Investing in Property – Detailed Analysis

Property is a good investment

Since time immemorial, land has played an important role in shaping the course of history.

The reality is that – land never loses value or demand, and with only limited space available for a fast-increasing population of a country like India, realty offers better (and guaranteed) returns compared to other popular investment choices.

With the current crisis and an unexpected reality that has turned the world upside down – investors are scrambling to put their money in a safe place. Most investors now will be looking for a defensive wealth strategy by directing their investments toward safe havens, such as gold for more traditional investors, or bitcoin for the millennials. 

However, real estate is the No. 1 tangible investment and a safe haven for all, especially when financial markets and Forex are in an unprecedented state of volatility.

2020 Real Estate insights for India

Finance Minister, Nirmala Sitharaman presented the Union Budget 2020-21 on 1st February. Here are the highlights of the budget for the real estate sector:

  1. The deductions on affordable housing were allowed on housing loans sanctioned on or before 31st March, 2020. To ensure that more people avail this benefit and to further incentivise the affordable housing, the date of loan sanction has been proposed to be extended by 1 year and a tax holiday is being provided on the profits earned by developers of affordable housing project approved by 31st March, 2020 to boost the supply of affordable houses in the country.
  1. Currently in real estate transactions, while taxing income from capital gains, business profits and other sources if the consideration value is less than circle rate by more than 5%, the difference is counted as income both for the purchaser and seller. In order to minimize hardship in real estate transactions and provide relief to the sector, it has been proposed that the limit be increased from 5% to 10%.
  1. Rs 100 lac crore would be invested on infrastructure over the next 5 years across various sectors like housing, basic amenities, energy, healthcare, educational institutes, transportation, logistics and warehousing, irrigation projects, etc.

Real Estate Investments for NRIs

The top five Metropolitan areas in India – Delhi, Mumbai, Kolkata, Chennai and Bangalore. On an average property prices in top seven cities ― Bengaluru, National Capital Region (NCR), Mumbai Metropolitan Region (MMR), Chennai, Hyderabad, Pune and Kolkata ― in the last decade (Q1 2010 to Q1 2020) has seen a 38 per cent jump.

In Bengaluru the average property prices stood at ₹3,345 per square feet in 2010, which rose to ₹4,975 per square feet in Q1 2020 ― a 49 per cent rise.   

This global crisis  has surprisingly has paved the way for NRIs to find a window of opportunities to make some major investments. According to property consultant Anarock, the rupee’s depreciation had been a factor of considerable interest for NRIs considering Indian real estate as a sensible investment option during these volatile times.

Anarock’s consumer survey for the second half of 2019 had indicated 68% NRI participants considering real estate as the best asset class for investment, even better than stocks (16%).

According to Prashant Thakur – director and head of research,  Anarock : “…the recent stock market volatility, coupled with the favourable rupee-dollar exchange rate in the time of the coronavirus crisis, presents a significant opportunity for NRIs to consider investing in Indian real estate. In fact, a significant portion of NRIs who previously favoured the stock markets will now focus more on real estate,”. 

Challenges

A major challenge faced by NRIs is the ability to track and stay updated on what is really going on with their property. Especially in a time like this – one doesn’t know when is the next time they will get to come visit their property. 

An overview of the challenges include: 

  1. You and your property are in 2 different locations: Being in a different city or time zone makes it a challenge to stay updated on what is happening with your property. Who are your tenants? What is the condition of your property? 

While many people opt to appoint a family member or close relative as the Power of Attorney, A PoA can be your on ground eyes however, that person may not be fully familiar with what needs to be done to keep your property’s value appreciating. 

  1. Time is money: Having a property in a different city or in a different country to where you reside means having less time to stay constantly updated. To ensure updated paperwork, repairs and upkeep of your property to maintain its market value takes up valuable time. 
  1. Owning a property vs maintaining one: While you may have a firm understanding of the bases you need to cover when it comes to bagging the best market price for your property, to maintain it and keep up with all the processes like:
  • Knowing common property related issues and their fixes.
  • Having the right contacts to get fixes implemented
  • Having an in-depth understanding of property law
  • Staying current with property rules and regulations
  • Knowing the impact of the environment and weather on a house

May not exactly be your area of expertise. 

  1. Finding the right tenant: Being miles away, you cannot verify the occupants of your property. While your PoA may carry out the task of finding you a tenant, it’s crucial to verify and do a background check to avoid any unnecessary legal hiccups down the line. 
  1. Managing the property and tenants: If something breaks or stops working on your property, the first person a tenant is likely to call is the owner of the property. Being away from your property makes it a challenge and a chore to keep up with any complaints or issues that arise with respect to your property. How do you find a vendor to fix the broken cabinet door sitting kilometers away? 
  1. Keeping up with market trends: When you live in a different country or city, you are more likely to be more aware of the place you live in vs where your property is. This may end up costing you value for your property if you don’t know the market trend for the locality of your property. 
  1. Advertising: There are an abundance of property advertising platforms – listing on all or most of them, keeping a track and responding to potential tenants can become a tedious task. 
  1. Current affairs: Taking the Covid-19 as an example, policies and trends can change rapidly based on the circumstances. As an NRI with property in India, you cannot be expected to stay current with the changing laws, rules, and regulations of India. As the owner of an expensive property, you do not want to get on the wrong side of the legal system. 

Staying in compliance is an important must. 

Solutions

A valuable investment for an NRI can be hiring a property management company. Where your property’s: upkeep, sales, market price and documentation is all kept on track by a property manager. 

Benefits for NRIs of Property Management Services: 

  1. We do background verifications of prospective tenants by screening their employment history and police records to confirm that they are in need of the property for rental purposes only,
  2. Attend to any queries and concerns raised by the tenant immediately. Having a property manager gives you the eyes on ground you need to attend to your tenant and property, 
  3. We ensure that the properties are inspected on a regular basis and updates are sent to the owners, 
  4. We take care of all legal paperwork and documentation to ensure documents are updated periodically and submit legal documents in a timely manner to keep authorities happy,
  5. For maintenance and repair works, we have trusted vendors to complete the tasks on time and owners don’t need to worry about that leaking pipe or any sort of damage, 
  6. Property managers cognizant of rental scams, open the gates to a safe and hassle-free renting experience by drafting standard agreements inclusive of rules and regulations to be followed by each party, 
  7. We also conduct analytical research on the market rents for each locality to find you the best possible deal for your investment, 
  8. We educate owners on the rental market prices for their properties, based on the locality, land value, construction costs and type of property, 
  9. Identify potential means of increasing ROI. As experts in the field of property, a property manager will be able to give you professional advice on how to improve your house to keep your returns high and losses low, 
  10. Your property is marketed and listed on the right platforms to a identified target audience to find your the right tenant and reduce vacancy time. 

Conclusion

Most overseas property owners are caught up in the chaos of their own life. Living in a different time zone and dealing with working hours can make tracking, staying updated and worrying about a vacant property investment in India stressful. 

By hiring a property manager, that entire burden is shed from your shoulders. At Propadis, we keep our property owners updates via a simple app with real time updates and emails. We have a team of experts who handle everything from documentation, marketing your property and ensuring it is always occupied – so your investment is worthwhile.

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