You have worked hard, saved up, and are now looking for a good investment opportunity. Maybe your goal is to move back home to India to be with your family within a few years. Maybe you have considered the high return on investment potential as India comes to the forefront of the world’s economy. Whatever your reason, there are many considerations to be made before you take the plunge to purchase real estate in India. Many of us have heard the horror stories of people who have lost money from fraudulent developers, inexperienced brokers, and projects that have been delayed for over 6 years with no end in sight. We have also heard stories of great success: a plot of land that has appreciated 96x over 20 years; a new apartment purchase that was sold for 40% over the initial purchase price only 6 month before. How do you ensure that you become one of the success stories?
Non-Resident Indians and People of Indian Origin are allowed to purchase non-agriculture land in India with no restrictions. A Non-Resident Indian (NRI) is an Indian citizen who is abroad for business or another circumstance for an indefinite period of time. A Person of Indian Origin (PIO), is eligible to buy property if a) he/she at any time held an Indian passport; b) he/she or either of his/her parents or grandparents was in Indian citizen; c) he/she is married to an Indian citizen or a PIO. For the purpose of simplicity, NRIs refer to both for the remainder of this article.
Depending on risk appetite, one would put money in either long or short term avenues. In North America, equities are volatile. The average Bank of America high yield CD is currently 0.7%, and the real estate market suffered a decline of almost 11% in 2009 alone. In India, The State Bank of India is giving a 3.5% interest rate annually to NRI accounts. Conversely, real estate in the National Capital Region increased 54% in first quarter 2010 alone.
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First, you should determine the purpose of this purchase. Do you eventually want to live there? Is this for a parent? Is this strictly an investment? Your answer will affect where and with which developer your purchase will be made.
Secondly, determine a budget. New construction properties are an excellent investment or modern, end use property, but there is more than just base sale price to consider. Reputable developers will be forthcoming with each charge associated with the purchase, including preferential location charge (PLC), external development charge (EDC), infrastructure development charge (IDC), parking, club membership fees, maintenance charges, etc. Additionally, with any property, considerations should be taken account on charges upon possession: stamp duty, registration charges, legal fees, brokerage fees (if applicable), yearly taxes and more.
Next, focus on a city or region. For example, if you want to be close to Delhi, you have the choice of many new developments in Gurgaon and Noida. Investigate current and future infrastructure in the city of your choice, including connectivity to national highways, airports, and public transportation. One critical factor to consider is the job growth rate and employment opportunities when determining future rental income and resale value. Also, examine convenience factors and quality of life, including access to shopping and greenery. These factors have all generally resulting in appreciation of home value.
Additionally, when choosing a new construction property, it is crucial to research builder reputation, including ease of transaction, on-time delivery, compliance with the buyers agreement, quality of construction, and delivery of amenities promised. Some insight to the builder’s financial status is if banks have approved home loans to be given to buyers of the project. Based on your budget, look for the development that has the highest quality and offers modern amenities, such as clubhouse and pool. The asking price of the home should commensurate with existing marketing value of comparative properties.
One little known fact is that you can buy property in India without ever leaving the US. You are able to appoint power of attorney to someone in India to sign the papers at the time of property possession and registration.
The booking amount for property is typically 10% of the base sale price, which can be made via wire transfer or INR check from established NRE/NRO accounts maintained with banks in India. Some developers, including IREO, give the option to pay in USD check, eliminating an additional step for many NRI buyers.
Developers typically offer two payment plans. In a down-payment plan, the buyer pays 85% of the total sale price within 30-60 days of booking, and the remaining 5% is paid at closing. The benefit to this option is that a substantial discount is offered as an incentive to pre-pay. With a construction linked plan, payments are made in installments based on stages of construction. Over the course of about three years, installments are made approximately every 2-3 months. The advantage to this method is that capital is not blocked due to delays in construction.
Another avenue is financing through a home loans from an Indian bank including Citi, State Bank of India, ICICI, Kotak, HDFC and more. On average, approval takes the same amount of time as it would obtaining a US-based mortgage, as there is an established credit history system in place in the States. Generally, the borrower meets 30% of the cost of the property, and the term amount does not exceed 15 years. Currently, first year rates can be as low as 8%, but can rise to 9.75% or higher in subsequent years.
You do not need to have a PIO/OCI card at the time of purchase. You must, however, establish your NRI status. The cards are needed only at the time of sale and to repatriate funds (more on that in the next section).
NRIs can acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, provided gift tax has been paid.
The final consideration when purchasing a property in India while abroad is the repatriation of funds from rental income and eventual sale of the property. NRIs are currently allowed to repatriate up to $1million per person each year. If you do not have a PIO/ICO card, one can be obtained from the Indian Embassy in approximately 7 days. At the time of sale, capital gain taxes will be applicable, and are considered long-term after 36 months of ownership, resulting in a significant tax break. If tax on capital gain is paid to India, the income is not subject to tax in the United States with proof of payment. Rental income must be credited to an NRO account, maintained by an Indian Bank. HSBC and Citi have NRI divisions in the US that can assist with options for these accounts.
One key factor is to access if the property developer has a property management arm to assist after possession. While you are sitting in the US, the property management company can manage security, maintenance, rental agreements to quality tenants, and the resale of the home.
IREO is a leading property developer in India and the largest foreign investor in the sector. Since 2004, IREO has committed approximately $2 billion of capital to 14 announced projects across India in prime locations within the Delhi NCR, Punjab, Chennai, Pune, the Goa region, and Coimbatore. IREO has a blue chip set of global investors and seven offices in India. IREO’s team consists of internationally experienced and accomplished US, Indian and expatriate professionals from diverse backgrounds to lead initiatives to deliver the best in class products and services to customers.
- NRIs and People of Indian Origin can buy property in India while living abroad.
- You can give power of attorney to a person in India to handle affairs, allowing you to purchase property in India without stepping out of the US.
- When choosing a location, consider connectivity to major highways, airports, and public transportation.
- Property in India can be purchased in INR as well as USA checks.
- Home loans are very easily obtainable. They are now offered by most major banks in India and are available to NRIs for buying properties in India.
- PIO/OCI cards are only required at the time of sale and repatriation. PIO/OCI cards can be obtained from the Indian Embassy in about 7 business days.
- NRIs can repatriate up to $1 million dollars per person each year while abroad.
- Know your builder. Check the location and compare amenities offered in the complex. Property management companies of good, reputable builders can help you with security and maintenance, renting to quality tenants, and eventual sale of the property.
- Sale of property after 3 years of possession attracts lower capital gain tax for NRIs.
- Property can be purchased in child’s name and parents can pay for it. Child does not need a bank account to purchase property.
- If property is held only in a woman’s name, the registration value is less at the time of possession.
- Home loans are available to NRIs in the US, but loans are in Indian terms. Interest can be 10% depending on amount borrowed. Financing readily available for IREO projects, which have been approved by banks.