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Investment tips for NRI landlords

NRIs are increasingly looking at property purchases in India, both as an investment opportunity and a place to stay when they return to India for good. In the interim, renting out the property is a good option. The rental income plus the possible appreciation could result in good returns on investment. Other factors that make renting the most cost-effective option include covering costs and home loan repayments and keeping the home in good condition through regular upkeep and maintenance.

      Mortgage rates for NRIs in India are about 0.25 per cent to 0.5 per cent higher for Indian expats compared to resident Indians.

      The rental market has evolved into a more mature and safe market, with new legislation and registration procedures that secure landlords against potential risks of tenants violating terms and conditions of the license agreement.

      In addition, renting to professionals and corporate tenants is the wisest option.

      NRIs should make sure they are either in India at the time of setting up the agreement or that they use someone they can trust to do this on their behalf. They must have a designated person in the city where the property is located, to enable viewings by prospective licensees, repairs and interior works necessary to make the apartment habitable, and to facilitate executing the leave and license agreement and registration thereof.

      As most NRIs generally purchase an apartment as an investment option, it is vital to consider renting. The NRI should look at factors like the location of the flat, the amenities it offers, good furnishings and facilities like schools, hospitals, multiplexes to get a good rent.

      NRIs should also remember that taxes have to be paid in India on income generated from property rental; this can be 30 per cent on any rental income above 250,000 rupees.

      But while UAE NRIs are investing into India, well-heeled Indians back in India are increasingly looking to invest in homes abroad, including in the UAE, UK, and US, according to the International Real Estate Expo, to be held in New Delhi in October. Relatively low interest rates overseas compared to India amid a sluggish market in the country, as well as Brexit’s effect on the British pound and the expected negative impact on property prices in the UK, are factors driving this trend.

      According to Knight Frank, almost half of India’s high net worth individual and ultra-wealthy population own property abroad, the highest rate globally.

      On the other hand, the UAE dirham is pegged to the US dollar, so any changes in the dollar rate against the rupee are tracked by the dirham, which is currently trading at 18.60 rupees. The Reserve Bank of India cut interest rates four times last year by 125 basis points to 6.75 per cent. As interest rates have fallen, it is no longer as lucrative to park money in Indian deposits. Furthermore, keeping in mind the decreasing inflation and RBI’s outlook, interest rates look to fall even further going forward. Thereby, this would definitely impact the trend of NRIs borrowing money in dollars and putting it into Indian deposits and bring down the volume considerably. The net margins for this kind of investments have shrunk by more than 50 per cent.