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New vs old: non-resident home-buyers, take your pick

Moving beyond the typical items on a home-buyer’s checklist NRIs must review several other factors

Non-resident Indians (NRIs), looking to invest in the Indian residential real estate market, have various options under the gamut of newly constructed homes and resale properties. Moving beyond the typical items on a home-buyer’s checklist, such as pricing, developer’s track record and quality of construction, NRIs must review several additional factors.

This includes factors such as their investment objectives and horizon, expectations of future income generation in the form of potential rental accruals and appreciation in capital values.

Under-construction flats vs recently built flats

NRIs could consider investing in new constructions, which include both apartments that are under-construction and those that were built less than five years ago. A majority of the newly constructed properties are replete with a complete range of amenities—a clubhouse, gymnasium, community halls and so on, in addition to hi-tech home security solutions.

However, even though an under-construction flat promises higher yields, considering that NRIs are based in a foreign land, investing in such an asset could turn out to be a riskier proposition. NRIs could encounter hassles such as making payments linked to the stages of project completion, monitoring the progress from a distant land and envisaging any possible delay in execution and handover of the project. In addition, weak demand in the residential real estate market has caused many developers to postpone their project plans.

In this context, investing in newly constructed ready-to-move-in flats would be a better proposition.

This option offers NRIs the flexibility to make the entire payment at one go, thus minimizing risks arising from fluctuations in the dollar-rupee exchange rate. They could seek a small ticket home loan to ensure better due diligence on paperwork at the developers’ end.

Newly or recently constructed flats, with all the modern amenities and security solutions, also offer significant returns to NRI investors, both in terms of monthly rentals and appreciation in capital values over the longer run.

Tapping the resale market: redevelopment holds the key

Within resale properties, there are two categories—one, in which the project carries scope for additional floor space index or FSI (in case of Mumbai) and two, in which there is no scope for FSI enhancement. Redevelopment necessitates all the existing residents to temporarily relocate to an alternate residence for at least three-five years, at the developers’ cost. Upon completion of the property, apartments are handed over to all residents, with a significant mark-up in the FSI.

From an NRI investors’ perspective, relocation is a non-issue considering that she is purely looking at the asset from an investment angle and not for accommodation purposes.

Upon completion of the redevelopment process, the NRI investor receives a newly constructed flat,which is larger in size. In certain cases, she also receives a monetary compensation in addition to the flat. On the other hand, if an NRI invests in a resale property without extra FSI, she does not stand to gain significantly.These properties would not typically offer the extent and nature of amenities which most of the new constructions offer, in the form of gated townships and high-tech automation gadgets.

Succinctly said, investing in a project that is newly constructed or built less than five years ago, will reap larger returns for NRI investors, by offering a higher rental income and also appreciation in value terms. In comparison, investing in an under-construction project may offer a greater upside in returns, but timeline issues and staggered payment schedules may emerge as hindrances. In case of resale properties, it would be most advantageous for NRIs to invest in old properties (having unutilized FSI) which could be taken up for redevelopment, thus promising a newly built flat with additional FSI in return.

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