I am writing this blog to help NRIs who are seeking for real estate investments in India.
Let’s begin by discussing the reasons behind the significant investment of Non-Resident Indians (NRIs) in the Indian real estate market. This will help you determine whether you should also consider participating in this trend.
- Connected to the roots:
A land or apartment is a real asset which makes them feel connected to the roots and a feeling of giving back to the home country adds a cherry on the cake. - Affordable Options:
The Indian Real Estate market is affordable as compared to abroad. Most of the well earning NRIs live in well developed countries like EU, USA, Australia, UK, Japan etc. And the options there are out of their budget. Even the local citizens cannot afford a middle sized apartment according to their needs forget about the wants. - The Ease of Buying:
Nowadays, it is very easy to buy a property here in India, especially for the pre-sold units. We have team of brokers and builder having great presentation and marketing skills to make you understand an under-construction project. - Hike in Interest Rates:
The federal bank has printed the money to recover the economy from Covid’s set-back. This has led to higher inflation and interest rates hikes. Although, salaries haven’t increased much except for a couple of professions. This has made housing unaffordable. The government cannot decrease the interest rates as it will impact the economy. So things will go at the same pace as today and housing is and will be unaffordable for most of foreign citizens living in big cities for developed countries. - Stable Govt. and Growth:
After several decades, India is witnessing a stable government which is growth oriented. The Indian economy is likely to do better in comparison to the top five developed countries. So, putting your hard-earned money does make sense. - Reverse Migration:
Nowadays, NRIs are able to think of returning to India due to the possibility of better job opportunities and higher living standards offered by tier 1 cities in India. - The NRI Status:
Those were the days when being an NRI was celebrated and praised in the community. The NRIs uncle used to have the latest iPhones and PSs but now globalisation has hit so hard on their status. Everyone is aware about the challenges and sacrifices made for living in developed countries. It’s just another thing for the Indian middle class now. I too returned back to India but my reasons are different.
Now, let me clarify that I am not against NRIs investing in India. I feel very delighted when they invest back in the country. It has been a long ask by us from NRIs. It is good for the Indian economy as foreign currency comes into our economy and it makes the Indian rupee stronger. I am capitalist and I love my country.
Now what they are doing wrong, the risk factors. Let’s talk about these in detail.
Rented Abroad and Investing in India:
If you’re currently renting an apartment abroad and considering investing in the Indian real estate market, this might not be the best decision. Without owning a property at your current location, affording one in the future could become increasingly challenging. While rentals may be affordable now, they could become prohibitively expensive in the future. Purchase a property abroad before investing in India. Now let’s talk about common excuses that a NRI makes during my interactions on this point specifically:
- Possibility of settling in India:
As discussed earlier, now it seems to be a more practical decision of settling back in India and for this they don’t want to make investment abroad and choose India as an investment destination. But what are the challenges:- Kids: If they are teenager(even 10+), they wouldn’t be able to adjust in the Indian atmosphere especially if they are brought up in foreign conditions. They will struggle eating out even in good restaurants, forget about Swiggy and Zomato. All in all, no social life.
- Adjustments: It could be more difficult as thought. You will enjoy eating on the streets. The chatkare of golgappe and casual social gatherings but it seems to be less practical.
- Others: There could be other challenges, like job profile, partners, your social life but today we are not here to talk about it.
- Frequent change in location:
When we live far away from the country in a totally different social atmosphere, it doesn’t matter which country we are choosing, all are the same, it just depends on the opportunities and other not so important challenges.
So the first point is, even if you are planning to return back to India and you’re damn sure, still you should own an apartment abroad. There wouldn’t be much appreciation but the rentals will be high. If it is rented you can easily enjoy the handsome rentals or later you can liquidate it whenever you plan to come back to India. You will enjoy USD to INR conversion. Today it is around 82 but 5 to 7 years down the line it can go up to 100 easily. A bonus tip, live for a year in India, then take a final call whether you really want to move in or not.
Secondly, even if you wish to change countries, you can still get a handsome rent(in comparison to India). This will easily compensate for your current rentals or you can opt for liquidating it and purchasing it again in the other city. This wouldn’t harm you especially when you compare it with liquidating an Indian asset and going for INR to USD conversion.
Lower Interest Rates:
Many of the NRIs are expecting interest rates likely to go down in the upcoming year. This is again an excuse, you can opt for floating interest rates to enjoy the lower rates but I don’t see interest rates going back to the originals(as it was in prior to 2019). So go for the purchase, earlier is better.
Future Affordability:
In a developed economy, investors expect that there wouldn’t be much appreciation on their investments and these are rental driven markets. But the rentals will go up especially when employees are asked to work from the office. Urbanisation and Infra development are big risks for future affordability. Let’s make one thing clear, If you can afford it now, buy it, as future affordability may become increasingly challenging.
Policy Changes:
Recently Canadian govt has restricted buying real estate for non Canadians to control the shooting prices. I don’t think this step of the Canadian government will let the real estate price settle but this can unfold in your present country. You will be refrained from owning your dream home. A big risk.
Liquidating the Indian Assets:
Buying real estate virtually is easy. We have builder employees and real estate agents helping us with this but when it comes to liquidating real estate remotely, it is challenging. Finding a good buyer and considerable price or even getting a good tenant is more challenging. Most of the time NRIs don’t get good value deals. We call it here an NRI case. Even if I assume you got a good deal and you want to liquidate, what will you get after currency conversion? Will you be able to afford a good apartment back in abroad? No. Real estate in developed countries will let you make and save more money than in India for sure. Yes you can park your investments here only if you have a place to call “home” abroad. It always feels good to invest back in your own country.
Maintaining a Property:
When you are not physically present in India, you are totally dependent upon real estate brokers for maintaining the property. A tenant has left, now some maintenance works are required and brokers charge unreasonably for these services. This will be a big burden on your pocket, especially on your returns.
Rental Value:
If you are buying real estate here back in India just for rentals, it could be tricky. What value will you get after currency conversion? Generally speaking for a middle class, apartment valued at 1cr, you wouldn’t be able to afford the fee for extra curricular activities of your children.
Taxation:
You wouldn’t get any taxation benefits, if you invest abroad where currently you are residing, depending on the country/city you are living in, you can get these benefits.
CLP Issue:
These days Indian builders are offering lucrative payment plans like CLP. I don’t consider it as a Construction Link plan because at 0% of construction, you will be paying atleast 25% of consideration value for sure. This is applicable for everyone but for NRIs, how will you ensure if the builder is claiming the right speed of construction? These days, it is common for builders to shoot a pre-intimation demand letter asking for funds way before the expected date. If demands were expected to be met by a housing loan, the bank must have verified the construction claim made by the builder. If you don’t opt for a loan, you will be paying the demand way before it was expected. Time is money and there is no benefit of taking a loan. Will you be willing to invest on Loan? You must be kidding if the answer is Yes.
Property Frauds:
Generally NRIs avoid investing in Land, they prefer apartments but apartments are not fraud safe. A vacant apartment is riskier. There are few incidents of mis-selling, multi-selling and many cases of renting it on a daily basis. Builders and brokers are mainly responsible for this. I had already talked about it in a YouTube video.
If you don’t want to buy real estate in your current city and you are wondering where I should invest before putting hard earned money in Indian real estate, then you should choose Dubai (ticket size less than 3cr INR). Don’t go for their Visa plan. You will mitigate most of the risks mentioned above. This was a quick recommendation. It will talk about it along with other options in some other blog.
I hope this blog was helpful in your decision making.