Do’s and Don’ts of Real Estate Investments

do-and-dont

Real Estate investment has always been a lucrative option. It attracts a lot of investors for building on wealth as it promises good returns. Real estate covers housing, retail, hospitality and commercial sector.

The decision to invest in real estate requires a careful analysis of the

  • economic conditions
  • investment policies 
  • availability of funds

People invest in real estate for various reasons like:

  • Stable income (rental)
  • High Returns
  • Portfolio Diversification

Like all other investments, e.g. stocks, shares, mutual funds, etc., real estate investment has its share of risks. The risks can be minimized by taking reasonable precautions beforehand.

Read more: Increasing Benefits of Real Estate Investment in India

There are some dos and don’ts which can help to take the decision prudently to invest in real estate: 

  • Investment in real estate takes time to generate income and is highly illiquid. It is essential to ensure that there is enough cash to survive the lock-in period. The property should not become a liability. One should have sufficient savings required to deal with hidden expenses like government dues, taxes, maintenance charges etc.
  • It requires careful planning to ensure availability of funds for real estate investment. Unlike other forms of investment like stocks and shares, the risk is more. There is much more to lose than the amount invested. 
  • It is better to go for investment in various properties than to concentrate on a single one. A person can distribute the investment in multiple properties as per the budget. A mix of residential and commercial real estate is better if finances permit.
  • It is not uncommon to find that real estate investors prefer to take professional help and legal assistance as the amount involved is huge. It also helps to handle the risk appropriately. 
  • Do not expect quick returns in the real estate market. The benefits are reaped in the long term.
  • Miscalculations and myths are common in the property market. Always collect the information from reputed sources. It is better to approach the professionals or business analysts or financial advisers, who are well informed and knowledgeable about the property market. The expected change in the market price of the property has a lot of influence on the decision of investment.
  • Do not invest simultaneously in various properties unless there is sufficient backup. Cash flow is restricted once the money is invested in real estate. It is significant to be wise before we chose the properties. One should invest in the second property only when the first one has started generating income. 
  • Always talk to property dealers or regular investors if you are a novice in the field. Taking legal advice and professional assistance proves fruitful.

Read more: NRI investments in Indian real estate sector

Invest in India without Fear – RERA is here

Real Estate Regulation Act

Keeping in mind the rapid growth process in the real estate sector and its contribution to Indian Economy the Government introduced the Real Estate Regulation Act (RERA). Their aim was to provide world-class facilities to its citizens by providing a home for all, developing smart cities and making advancements in the infrastructure sector.

The growth in real estate has been resulting in the increase of disposable incomes and hence, the market for real estate in the country. But with the continuous progress in this sector, the people (buyers) have been facing some issues when investing in the property due to the immoral and unethical practices across the country.

Issues such as lack of transparency and accountability of actions of developers affect buyers. Sometimes the problem is on the part of builders, but sometimes it is just due to the delays in the project approvals and dispute resolution that the demand of the buyers and industry is not fulfilled.

This issue called for a reform and supervised real estate sector. The government, therefore, started the process of Real Estate Regulation Act (RERA).

Commencement of Real Estate Regulation Act

The whole process of RERA began with the introduction of Real Estate Regulation Bill by United Progressive Alliance (UPA) in 2013.

  • 9 September 2013 – the bill was referred to the standing committee on Urban Development for examination.
  • 8 October 2013 – the standing committee heard the briefing of the Ministry of Housing and Urban Poverty Alleviation.
  • 6 November 2013 to 12 December 2013 – the standing committee heard all the views of some of the NGOs working in the real estate sector.
  • 12 February 2014 – after hearing all the parties and having public opinion the standing committee prepared its report
  • 13 February 2014 – committee submitted
  • 7 April 2015 – under the chairmanship of Prime Minister, Mr. Narendra Modi, the Union Cabinet gave its approval to the amendments in the Bill
  • 6 May 2015 – the Bill was introduced in the Rajya Sabha and then directed it to the standing committee containing 21 members of Rajya Sabha.
  • 3 July 2015 – the Select Committee held 17 sittings to examine the bill
  • 30 July 2015 – the committee submitted its report to the Rajya Sabha
  • 10 December 2015 – the Cabinet accepted 20 major amendments to the Bill
  • 10 March 2016 – finally Rajya Sabha passed the bill
  • 15 March 2016 – the Lok Sabha passed the Bill, and it received the assent of the President
  • 1 May 2016 – the Real Estate Regulation (and Development) Act (RERA) came into force with 59 of 92 sections
  • 1 May 2017 – the remaining provisions came into force

It took a little time for the Act to come into effect but once implemented, it can transform the look of Real Estate Sector in India. It is a reform in the real estate sector that will help the government to strengthen the Indian Economy as well as protect its citizens.

The Act covers a broad range of issues in real estate market such as the launch of a project to post sales problems of buildings, apartments, flats, plots, offices, shops and other such properties.

Real Estate Investing in India – The way to do it

Real Estate Investing in India-the way to do it

Whatever be the state of the politics or society in a country, real estate investing has a potential attraction element that doesn’t get lowered in the long run. This is something that is of immense interest to NRIs too. India evokes great interest for property investment. The same logic applies to the NRIs too.

But NRIs often get confused on how to buy property and what their gains could be.

While real estate investing in India is gaining interest there are somethings NRIs have to keep in mind. They don’t need RBI’s permission to invest in India. They just need passport, address proof, PAN Card and photographs to make an investment. The NRIs cannot invest in Agricultural, Plantation and Farmland Property.

The rules or the ways of investing in property are not always crystal clear to the overseas citizens. Moreover, they are never too sure about how profitable this investment can be for them.

NRIs are individuals who have been residing in another country for a consecutive 180 days and hold an Indian passport. So what property can the NRIs invest in?

Agricultural, Plantation or Farmland property is not permitted for NRI investment.

NRIs needn’t take permission from RBI for this.

Their passports, address proof, a PAN card, and photographs are required for this.

How do NRIs finance the buying of property?

  • They can issue cheques from their NRE or NRO accounts.
  • If they have any deposits in their Foreign Currency Non-Resident Accounts ( FCNR), they can buy property using these funds too.
  • Overseas currency brought to India through the legal bank channels.

What does one keep in mind about the POA?

More often than not, NRIs find it tough to travel again and again to India. They are on the lookout usually, for somebody who can handle their property matters so that it becomes convenient for them.
In these situations, they give a power of attorney to some relative or friend who can sign the real estate investment contracts on their behalf.  Any POA that is made must be signed in the presence of either a notary or a consulate officer.

Repatriation and Taxation

  • Repatriation implies the funds that are sent abroad after a transaction takes place – sale proceeds from the property sale.
  • This would entail converting the Indian rupee to foreign currencies.
  • Taxes aren’t supposed to be paid unless there is a rental income involved.
  • If the property is sold, then a capital gains tax would be applicable. This could be short term or long term one.
  • The tax is short term if the property is sold on a profitable basis within three years of buying. The tax is imposed on the seller according to the income tax slab rates.
  • If the property is sold after three years, then long term capital gain is applicable.
  • In cases where a new property is bought within a specific number of years, then tax is waived off.

Rental Income Taxation

  • Rental Income is, of course, taxable. Appropriate taxes are to be paid using the PAN details.
  • In cases where the NRI owns two or more properties then only one would be taken as rented property. Then taxes would have to be paid on that particular property only.
  • But it needs to be remembered that just like other Indians, NRIs can also show 30% of their rental income as maintenance costs.
  • However, tax doesn’t have to be paid on the income in the resident country of the NRI – though it is better to declare the income in the resident country.

Loans and the related tax benefits

NRIs can obtain home loans. There are a variety of products depending on the special needs of NRIs – whether it is investing in property such as buying a house or even building a house or anything more. Most Indian banks offer speedy and convenient tracking of loan applications.

It is crucial for NRIs to fully comprehend the financial scenario of the country before they decide to invest in property. Real estate investing requires astute business acumen and awareness about the legalities involved. More on these details, in the forthcoming blogs.