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Questions NRIs must ask before investing in Indian property

Before you venture to buy your next property, remember: even this asset class carries risks.

Staying away from one’s home country has its share of benefits. But occasions like a friend’s milestone birthday party, an alumni get together, a cousin’s wedding or a family bereavement may make you want to keep the Indian connection alive. The next thought is that you may get back home after all, albeit after a few years. And before even the idea really takes proper shape, the first thing you want to do is buy property. It would after all make perfect sense to have a home to get back to—and we always believe that property prices will rise perpetually. I have no issues with this line of thinking, but I do wish that the next steps were better thought through. Here are a few things to consider before you go ahead and INVEST.

Which city are you likely to return to?

You may have grown up in Delhi and your wife in Hyderabad, so there is no obvious choice evident. Where are you most likely to find employment? What about your children? What is their expected age when you think you will return? If they are still of schoolgoing age, you may need to consider where there will be least disruption in continuing their education. What about climate and related allergies that you may have developed? Where will close family members be?

How far in the future are you likely to move? If you have plans to move back after five years, keep in mind that the flat or villa you purchase would have suffered wear and tear and there may be better options available to INVEST.

The other factor to consider is whether you can afford to sink substantial capital in a property that will be vacant until you move. Giving it out on rent may bring its own set of headaches, such as finding a good tenant and responding to pesky calls to get a small leak in the bathroom fixed. It is important to find a property manager you trust before diving deep at this end.

How will you find this INVESTMENT?

If you have invested in a ready property, how do you plan to fund it? Are you considering a loan for the bulk of the payment. If so, will it be from a bank or institution in India? Sure, there will be cheaper options if you were to take a foreign CURRENCY loan from your current “home” country, but do consider foreign exchange risks.

Planning needs to be done even more carefully if the property is under construction and the payments are to be made in tranches, based on work completed. You may have the total MONEY already. So where will you INVEST it temporarily so that you earn some return and yet keep them available when the draw-down call is made. Your financial adviser will be able to suggest suitable options.

In whose name will you buy the property?

The moment you INVEST in a property in India and the agreement is ready to be signed, you need to determine the ownership pattern. Will it be in a single name (not advisable, from an estate planning viewpoint) or in joint names? Whose name will come first (in India, tax liability falls on the first owner; though joint owners can claim tax breaks if they are jointly making equated monthly instalment payments for the loan they have taken)?

Is property the only asset you have in India?

I am sure you know the risks of having all eggs in one basket. More often than not, INVESTING in multiple properties in the same city with the “advantage” of familiarity is the norm. Is it that you are not aware of other financial options? If yes, then it’s time to do some research and find a financial adviser who can use asset allocation to reduce your risks—which, in my mind, forms the foundation for generating returns.

What should you do?

After having considered these factors, you need to find a good real estate adviser—and not a “BROKER”—who will understand your needs and recommend not only what you need to buy, when and at what rate, but also keep an eye on when is the right time to sell. The fact remains that property prices do not rise perennially; it’s just that we can hold off our selling decision to a later date when we find that the “target” price has not been reached. If you are invested in a fixed deposit for three years at 8% per annum and get back the funds back only after four years, a simple calculation tells me that the returns have dropped to 6% per annum. Do you ever use this to calculate property returns?

Before you venture to buy your next property, remember: even this asset class carries risks.

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