NRIs are basically wealth creators and also they aide in our country’s Forex enhancement. They send back huge sums of money each month back to India either using a money transfer service or banking platform. This money is invested in bank fixed deposits, gold, real estate and a small part in Equity markets. Investing in Indian Real Estate is a tricky business which requires a lot of information and clarity. This article discusses various mistakes NRIs make when it comes to real estate investment.
Delaying the Investment
Most of the NRIs plan to come back to India and settle here when they retire. So they think investing into a property in their early age is not a good idea and postpone the investment. Instead of investing when they are 25 they prefer to invest when they are 45. Till then they prefer to accumulate their money in the fixed deposit. They will consider buying a property just 2 years before coming back. This is a bad investment decision. Property prices in India are growing all the time. If a property which is available for Rs.1 Crore when they are just 25 years old will cost around Rs.3-4 Crores when they are 45. They will end up paying 2-3 times more if they postpone. So it is highly advisable to buy property when the NRIs are young.
Investing only in their Home Town
This is the single largest mistake made by 90% of the NRIs. They prefer to settle down in India during their old age and so consider buying a home only for their retirement purpose. So they prefer to buy a land in their home town or village and keep it safe. Later they will consider building a bungalow and live there peacefully post retirement. Though the idea is good locking your funds on a plot for 20 years is not a wise investment idea. One should not restrain themselves only to their hometown instead consider investing in fast growing cities too where their investment will double or quadruple at the time of their retirement. Investing in a real estate should not be restricted only to hometown, take educated decision while investing.
Not Investing in Real Estate
Some of the NRIs might have their ancestral properties already in their home town or village. So they don’t prefer to invest in another property. They plan to build a bigger home later in their career in the same plot which they already own. Though this will save a lot of money, it won’t create wealth. An NRI sends home a lot of hard earned money every month and it is strongly advised to invest that money in a property which will multiply their capital over time. They can also earn steady monthly income through rental.
Investing in Fixed Deposit over Real Estate
Around 95% of NRI prefer to deposit their monthly savings in a bank fixed deposit. This is the first choice of investment for most of them. It is also sensible as fixed deposits are considered to be the safest form of investment. What they don’t understand is the inflation. Fixed deposit will earn you a steady interest of 8% per annum whereas the inflation grows at a much faster rate. You cannot beat the inflation with an FD. Another issue with the FD is the Tax. You might end up paying a lot of taxes and your net rate of return will be around 5-6% instead of 8%. If you invest the amount in an apartment you will get a better capital appreciation as well as monthly rental income.
Lack of Awareness about Bank loan for NRIs
As per our RBI guidelines, NRIs are equally eligible to get a housing loan from banks and financial institutions similar to residing Indians. Most of the NRIs are not aware of this and hence they don’t approach a bank while buying a property. NRIs should take a bank loan for investing in a property as it is the wise investment decision. It will save you on taxes and also peace of mind as banks only sponsor legally correct properties.
Read through the above-mentioned common mistakes made by NRIs and try to avoid them. Investing in real estate is a huge decision so take some time and plan it wisely.