The Foreign Exchange Management Act (FEMA), which is overseen by the Reserve Bank of India, governs the purchase and acquisition of immovable assets in India by non-residents (RBI). For FEMA purposes, a Non Resident Indian (NRI) is an Indian citizen who resides outside of India. OCI refers to a non-Indian citizen who was born in India or whose parents or grandparents were born there (Overseas Citizen of India). For the sake of our discussion, I will refer to both NRIs and OCIs as NRIs because they are considered equally for real estate investment. The provisions that apply to NRIs and OCIs are the focus of this discussion.
The Reserve Bank of India releases guidelines from time to time, outlining the legislation and allowing NRIs to buy certain immovable assets in India without having to seek approval from the RBI. The RBI has provided NRIs general authorization to acquire certain immovable properties in India as a result of these instructions. NRIs are permitted to buy residential and commercial properties in India under these criteria, however they are not permitted to buy agricultural land, farm houses, or plantation assets.
Because owning a farmhouse is trendy, it’s important to remember that NRIs cannot own a farmhouse in India under the current laws. As a result, as long as NRIs invest in residential or commercial property in India, they are not obligated to notify the RBI about their transactions, even after they have been completed. Furthermore, an NRI can buy as many residential or commercial properties in India as they like.
How to Invest in Real Estate – A Checklist for Non-Resident Indians
Where is the property you’re interested in located?
In real estate, location is still at the top of the priority list for profit. Residential property assessments are influenced by amenities (schools, hospitals, malls, airports, and so on), neighbourhood ranking, view from home, and serenity. If you’re wanting to invest in commercial real estate, search for locations that are close to marketplaces, warehouses, transportation hubs, highways, and tax-free zones.
That’s not all, though. You must consider all of these considerations in the long run. Estimate how the neighbourhood will change during the course of the investment. If the serene open atmosphere of today is transformed into a loud manufacturing complex in the future, your home’s value will be reduced. Your investigation should involve a detailed examination of the ownership, kind, and intended use of nearby places, businesses, and undeveloped land.
What is the property’s market value?
Real estate value encompasses a wide range of factors, including mortgage finance during the buying process, listing price during the selling process, investment analysis, insurance premiums, and taxation.
There are 3 ways you can approach this.
- Methodology for comparing sales: Comparing the sales of homes with comparable attributes is a good way to start. This is something that can be done for both new and old homes.
- Affordability: This is a good option for freshly built homes. Subtract the total cost from the depreciation to arrive at this figure.
- Methodology for calculating income This is a rental strategy that is based on predicted cash inflows.
What is the aim of investment and what is the time horizon?
Real estate investing has a limited level of liquidity but a high return on investment. So, if you don’t have enough information before investing, you might find yourself in a dangerous situation, especially if the investment is mortgaged.
What are the anticipated cash flows and profit margins?
Your cash flow and hence profit prospects will be dictated by the purpose and use of your real estate investment. Make a rough draught of your investment estimates for different types of assets.
- Rental revenue expected cash flow – Inflation helps landlords when it comes to rental income.
- Long-term price appreciation is expected to boost intrinsic value.
- Depreciation’s Advantages (and available tax benefits)
- To acquire a higher price, do a cost-benefit analysis of the refurbishment before selling.
- Mortgaged loans versus. property appreciation: a cost-benefit analysis
What’s in a home loan?
There are costs associated with loans that are not readily apparent. You might wind up risking your future earnings on this investment and end up paying a lot of interest over a long period of time. However, if you are aware of the hidden expenses and risks, you may reap the rewards of this investment with careful preparation.
For real estate investing, new construction vs. existing establishments
New structures are available at reasonable prices, and you may modify them with the features you want. Delays in possession, increased fees, and a lack of understanding of the community are all risks. However, if you’re interested in repossessed houses, double-check ownership, papers, and legal issues.
Knowledge of the industry might help you minimise hazards. Ask a lot of questions about real estate investment before going into the market.