Should an NRI Buy Property In India?
However, a shift is being seen in NRI investments in India. The NRIs now prefer investment in financial assets to physical assets. We at Ashutosh Financial Services also believe that an NRI should prefer investing in Finance Assets over Physical Assets to get the maximum returns on their investments. Below are the reasons why an NRI should choose Financial Assets (Mutual Funds, Portfolio Management Services, Fixed Deposits, etc.) Over Physical Assets (Land, Residential Property, Commercial Property):
- Liquidity: Physical assets like land, residential or commercial property are generally considered ill-liquid assets. On the other hand, financial assets like mutual funds, portfolio management services, and fixed deposits are easily sellable at the click of a button. Another key difference is that to sell land; an NRI must find a buyer, agree to a specific price and then recieve the sale proceeds. On the other hand, in financial assets like mutual funds or fixed deposits, an NRI can receive the entire funds back in their bank account in a week. Further, there is also a lot of unaccounted money involved in transacting in real estate which can become cumbersome for an NRI to manage.
- Returns: Everyone knows that the long-term returns of financial instruments like mutual funds and portfolio management services will outperform the returns of physical assets like land, residential property, commercial property, etc. The case of India is no different in this regard. The returns of Indian financial assets have consistently beaten the returns of physical assets over the last three decades.
- Management of Assets: Physical assets demand resources for management, upkeep, and security to maintain an asset properly. On the other hand, modern financial assets are professionally managed and require no time or resource devotion from you. Managing physical assets is time and money-consuming, whereas financial assets do not need either.
- Correlation To Economic Growth: The Returns of physical assets decreases when the economy grows. It happens because when the economy grows, infrastructure grows too, and people tend to live in distant locations with the growth of infrastructure. Distant locations are areas that are away from the center of the city. As people shift to distant locations, there is a significant increase in the supply of real estate, which reduces the returns on a real estate investment. However, the returns of financial assets are in line with economic growth. The returns from financial assets rise with broader economic growth. The higher the economic growth, the higher the returns from the financial assets.
- Next Generation: The next generation NRIs are not intending to relocate to India or visit India frequently. Moreover, since NRIs do not intend to use the property, it does not make much sense for them to own real estate assets. Moreover, visiting India to manage the assets can also be a challenging task for them.
Types of Properties an NRI can buy in India:
How Can an NRI Buy & Sell Properties In India?
An NRI can buy residential and commercial properties in India without any restrictions. NRIs can pay either through standard banking channels by remittance from a foreign bank account or use their NRE/NRO account balances. NRIs cannot pay for properties using traveller’s cheques or foreign currency in India. Many NRIs are investing in the Indian property markets due to the depreciating rupee. A depreciating rupee would enable the NRIs to generate abnormal returns due to exchange rate fluctuations.
It is advisable for NRIs to buy properties in India either through remittances from abroad or through an NRE account. This would enable an NRI to easily repatriate the sale proceeds of the property outside India after paying appropriate taxes. However, in the case of residential house properties, the repatriation of funds is restricted to the sale of a maximum of two properties. Repatriation beyond that will have to be done under the 1 million US dollar repatriation scheme of RBI.
Documents Needed By The NRIs To Buy Property In India:
An NRI can buy property in India by using the following documents:
- Passport or OCI Card
- Pan Card
- Power Of Attorney (In case the NRI is unable to come to India to complete the purchase)
- Utility Bills (For proof of current residence)
- Passport Size Photo.