Should an NRI Invest In Real Estate In India?

Posted on: Jan 31, 2023 | | Written by:

Should an NRI Invest In Real Estate In India?

Published on January 30, 2023. EST READ TIME: 3 minutes

It is said that real estate is a stable investment along with gold and other precious assets. It always retains value. Being scarce (just like gold, the land is scarce), it is always in high demand. This demand translates into appreciation over time. So now that we know why real estate is a wise choice for investment, let’s move on to the topic at hand. Is real estate in India a good investment for NRIs?

What are the benefits of investing in property in India while residing abroad?

India’s real estate sector has always been a favourite among investors worldwide. These include NRIs, PIOs (Persons of Indian Origin), dual citizenship holders and others. Here are 3 benefits of investing in real estate in India:

1. Increase in purchasing power due to the falling rupee:

The weakening rupee means that NRIs have a greater purchasing power, thanks to the exchange rate. This allows the NRI community to make sizable gains in the Indian real estate market. The dollar currently stands at about 82 - 83 against the rupee. This means that if a plot of land costs Rs. 82 lakhs, it would equivalently cost $100,000. Whereas when the rupee stood at Rs. 65, it would have cost significantly more. This margin means increased purchasing power and more significant savings in cash-intensive investments like real estate.

2. A resurgent market:

With the Covid pandemic firmly in the rear-view mirror, the Indian economy is resurgent. Demand is surging not just in goods and services but also in long-term assets like property. This presents a greater opportunity for NRI retail investors to earn a handsome Return on Investment made in property. The demand is strong for residential spaces and commercial ones as well, where the margin of returns is significantly higher.

3. Reduced returns from other instruments and sources:

Fixed Deposits (FDs), gold and equity have traditionally been NRIs preferred mode of investment in India. While FDs now offer anywhere between 6 - 6.5% interest, which, compared to the inflation rate of 5.88% (December 2022) seems inadequate. Equities and gold are subject to market volatility. However, land or real estate is one asset that shows no sign of depreciation. In fact, Tier II and Tier III cities are now showing considerable signs of an impending real estate boom.

Who should look to invest in property in India?

The Indian real estate market is already huge, and it looks to be expanding at a rapid rate. The demand for residential and commercial spaces in metropolitan cities is at an all-time high. Tier II and Tier III cities like Nagpur, Nashik, Kochi, Mangalore and others are also showing signs of opening up. The question that arises then is, who should look to invest in property in India? The simple answer is anyone.

• A double income NRI family, with disposable income, looking to diversify their portfolio

• Persons of Indian Origin looking to create a legacy for their family by investing in real estate

• Retail investors looking to add commercial real estate to their investment portfolio

• NRIs / NREs / PIOs who are looking for a better return on their investment against FDs, equity markets and gold

• NRI / NRE / PIOs who are looking to return to home country eventually

How to look for the right property deal?

Investments of any type are subject to certain risks. When investing in property, looking out for ‘deals’ or `offers’ could be tempting. Unfortunately, these can often prove to be detrimental to their interests. So here are a few things to remember before investing in property.

• What is the nature of the property you’re looking to invest in?

NRIs and PIOs are allowed to hold any property or asset other than farmlands in India. Keeping this fact in mind, assess the nature and purpose of the property you choose to invest in. Is it a residential or commercial property? Will you be residing there? Will you be leasing it out? Where in the city/state/country are you looking to invest?

• Always choose a reputable developer:

Real estate investments can be a mire of shady dealers. At least, that used to be the case. Over the past few years, the Central and State governments have made several changes to the process of purchasing a property. Real Estate Regulatory Authority (RERA) has made buying property much more transparent. Once you’ve zeroed in on development, its entire project history and builder’s reputation can be traced through a simple RERA search.

• Consult knowledgeable and trusted friends:

Considering that you do not reside in the area you are considering, consult a knowledgeable and trustworthy family member or friend who may be able to guide you about property rates, developer reputation etc.

• Keep an eye out for the classifieds:

Sometimes, you may come across an excellent property for sale in the classifieds. So do keep an eye out for these. Most often, sellers advertising in the classifieds would like to deal directly with buyers to avoid paying intermediaries commissions. You, too, can benefit from this sort of arrangement.

How to keep your home protected?

The best way to protect your home is with home insurance. Also known as property insurance or homeowners insurance, the policy provides financial protection against any unforeseen loss/damage to the structure or contents of your house due to natural or man-made disasters or other unforeseen events, as mentioned in your policy document. In addition, the insurance also covers third-party liabilities, that is, if a third party suffers any damage in the policyholder’s premises or the neighbour’s property gets damaged due to some accident, the damages will be covered. Different home insurance plans are available, which you can buy as per your needs.

Things to consider before purchasing homeowner’s insurance

Homeowners insurance is a must-have for every property owner. But before you proceed with the purchase, here are a few things to consider:

1. Always compare plans from various providers to choose the best plan for you. Insurance providers may have different inclusions, premiums/deductibles and other features that may vary. Therefore, comparing the various plans is a prudent first step in purchasing insurance.

2. Know your deductible. The deductible is simply the amount you will have to pay before the insurance claims are processed. Check several companies before purchasing homeowners insurance to see that you get the best deal on the deductible and, therefore, the premium.

3. Get your home assessed professionally. A signed copy of the assessment, along with a detailed list of all the valuables and their market value, in addition to the estimate of your home (structural value), will give you an accurate estimate of how much you stand to lose. This will help you make a wiser decision on the riders to add to your standard homeowner's policy.

4. Look for discounts: Senior citizens, disabled people and other special categories are eligible for discounts on homeowners insurance premiums. Thoroughly research this aspect for the best value.

5. Buy your home insurance policy from the same company that you have bought other insurance policies. A pre-existing relationship with the insurance provider will enable/entitle you to further discounts on the premiums.

Conclusion

For Indians living abroad, there has never been a better time than the present to invest in property in India. Investing in property is an excellent way to diversify your portfolio and build a legacy. Once you have purchased the property, though, don’t forget to invest in property insurance to protect yourself and your family financially from unfortunate events.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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