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Many of my Indian friends have invested in real estate in India. Should I do it too?

—Karan Arora

Housing or real estate was a popular mode of investment for Non-Resident Indians (NRIs) until five years ago. The strong capital appreciation observed over the past decade along with monthly rental income has attracted investment in housing. Your friends may have also been excited about the social pride that comes from owning one or more homes in India. These factors have contributed so much to the NRI home buying frenzy that they have become the most important target segment for builders.

However, the real estate market has given mediocre returns over the past 7-10 years depending on the micro market. Housing prices have fallen or have remained stable in major cities, while rents have stagnated. In addition, prices are not expected to increase in the next 5 years, given the excess supply. Before investing, you must remember that real estate is an illiquid investment. If you need to sell the property urgently, be prepared to sell at a 10-20% discount off the market price. In addition, investing in housing comes with the chore of maintaining the property. You should also make sure that the property is not vacant. Even if a property remains vacant for 2 months, you lose considerably, while still paying the maintenance costs. The expense of hiring an agent to rent or maintain your property decreases the returns on your investment.

My bank manager asked me to invest in bank deposits denominated in rupees. Is it a good investment?

—Priya Sharma

Bank rupee term deposits (FDs) have been a popular investment option for NRIs. FD interest rates have fallen to 6% over the past year, diminishing their appeal. The tax rules applicable to FD NRIs differ from those applicable to deposits from Indian residents. While no income tax is applicable on FD NRE (External Non-Resident) accounts, interest on FD NRO (Ordinary Non-Residents) is taxed at the individual’s marginal income tax rate. in India. Note that banks deduct 30% withholding tax (TDS) on interest received from NRO FD. It also reduces the money available for reinvestment, reducing returns in the medium to long term.

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Prateek Mehta is Founder and CEO, Upwardly.in

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