Property pitfalls for NRIs

New Delhi, May 14th, 2006
Rabinder Sharma

Though it seems like there are lots of options and facilities, it is very difficult to decide and manage a property in India. I am still looking for an easy way to find, own and manage a property in Pune, Hyderabad, Bangalore or Goa,’ says Suresh Shyam, who lives near Philadelphia in the US. Annamanaidu Venkatesh in California asks: ‘Do you recommend any basic steps to follow before investing in real estate in India?’

The first step is to decide where you want to invest - in the metros (Mumbai, Delhi, Chennai or Kolkata), mini metros (Bangalore, Hyderabad, Pune, Ahmedabad), upcoming cities like Jaipur, Coimbatore and Vadodara or in your hometown or ancestral village.

The second step is to identify what type of property you want - residential, office, industrial or holiday home.

The third step is budget - how much do you have readily available to invest because although banks are willing to advance loans to NRIs for buying property in India you may need hard cash.

Once these three basic steps have been determined, you can move on to identify a real estate agent in the place you want to invest. Deciding on a reliable estate agent in India is a very demanding assignment.

What are the criteria for a reputed real estate agent? How long has his company been in business? How many projects has he successfully carried out? Is he qualified?

In Britain, one can get a university degree in estate management, for example, while hardly any such courses exist in India. Anyone can set himself up as an agent, no training is required and no formalities have to be fulfilled. So there is plenty of room for shady practices and many NRIs have been cheated.

A number of reputed British real estate agents have set up offices in the major metros of India. Multinational companies require office and residential accommodation, and many large properties - like shopping malls - have signed maintenance agreements with them.

These companies are also into real estate development with landlords and financiers and provide the professional touch in their dealings. They will manage your property, even a flat or a home.

For a fee, they will collect rent, pay rates and taxes, carry out repairs and renew tenancy agreements et al. Of course, major Indian agents can also perform these tasks but identifying and selecting them while living abroad is no easy task.

Back to the checklist… Does the agent have the correct and latest information about Stamp Duty, property registration procedures, loans from banks and housing finance companies, repayment schedules, local rates, construction specifications and quality of construction, delivery period and dates and ancillary amenities, among many other parameters.

To sign the deal, the agents often give inadequate or even incorrect information. To sell property, the agents regularly tour the US, Britain, the Gulf and East Africa with their road shows.

To attract NRI clients, many agents have eye-catching websites. But if you surf them, you may not get all the information you need. So you have to ask specific questions on these topics and when you are fully satisfied, you proceed to tell them about your requirement and your budget.

Most agents promote major estates being put up by big developers and can send you the literature including CDs to tempt you to sign on the dotted line. With housing estates, you have to be careful of their legal position and terms of sale.

How much should you pay a broker when buying property? Usually, two percent of the transaction amount, according to the unwritten rule. If the amount is higher, lower fees can be negotiated but the foreign companies charge more. For renting and leasing, it could be two or three months rent or a percent of the rent for administrating the lease.

NRIs need to worry a great deal about fraud as expressed by Satish Chelapathi in another email. The only method to counter this fraud is to obtain the services of a reputed firm of lawyers and advocates specialising in ‘conveyancing’ or the preparation and filing of legal documents, especially related to property.

Cases of the same plot or property being sold to a number of people or obtaining loans from different banks on the same property are reported in Indian papers from time to time. So it is no wonder that the property registration departments of many states have installed cameras on their premises to photograph the seller and the buyer when the sale documents are filed with them. It is much better to pay high fees to a reputed lawyer for this purpose than lose your money on a dubious property transaction.

(A media consultant to a UN Agency, Kul Bhushan previously worked abroad as a newspaper editor and has travelled to over 55 countries. He lives in New Delhi and can be contacted at kulbhushan2038@gmail.com