Real-Estate Investment Options For NRIs

 

 

 

Real Estate is also considered to be one of the favourite investment areas of the Global Indian community. After a brief slowdown for couple of years, real estate space seen to be gaining traction again in last few preceding years. As per the information publicly available, NRI investments in Indian real estate has doubled from $5 billion in 2014 to $10.2 billion in 2018. There could be several factors which can be attributed with the credit for this trend. For instance, the motivation for someone in the emerging affluent segment can purely be the need for his/her OWN HOME. Whereas, someone from the UHNI segment could be looking at it from a WEALTH PRESERVATION point of view. Despite the issues of illiquidity, Law & tax complexity, real estate continues to be one of the favourite asset classes for the NRI diaspora.

 

Few things we should know  about NRI investment into Indian Real Estate :

 

NRIs/PIOs/OCIs are not allowed to buy agricultural land, plantation land or farm houses,

NRIs/PIOs/OCIs may buy any no.s of immovable residential/ commercial properties in India. However, repatriation of the sales proceeds of immovable residential properties are restricted to TWO (2).

The funds for purchase of the property needs to be routed through regular banking channels. Travelers’ cheque or foreign currency cash can not be used for full or any part of the payments.

 

Top cities in India for real estate investment ;

(Please note that the list is just indicative)

1. Hyderabad

2. Bangalore

3. Pune

4. Noida-Greater Noida

5. Delhi- NCR & Gurgaon

6. MMR (Mumbai metropolitan region)

7. Ahmedabad

8. Chennai

9. Kolkata

10. Ghaziabad

Here are some ideas about price/sqft of residential property in few of the cities mentioned above :

 

	New Launch Units	Sold Units	Unsold Inventories	Average price (Rs/sqft)
Delhi-NCR	5790	9830	1,77,900	4565
MMR	140,404	17,180	2,20,870	10,610
Bengaluru	9370	10,500	63,540	4960
Pune	8320	8550	92,560	5494
Hyderabad	2050	3280	23,890	4187
Chennai	2530	2620	31,380	4935
Kolkata	3130	3120	45,570	4375

Source : Anarock Research

One good news, according to some market research Affordable housing segment has grown to 41% from 34%.

 

Now, if you are finding it interesting to invest into Indian real estate, do some ground work before you actually hit the market. Let us take a defined step by step approach to buy your property.

Step 1 >> Think through the objectives:

This is actually the ideation stage. First you need to have a clearly identified purpose of the plan. Think and look out for the answers of these kind of questions…..

Are you planning to buy your first home ?

Do you already have a primary residence and want to purchase a property for investment ?

If your objective is to make an investment, then what do you want in return…..regular rental income or capital gain ?

If you are looking for capital gain then what is your planned holding period ?

How much capital gain you are expecting within that period ?

Is your expectation is in match with the market trend over past 5 years ?

Are you going to make an all cash deal or you would require a home loan ?

Have you already arranged for the down payments ?

………and so on……..be innovative in asking yourself these question and write down the answers in a sheet. At the end of the exercise you will have a clear cut objective with a defined statement of purpose.

 

Step 2 >> Plan your budget:

In the next step, you need to finalize a budget before you start looking into various properties. This is an important step towards the success of your plan be it buying your first home or making an investment into real estate. Do it diligently.

• You need to make a down-payment. Though earlier the down payment used to be 20% of the property value, now a days lots of builder and banks have came up with 10-80-10, 10-90 kind of plans. But these facilities are not available in all the locations or on all the properties. So, keep a rough estimate of 20% down payment in mind to be on safer side.

• Make an approximate calculation of the EMIs. Again, for rough estimation keep a figure of Rs 1000/per month/ per lakh of loan for 15 years tenure in mind.

For Example, if you are planning to buy a home worth Rs 1 crore, then first of all you should be ready with about Rs 20 lakh of down-payment. For the rest 80 lakh bank loan, take an estimate of approx. EMI of Rs 80,000/ month for 15 years. These figures are just for the purpose of illustration. All the banks will provide you with EMI calculators where you can calculate your exact EMI.

One gentle piece of advice, take a conservative approach when planning the budget.

 

Step 3>> Shortlist few properties:     

In next step forward, shortlist few properties in your preferred location as per your budget. Look out for the properties/ projects already approved by the major banks. Do some online research. Google with the keywords like…

“Good residential projects in south Delhi approved by so & so banks” ……. you will get some ideas.

Or, go to the banks’ websites and search for approved projects. Most of the banks will have location wise list of approved builders as well as projects.

Check out the approved properties and shortlist few of them.

One important point, always prefer to buy a property in a city where you have some kind of connections. Either close to your native place, or where you have worked for long time, or a city where you have a few friends or relatives.

 

Step 4>> Plan and prepare for applying a home loan (If needed) :

This could be the most tedious task. Keep the following aspects in mind while narrowing down your search for the right loan.

• Rate of interest.
• Processing fee or other charge
• Ease of reaching the bank
• Customer friendliness & approachability
• Documentation

Most of the banks now a days offers an interest rate somewhere between 8.25-9.25% depending of the borrower’s profession, size and price of the property, amount of loan etc. High end properties with a higher loan amount will generally tend to bear a higher interest rate.

Again, do some online search for the available offers from the banks. You will be flooded with options. Select whichever suits you the best.

Just remember that, the bank offering the lowest interest may not always be the perfect one. Ultimately, you need to get the loan sanctioned and disbursed on time as well. So, customer friendliness and easy accessibility of the bank is also very important factor.

Now……once you have finalized the bank and the loan…. Let’s do a little bit of homework before approaching the bank….

Calculate your loan eligibility………Well approximately.

Rule is simple and almost the same across all the banks:

 

• Take your fixed net take home salary/ Income. Do not include variable pay like bonus or incentives.

• Take 60% of that as your EMI paying capacity. If you are earning $ 5000/ month, $ 3000 (60% of $ 5000) is your EMI paying capacity.
• Deduct all the existing EMI that you are already paying in your country of residence or back in India. In the above example, if you are already paying an EMI of $500 against your car loan, then your final EMI paying capacity is now $ 2500 ($3000-$500)
• Multiply your final EMI paying capacity with the prevailing exchange rate (Take a conservative approach). For example, in the above-mentioned case the final EMI paying capacity of $ 2500 will come to Rs 1,75,000/ month in rupee term. ($ 2500* 70 as USD-INR exchange rate)
• Divide the Rupee EMI by 1000. The figure you get is your (approx.) loan eligibility in lakh. As in the above case, it will be 175 lakh (1,75,000 / 1000) which is actually Rs 1.75 cr.

Looks complicated…?

Actually not. Try it with your own salary…. it’s not that tough. This way  you will know how much loan you can apply for, even before going to any bank. This tool will help you in planning your budget as well.

One last preparation before initiating the loan enquiry.

Take a look at the list of the documents required to apply for home loan. Most of the banks will ask you to get all these documents while applying for the loan. Why not start preparing the documents in advance. Anyway, they are going to ask for these.

List of documents for home loan:

• Latest salary certificate/ last 6 months pay slips,
• Last 6 months salary account statement,
• Employment letter/ Labor contract or similar type of documents showing at least 3 year’s employment continuation.
• Valid passport, Valid visa.
• PAN card/ Form 60
• Overseas address proof (Can be your salary a/c statement also)
• Loan account statement if you are serving any current loan anywhere.
• Recent colored photograph.

Remember, in most of the cases, you would require a co-applicant (Either resident or Non-resident) and a Power of Attorney holder (mandatorily Resident). However, some bank will skip this part if you are purchasing a ready for possession property.

 

Now you are fully equipped and ready to make your move in Indian real estate market………Go Ahead….All the best…..!!

 

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