Let not the NRI love lead to infatuation in real estate
Real estate investment for long has been a favorite asset class for the Indian, and that love does not wane even as he transforms to being a non-resident Indian.
September 17, 2011 / 11:55 IST
By Lovaii Navlakhi, International Money Matters
Real estate investment for long has been a favorite asset class for the Indian, and that love does not wane even as he transforms to being a non-resident Indian. The reasons are not far to seek: the NRI understands the lay of the land, and at the back of his mind, the security of owning a property back home if he needs to retrace his steps to his homeland lurks. Of course, attractive growth rates in property prices and the seeming invincibility of this asset class (you rarely seem to make a loss, since you are willing to hold for long periods of time) are a couple of other strong reasons for this investment.Land versus ApartmentAs is obvious, investment in an apartment starts depreciating virtually the moment it is completed, as cement, steel, etc are subject to wear and tear. The value of a flat or villa rises because of the appreciation in the value of land, and the inflation factor. Logically then, investment in land results in pure appreciation, but along with that come the risks of encroachment, clear title and the fact that this becomes a non-productive investment (not capable of generating rental income).Beware these pitfalls of buyingSo if the picture seems so rosy, where are the thorns hidden? The key factors in investing in real estate are location, location, location. The first location is the city of purchase. Just because your neighbor is buying, or a developer is having a road show in your town, or the city is a popular location (from what you have read), are the wrong reasons for purchase. The next location is for the locality. Are flats there easily rentable, so that they can generate some cash flow to match your EMI? Is there a glut in supply, resulting in rentals being pulled down on account of demand-supply factors? Finally, the third location pertains to the layout of the flat, what it overlooks, and considering the widespread use of vaastu, is it east-facing or south-facing. There is an amazingly large divergence in prices as well as liquidity for some properties over the other in the same complex.Use a Professional AdvisorNext, it is time to worry about the legality of papers, which jurisdiction it falls under (municipal corporation or panchayat), and what the status of water supply and electricity (back up power) are. What are costs of registration? The answer to these questions lies with a professional advisor (apart from international firms, there are boutique, trustworthy individual representatives in existence now) who can also help be your representative to determine true market value, find a tenant and ensure that statutory dues are brought to your notice. The point I am making that it may not be enough to have a relative to assist you in these matters, as both competence and devotion of time to these tasks may come into question.Taxation and Repatriation cannot be ignoredThe NRI must know that current tax laws in India require a property to be held for 3 years before getting the benefit of lower tax rate on sale of property. There are some ways to avoid the tax altogether in this case by investing in a residential property. There are limits to which proceeds from sale of property can be remitted to a foreign currency. So while the asset class is attractive, get in with open eyes and a clear time horizon for investment. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
