by Mr. Arjun Parthasarathy, Editor, Investorsareidiots.com
NRI investments in
real estate in India are fraught with risks and if made at the wrong time leads
to high losses. Let me give you anecdotal examples.
Stand alone
house
There was this US
based NRI who had invested in a stand alone house in Bangalore and he gave the
place on rent. Given work pressures, the NRI could not make any trips to India
to check on his investment but he was receiving rent regularly.
One of his friends
was going to Bangalore on a trip and this NRI requested him to check on his
investment. His friend went to the address given to him and to his surprise he
found that instead of just a stand alone house, the place was a full fledged
school with many stories.
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| Arjun Parthasarathy, Editor, Investorsareidiots.com |
The tenant had
conveniently taken the place as his own, built (illegally) on top of the
original structure and was happily running a school and making money.
The NRI who was
extremely busy in the US now had to make time to fight the Indian system that
is notorious for protecting the crooked. NRIs when investing in real estate have
to deal with laws that are not friendly towards landlords and owners, builders
/promoters and real estate agents who are normally best left alone and with
tenants who could just about get away with anything.
To top it all
rental yields are extremely low at below 2 % levels in most parts of the
country.
NRIs who had bought
real estate in India in the bubble period of the 1990’s ended up selling at
huge losses that included Rupee depreciation.
Many of my friends
have bought properties from NRIs who made losses of 50 % on the sale. Hence
timing and valuations are extremely important for NRIs who still want to invest
in real estate in India despite unfriendly climate.
NRIs should also
consider the property market in the places they are living in before venturing
to buy property in India. NRIs living in the US are better off buying property
there as mortgage rates are low, property prices have corrected sharply in the
mortgage bubble burst in 2007-08, rental yields are better compared to interest
rates and price to income ratios are reasonable.
Countries like UK
and Australia have seen good appreciating in property prices over the last
couple of years.
On a relative basis
property prices in the countries that they work and reside in could be much
better than the prices ruling in India.
NRIs who still
insist that India is the best property investment must first fix a good lawyer
who will take care of their interests in India. Investments in properties in
cities and towns are preferable to investments in land or / property in remote places.
At least there is
visibility in the property they own in bigger cities and towns while even going
to remote places would necessarily require time that NRIs do not have.
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About the
Author..
Mr. Arjun
Parthasarathy is dedicating his experience of over twenty years in financial
markets to guide investors to the path of informed decision making on their
investments. The more informed the investor, the more money the investor will
make is the guiding principle of Arjun. The fact that he has worked across
markets including equities, interest rates, credits and currencies and across
market platforms of fund management, proprietary trading and research, gives
Arjun the extra edge that is required to guide investors to make the right
investments in the globalized nature of markets.
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