India or US: Where should NRIs buy property?
Home ownership hassles Significant gap in rental yields Dollar income for dollar property Many of my friends who live in the United States tend to
Home ownership hassles Significant gap in rental yields Dollar income for dollar property Many of my friends who live in the United States tend to have real estate investments back in India. Every time there is a marked depreciation in the Indian rupee, as has been the case in the recent past, there is a surge of marketing offers that target NRIs (non-resident Indians who have a green card, still holding Indian passport) and OCI (Overseas Citizens of India) cardholders who are now citizens of the US. There are many reasons why OCIs invest in property in India, but that decision makes very little financial sense.Some of these OCIs and NRIs have ancestral property or inherited real estate in India. They end up with cash in hand when they sell these properties, given the prevalence of unaccounted, or ‘black’, money in real estate deals in India. Some take the risk of bringing the cash to the US, even if bringing anything over $10,000 in cash is illegal. Many invest it in another property in India. It is not uncommon for OCIs and NRIs to use their dollar earnings for upgrading their own houses, or those of their parents or sibling(s), in India. Sometimes, they buy a new property for these relatives, while keeping the ownership in their own names. Among the much romanticised positions of these investors is the desire to return home to live in India sometime. Many also see it as a back-up plan for their old age, when their US-born children have begun to work and settle in the States.Let’s begin with a comparison of the home ownership process in India and in the US.
In India, buying a house involves dealing with many entities: real estate broker, insurance agent, lender bank, title and legal process adviser, and government agencies for registration and duties.As mentioned earlier, black money remains a thorny component of real estate deals even now. NRI and OCI buyers have to execute a power of attorney in favour of a local resident Indian to take care of the processes on their behalf, and open an NRO (non-resident ordinary) or NRE (non-resident external) account to repay the home loan.In the US, the highly structured administrative process involves the broker and lending banker, who together take care of every step of the detailed process including inspection, legal documentation and registration leading to the sign off on a closing date.It is relatively easier to reliably buy or sell property in the US, compared to the process in India, which can be fraught with delays and in some cases instances of fraud and malpractice. The liabilities and penalties for such instances are clearly stated and implementable in the US.Now, consider the financial and tax aspects. It is relatively easy to borrow against property both in India and in the US. In both countries, the credit score, debt repayment as a proportion of income, and the amount of loan as a percentage of the value of property are considered. Both systems enable using the borrowing as a leverage to acquire an asset. The home loan interest rates vary depending on the market situation; but given the lower levels of inflation, they remain lower in the US than in India in general. The combination of higher interest rates and depreciation of the rupee can wipe out a significant portion of the capital appreciation of the Indian property.
The BriefWire