India property: investment tips for NRI landlords

Deepthy Saleem, from Kerala in India, has lived in Dubai for 17 years and owns three homes in her native country – two of which are rented out.

But at times over the past few years she has questioned whether it is really worth leasing her properties, given the hassles she has faced from not being based in her home country.

“Honestly, living in Dubai and renting out a house in India is a tedious task,” says Ms Saleem, 42, an admin and accounts manager. “We initially requested the builders to help us out with tenants, then resorted to advertising in the classifieds and online portals and finally settled on local brokers.”

She adds that “the tenants had their own tantrums and never-ending list of requirements and demands”.

These included one occupant insisting she should pay their water bill and another demanding a state-of-the-art kitchen be installed. In one incident, just three months after renting the home, a tenant managed to break the sink and some tiles, and damaged other parts of the property, resulting in Ms Saleem paying 400,000 rupees (Dh21,964) in repair costs.

While her villa in Trivandrum, Kerala, is rented out for 15,000 rupees a month, her three-bedroom apartment in Kochi brings in 25,000 rupees a month. She says other three-bedroom apartments in the same building in Kochi go for between 35,000 and 40,000 rupees a month.

Her third apartment in Bangalore is not rented because of problems in the past, she says. The homes were bought between 2007 and 2011.

“Our homes are priced extremely low since we are unable to manage renting them out from Dubai,” says Ms Saleem. “Relying on the word of agencies and brokers has caused our homes to be valued at such low rates.”

But despite the challenges, experts say that NRIs in the UAE with property back home should rent out their properties and that there are ways of reducing potential hassles.

“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,” says Fali Poncha, the director, residential and land, Mumbai, at Knight Frank India. “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, says Mr Poncha, 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. Ms Saleem had a home loan on her apartment in Kochi, which she paid off a year ago, with the rental income going a long way in helping to pay off the borrowed funds.

Mr Poncha says that those worried about renting should note that landlords are well protected under the rental agreement, known as a leave and licence agreement.

“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 licence agreement,” he says, adding that renting to professionals and corporate tenants is the wisest option.

But Mr Poncha stresses that 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 licence agreement and registration thereof,” he says.

Dharmesh Jain, the chairman and managing director of Nirmal Lifestyle, a property developer in Mumbai says NRIs investing in property in India should study the rental market carefully before making a decision.

As most NRIs generally purchase an apartment as an investment option, it is vital to consider renting, he says. “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.

VK Venkatesan, 55, a consultant who has lived in Dubai for 12 years and is from Trichy, south India, bought a flat in Bangalore in 2008 as an investment, which he rents out. He has “no issues” with his existing tenant, who works for a larger corporate firm and has lived there for the past six years, as he “maintains the flat with the utmost care”.

Despite being based overseas, he found his tenant through contacts in Bangalore and says because the city is the information technology hub of India, with a number of large companies based there, he had no trouble finding someone suitable.

Experts say NRI investors tend to buy property in their home states and Sushil Raheja, the chief executive of Raheja Homes, a developer in Mumbai, says his NRI customers from the UAE generally choose to rent out their homes.

“We find residential clients for them who are working with good corporates, and we get the documentation done,” he says, adding that this service costs one month’s rent.

To ensure they secure a property that can command a good rent, Mr Raheja advises buying a property from a good developer with sound amenities.

In 2005, Anuroopa Mukherjee, a Dubai resident since 2003 and founder of the Dubai public relations agency Pulse 360, bought a two-bedroom apartment in Indirapuram, in the Delhi area, along with her husband, Kaushik. The main purpose of the purchase was to have a home to live in if they returned to India. They bought an off-plan three-bedroom apartment in 2012 because they needed a larger home to accommodate their growing family.

That apartment is yet to be completed, something analysts advise against as a completed property can start generating income from rental immediately.

The couple rented out the Indirapuram flat six years ago to generate income from it rather than leaving it sitting idle, something Ms Mukherjee managed to organise while on a visit to India.

“It was quite easy – we rented it through an agent who is dedicated to our building,” she says, though she admits that having people close at hand also helps. “We have friends and family in Delhi so whenever required they can visit the apartment to see if things are in order.”

She says tenants should be selected carefully and she advises other NRIs not to opt for the first person who comes along.

“Verify where he or she works, do background checks and also your gut feel should tell you a lot about the person who will make your house their home,” she says.

“Renting out has its benefits, the maintenance charges are taken care of, you also earn some extra bucks, plus your house is functional.”

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 next month. 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.

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

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Rebecca Bundhun

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