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The streets of Mumbai, India. How can NRIs best decide on the right property in India? Here's all you need to know. Image Credit: Atul Loke/The New York Times

Dubai: Investing in real estate is a major life event for most, so while you make sure you’re weighing all your options before taking the plunge, you need to know how you can best decide on the right property.

The ‘right’ property is contingent upon what your goals are - is it for investment, for residing in or for commercial purposes? The common answer to all of this is a real estate property that gives you the best return on investment.

What is meant by return on investment?
Return on investment (ROI) is a metric used to understand the profitability of an investment. ROI compares how much you paid for an investment to how much you earned to evaluate its efficiency

What do I need to know before buying property in India? 

Buying land is surely a great way to invest your money. For years, real estate investors have been investing in lands and it has yielded them some amazing results, too. If you are planning to invest in land, here are some general factors you should consider before buying a property.

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For years, real estate investors have been investing in lands and it has yielded them some amazing results.

Before choosing the right property, consider the location, the developer, proximity to major landmarks (schools, if needed) and transport, connectivity, safety, development forecasts of that neighbourhood and much more.

1. Location

It is one of the most important things to look at when buying land. Location matters a lot because the future appreciation value of the land depends on where the land is situated at.

A project that is located within city limits provides great resale value and also leads to stress-free living. So check it thoroughly and ensure that you are investing in a locality that is developed, has given investors some amazing returns in the past and there are future urbanisation plans by the government.

2. Value, area of the plot

Do not rush to buy just any land for the sake of investing. You should always consult real estate agents about the real value of the property or people who may know about the same.

So check whether the area of the potential property fits your investment criteria (or reason for buying the land) or not.

3. Budgeting the expenses

Cost is a decisive factor to be considered while purchasing a property. Generally, people pay 20 per cent of the cost of the property through cash and opt for a home loan for the remaining 80 per cent.

It makes sense to choose a loan amount wisely to avoid a debt-trap. A home loan ensures that one can pay the cost of the property in monthly emoluments instead of paying a lump sum amount upfront.

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Cost is a decisive factor to be considered while purchasing a property.

4. Verifying seller, property title deed

Verify the seller and their credibility to sell the property. After duly researching the seller, you should take the next step. Also, check that they were not involved in any disputed property litigations.

Ensure that you verify the property title deed thoroughly because there have been cases of fraud before relating to sellers selling buyers disputed property and then the buyer has to undergo all the legal formalities so, it is better to be safe than sorry!

Also check whether the seller has taken all the necessary approvals by the local authorities to sell the property or not.

5. Reputation of the builder (when building a house)

A buyer needs to choose a developer of good repute. Purchasing a property from an experienced developer will ensure that the quality of construction is maintained. Also the handover of the property from the builder to the buyer turns is a smooth process.

These days property buyers have various online portals where they can do their research before they take the final decision. Online real estate portals let the buyer compare properties from a multitude of developers and then choose the best that suits their budget and requirements.

Government regulations NRIs need to be aware of when buying property

NRIs are allowed to purchase residential or commercial properties in India but they are not allowed to purchase any agricultural land, farm house or plantation property in India.

Purchase and acquisition of immovable properties in India, by non-residents, are governed by Foreign Exchange Management Act (FEMA) and which is administered by Reserve bank of India (RBI). A Non Resident Indian (NRI) is an Indian citizen who is resident outside India for FEMA purposes.

All investments are supposed to be made in Indian currency using an NRE (non-resident rupee) and NRO (non-resident ordinary rupee) account from any Indian bank or FCNR (foreign currency non-resident) deposit account in order to avoid forex fluctuations.

Government regulations NRIs need to be aware of when buying property.

Since the money for this purpose has to come only permitted channels including through banking channels, the payment cannot be tendered in the form of traveller’s cheques or foreign currency in India.

When an NRI sells a property in India, TDS (tax deducted at source) calculation is done at the rate of 20.6 per cent on long-term capital gains and 30.9 per cent on short-term capital gains.

However, the final taxation rate is similar for NRIs and resident Indians. If an NRI has a lower tax slab applicable to him, he can apply for a refund of the TDS by filing their income tax return.

Is it the right time to invest in a property in India, or should one wait?
If it is for self-occupation and it is your first home purchase, then property consultants suggest that you shouldn’t wait too long.

If you are financially ready for it, like if you have saved up enough funds to pay at least the down payments and the cost of furnishing (in case you plan to fund this by a home loan), then experts recommend going ahead.

If it is just for investment purposes, then you need to look at many factors like the growth prospects of the area or the city you are looking to invest in, the current valuation etc.

Also, real estate as an investment is not very liquid – and requires a huge sum – so ideally you should look at this only after you have invested sufficiently in other investment avenues like fixed income, equity etc., and restrict it to about 25-30 per cent of your total investment portfolio.

Verdict: Buy or not to buy?

If you are buying a property for investment purposes and earn from rental income, it’s wise to follow the thumb rule.

According to the lending and finance companies, the permissible EMI (monthly instalment) is 30 per cent of your total income. If your monthly take home is $5,000, which is equivalent to approximately Rs360,000 or Dh17,610, a 30 per cent of that would be Rs108,000 (Dh5,283).

Assuming that the loan tenure is 20 years and the interest is 10 per cent you would be eligible for a loan of Rs10.8 million (Dh500,000).

The amount that can be financed by the bank is 80 per cent of the property value, which means you can afford a property of a maximum value of Rs13.5 million (Dh600,000).

Keep a close watch on the trend of the rupee in comparison to the currency of the country you work in. If the trend of the rupee is falling against your currency then it is the ideal time for you to buy as you would gain by the falling rate of rupee.

If instead, the rupee is gaining against your currency then it is not the right time for you to buy as that would prove expensive.

Choose a time for investment watching the trend of the value of rupee and opt for a time when the rupee falls against your currency and on applying for a loan the banks would also sanction it accordingly.