For Non Resident Indians (NRIs) and Person of Indian Origin (PIO) buying a property in India sometimes seems to be a far-fetched dream. You must be putting off this decision thinking there is too much red-tape, may be cheated, or likely to get into unnecessary hassles! Right? I think it’s time you keep your apprehensions and fears aside because in this article we will tell you the possible pitfalls of buying a property in India and what to watch out for so that your investment is 100 percent safe and secured.
But first if you are still undecided whether you should actually buy a property in India, read our article on why this is the best time for NRIs and PIO to buy a property here.
While my intention is not to scare you away from buying a property, buying a property can sometimes get a little tricky if you don’t show some restraint and due diligence. Though investing in residential property has its own share of risks, they can to a great extent be negated if you do the necessary homework before investing.
Here are some likely situations you might otherwise face:
- Fluctuations in exchange rates
- Wrong commitment from the developer
- Misuse of your power of attorney
- The property does not belong to the seller
- The same property has been sold to many buyers
- Documents have been faked
- Property has been encroached and the buyer can’t do anything
- Property exists only on paper.
Where to buy: Now back to what to watch out for when buying a house in India. Because you either will be coming for a few weeks or may not come at all, it is imperative that you decide beforehand where you want to buy – in a metro; II and III tier cities like Bangalore, Hyderabad, Pune or Ahmedabad; in upcoming cities; a touristy destination; or in your hometown or ancestral village.
Once decided, make sure you know what your budget is. Don’t let real estate agents or developers to decide this for you. They may tell you that you will get a loan with easy repayment terms, but although banks are willing to advance loans to NRIs for buying property in India you may still need hard cash. And believe me getting tempted into taking a loan just because it is at a cheap rate is not advisable. At the end of the day you would have to repay it!
Exchange rates: The second and most common pitfall that you as an NRI may encounter is exchange rates. If you live in US, you would be taking the loan in US Dollars. If you intend to remit the funds to India, you would be converting your dollars into rupees at the prevailing exchange rates (say Rs. 54 for every dollar). However, if you have an investment structure in mind whereby you would take a one year loan in US at 4 percent and then remit the funds into India for a 1 year FD quoting at (let’s assume) 10 percent, you should also consider the risk of foreign exchange fluctuations. As such your gain is 6 percent. Having said that, if the exchange rate changes from Rs. 54 to Rs. 58 your entire investment calculation would turn into a loss.
Real estate agents: Unlike in the US and other overseas property markets, real estate agents are professionals who have done some kind of academic course in real estate. But in India anyone can be a real estate agent or property consultant. So make sure you get the right real estate agent for you (if at all you need one). The same goes when you choose a developer and his projects. Do a little research before approaching one.
Timely Delivery: Investing in a residential property that exists in the primary market is where the risk actually lies. While there is a definite advantage of entering the residential property market through the primary market route at a lower price compared to entering the market through a ready-to-move-in property, the risk lies in timely delivery of the project. Well, a delay of around six months is acceptable and pretty much a norm in the industry, but things might get murky when the project gets delayed beyond a year. So a ready-to-move-in property is essentially the best option for NRIs and PIOs. The only issue is getting a ready-to-move-in property that fits all your requirements is less and even if you get one it typically comes at a huge premium compared to one that is under construction. So, it’s best to look at projects where the delivery is at least within 6-12 months.
Power of Attorney: Most property developers ask NRIs for a power of attorney to take care of issues related to purchasing a property in India. The first and foremost advantage of executing a PoA is that you don’t have to come down to the site office to sign documents. You can just send a representative with the power of attorney and that person can sign the contract and do the necessary documentation for you. However there are certain risks involved. To know more read our article on the advantages and risks involved in issuing a Power of Attorney.
Ads versus actuals: Though most property advertisements will promise the buyer a piece of paradise, invariably paradise is not what one bargains for. There is many a slip between the glossy property brochures and ads and what you ultimately get! From clear land titles and blue-prints to the quality of materials used, to differences between carpet and super built-up area, there could be discrepancies in what is advertised and what is ultimately delivered. So make sure you are aware of all these facts and take everything in writing from the developer/ builder.
Property Title: The seller must have clear title of the property and the required authority to sell it especially in case of inherited house or a joint property. In case you are buying from a developer ask him to give you copies of all the relevant documents that state that the development has acquired all necessary permissions and has not pending litigation.
Bank Release Letter: In case you are buying a resale property that had been mortgaged for a loan or provided as a direct or indirect collateral security for any loan, then the seller must be able to provide a release letter from the concerned bank stating that all outstanding loans have been settled and the documents have been releases.
No Due Certificate (NDC): There should be no outstanding civic authority dues or electricity or water bills pending at the time of sale. A No Due Certificate (NDC) to this effect must be produced by the seller.