NRI Real EstateInvestment from any source in the housing sector
is an appreciated aspect in today’s indian real estate scenario,
from an industry perspective. Let it be Resident Indians, NRIs
or even companies, constructing houses creates jobs for a lot of people.
A back of the napkin calculation shows that for a 1000 sq feet house,
100 direct employment (architect, building engineer, masons, helpers,
electricians, plumbers, painters, carpenters, etc) and over 1000 indirect
employment (people working in cement plant, brick kilns, tiles kilns,
electrical fittings companies, saw mills, steel plants, paint companies, etc)
opportunities are created. Of course the duration of the employment will
depend on a number of factors like nearness to a supply sources for
material and labour, access to high tech equipment, architecture, etc.
But to construct a house is not all that easy. It is not without substance
that a Tamil saying goes, “Veetai Katti Par, Kalyanathai Panni Par”
(Basically the saying rates constructing a house and having a child’s
marriage done among the toughest).
To an already difficult task, the sheer distance and absence during
construction become problem multipliers for the NRIs.
There was an NRI based out of the USA who
got a wonderful sales pitch from a builder.
The salesman met the NRI at his office in the USA and arranged for all
the documentation and also sent video clippings of the apartment at
Bangalore. Convinced on the genuineness, the NRI
transferred Rs.50 lakhs to the builder’s account.
The date for the house warming was fixed after one month.
The NRI could not make it to the function due to a pressing office
work and had asked his parents to do the poojas.
The parents got the shock of their life, when they landed at
the apartment complex the day before the poojas.
The complex had only one sample apartment finished
(the one in the video). They were told by the Project Manager
at the site that the poojas can be done at anytime but the
apartment can be delivered only after “6 months”.
Another NRI who was building the house himself using an
experienced and well referenced engineer found that his
house orientation has been shifted by 15 feet. This left him
space on the wrong side of the house squashing his plans
to build a small commercial complex in future. They now
have space for parking 4 cars but none for building a
rent worthy space !!!
A number of checks could have been used to be on the
safer side in both the above cases:
Thankfully there are a number of professional builders who
are a lot more trust worthy. So doing a bit of research on the
track record of a builder can help.
1.For any real estate purchase it is preferable to make visits to
the sites before buying them. This exercise is worth it not
only because we are committing a large amount of money
but also because reversing the decision proves costly as well.
If the NRI is not able to make it, he can request a trusted friend
or relative to opt for the site visit.
2.Going for a housing loan through a bank will ensure that the
money is released in stages only. This keeps the money safe
during the construction. Also, all the banks at their local branches,
have their list of shortlisted builders for whose constructions loans
are pre-approved. It is better to buy only these constructions, as the
banks are quite stringent in their norms for pre-approval and shortlist
only those builders who have a proven track record and those project,
which comply to all legal norms.
3.Post the construction, the management of the asset is one of the major
issues faced by NRIs. There is no easy solution for this. There are some
society associations which support the owners of the buildings with
services like maintenance and rent collection. There are again the
“friendly neighbor hood real estate agents” who may some times
double up as the maintenance manager too. Many times though the
“friendly” turn into “greedy” after some time. There are a few
professional real estate management firms in most metros, who
are now expanding into the 2nd Tier cities too.
4.Whether the construction rate quoted is for Built-up area or
Carpet area? Construction is generally quoted for built-up area
and rental is quoted only for the carpet area. There can be
a difference of 15 % to 20% between the two based on the type
of construction. Today in apartments there is the concept of super
built-up area which apart from the built-up area includes stair
case, common passages, fire escape passage, etc.
The super built-up area can be bloated by as much
as 50% of the carpet area.
5.Robert Allen, the Real Estate Mogul suggests the 100 - 20 - 10 - 1 rule
for any real estate purchase. The idea is to check out 100 properties
in person; shortlist 20 of them for a deeper scrutiny; enter into negotiation
with sellers for 10 of the properties and finally buy the ONE that is best suited.
6.Technically there should be a check for all the statutory approvals - town
planning (Nobody wants a flyover at arms length from the balcony!),
water supply and sewage disposal, safety approval from the local fire
department, etc. It is always better to ask for the encumbrance
certificate and the title deed from the builder to get a legal opinion
from a lawyer.
7.Don’t hesitate to ask. This is probably the most important point.
Many times, for avoiding being thought of as less intelligent, we
question less. For any investing and particularly for real estate the
more the questions asked the better the investment.
The genuineness of the promoter can be gauged by the
patience, the promptness and depth of the answers.
Answers like, “Don’t worry about that, we will manage”,
without going into the specifics are danger signs.
8.Take time. Do not restrain yourself by limiting the time for
checking the properties and decision making to the time that
you are present in India. A 2 to 4 week holiday cannot be
hoped to be converted into a real estate investment period.
Start the process before you come here. In case you cannot
decide before you leave, it is OK. A Power of Attorney to a
parent or a relative can be used to decide on the actual
purchase even after you leave the shores of India.
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