income from FDs.
    -What best asset allocations i can make other than FDs for my retirement.

    kindly advise.

  • is it a good idea to invest in residential properties in india given that lot of developers have not been able to complete their projects and the govt and court has to step in,

  • I’m NRI and I want to buy property in India which is already finalized and agreement is done. But after the Covid breakout how will be the market??

  • Being NRI, haven’t seen anyone not buying RE in India. On drop of a hat, people are buying RE as if it is only the investment opportunity for NRIs. Infact most of the NRIs are going overboard with RE. People who can afford are buying 3-4 properties. Unfortunately most of the NRIs are counting on rent as pension during retirement. May be this article could have covered implications of buying second and third RE by NRIs.

  • Hi Hemanth!
    I am planning to buy a new house in India. Can you confirm if this is true for NRI “Capital gains on house property that is sold is exempted from tax if the house was owned for 3 years or more and the amount is invested in another house property, deposited in Capital Gains Account Scheme or invested in NHAI or REC bonds for 3 years or more.”

  • Good article Hemant. Real estate in India might be a better investment as compared to investing in stocks in the country of residence or investing in time deposits. Investments in stocks is a risky proposition and interest rates in most countries are not attractive.

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