Top 8 Mistakes NRIs Should Avoid When Buying Property in India

For NRIs, investing in the Indian real estate market is a profitable opportunity. The growing Indian property market, fueled by commercial development, urban expansion, and favorable policies of the government, provides NRIs a chance to participate in high returns.

However, from abroad, handling the complexities of the Indian property market can be difficult for NRIs. To help you out in this and make informed decisions, this blog consists of the top 8 mistakes that NRIs should avoid when buying property in India. So, whether you are planning to buy commercial or residential property, avoiding these mistakes can save you money, legal hassle, and time.

Real Estate Investment Mistakes NRIs Should Avoid in India

NRIs always have an emotional appeal for Indian real estate. For them, it is a home, and it is tangible. However, sometimes by getting emotional, NRIs make some investment mistakes that further impact their growth potential. Considering this, before buying a property in India, they should conduct thorough market research to know the future development potential of the property. Additionally, avoid the following common mistakes that they made unknowingly.

Mistake 1: Not Understanding FEMA Rules for NRI Property Purchases

Many NRIs do not know that there are some property restrictions on them in India. For this, the Foreign Exchange Management Act (FEMA) has strict rules and regulations. Considering this:

NRIs Can Buy

• Residential properties such as villas, flats, houses, and plots for residential construction.
• Commercial properties such as shops and offices.

NRIs Not Allowed to Buy

• Agricultural land
• Farmhouses
• Plantation property (tea estates, coffee plantations, and more)

Further, if you already have inherited agricultural land or a farmhouse, you can hold it. However, without the permission of the Reserve Bank of India (RBI), you cannot sell it. Additionally, you cannot purchase more agricultural land.

In case you violate this rule, under FEMA regulations, you are liable to pay three times the transaction value or INR 2,00,000 if not quantifiable. Also, potential asset confiscation and, in severe cases, criminal prosecution.

Mistake 2: Skipping Proper Title and Legal Due Diligence

Another common mistake that NRIs usually make is not thoroughly verifying the property title and ownership. Property title disputes in India are common, and failing to confirm the reliability of the title can outcome in legal issues. So, before buying a property in India, certify that it has a clear title:

• The seller should have undisputed ownership of the property.
• Verify that there are no outstanding legal disputes or pending loans on the property.
• Additionally, verify that there is no property-related fraud or government acquisition.

Further, to conduct due diligence, hiring a legal professional will assist you in avoiding these problems. Also, if you are purchasing property from a developer, make sure that he/she have gotten the approvals. For instance, building permits and land use permissions.

Mistake 3: Ignoring Hidden Costs and Financial Obligations

It is one of the biggest investment mistakes that NRIs make through financial planning when purchasing property in India. Most of the NRIs will only look at the buying price and do not consider the overall cost of having a property. It includes the cost of stamp duty, registration, and legal costs. Additionally, the maintenance and renovation costs also play a vital role. So, when buying a property in India, NRIs should also go through these hidden costs.

Further, let's know how to avoid this mistake.

• Determine the complete ownership cost that includes several hidden costs, which generally amount to 8-12% of the property.
• Have a minimum of a 20% emergency fund than your estimated budget.
• Also consider the perpetual costs, such as maintenance fees, property taxes, and premiums.
• Additionally, when taking a home loan in India, do not forget to consider the interest rate fluctuations.

Mistake 4: Trusting Unverified Builders, Brokers, or Developers

NRIs investing in Indian property should understand what is happening in the market. Additionally, based on the tempting offerings and prices, you should not trust unverified builders. Always opt to work with reliable and trustworthy brokers. It is one of the important factors to consider that the property has all the relevant licenses and permits that you are planning to purchase. Further, let's know the red flags you should look for:

• Since 2016, under the Real Estate (Regulation and Development) Act (RERA), all real estate projects should be registered in India. So, check the RERA registration when selecting a property for purchase.
• Broker asks for adjustments or cash payment. It is not legal and a sign of tax evasion.
• Reputable financial projects always have home loan and personal loan tie-ups with banks. Considering this, if no bank is offering finance to the project, it is a warning that you should not ignore.
• If the developer makes promises of unrealistic timelines. For instance, for a 20-floor tower, run, they promise possession in 1 year.
• The financial health of the broker is poor. Check their CRISIL/ ICRA ratings, recent records of completed projects, and pending litigation.

Mistake 5: Overlooking Location, Choosing Popular Cities

Among NRI investors, cities like Delhi NCR, Mumbai, and Bangalore, because of high returns, are popular for property investment. However, solely focusing on these cities is a big mistake. It is because, often, these markets are oversaturated, leading to lower returns and inflated prices in the long run.

Instead of these, consider emerging cities like Hyderabad, Pune, and Tier-2 cities such as Jaipur, Chandigarh, and Lucknow. With higher appreciation potential and lower entry costs, these cities provide a better growth trajectory.

Further, in Delhi NCR, finding new commercial projects or choosing Chandigarh for property investment could provide you with better returns as these areas are developing rapidly. 

Mistake 6: Failing to Consider Property Management

For NRIs, it is a significant challenge to manage property from overseas. Considering this, many of them forget to plan for property management. It further led to issues like rent collection, property maintenance, and tenant management. Now, let's know how you can avoid this:

• For managing property, hire a trustworthy property management company. You can expect to pay 8-10% of the rent. However, they will handle all, such as repairs, tenants, and compliance. Also, before hiring, verify references.
• To avoid late fees, from your NRO account for property tax and society fees, set up auto-debit.
• Try to visit the property at least once a year. Additionally, you can also take the help of your friend/ relative to inspect the property and send you the photos.
• For unexpected repairs, keep 10% of the annual rent.

Mistake 7: Neglecting Taxation and TDS Rules

This is where most of the NRIs made a huge mistake. For NRIs, it is vital to understand the NRI property tax rules in India when buying a property. Ignoring the tax implications further results in facing legal and tax complications. Considering this:

• NRIs, when selling the purchased property in India, are liable to pay Tax Deducted at Source (TDS). If the property is held for more than 24 months, it is a long-term capital gain (LTCG). Additionally, if it is held for less than 24 months, it is considered a short-term capital gain (STCG). TDS on property sale:
  • LTCG: 12.5% + surcharge and cess on the capital gain.
  • STCG: 30% TDS
• Additionally, in India, rental income earned from property is also taxable. However, under the Indian tax laws, NRIs can claim tax deductions under Double Taxation Avoidance Agreements (DTAA) and avoid paying taxes twice on the same income.

Further, NRIs can also reduce the capital gains tax:

• Using section 54, reinvesting the capital gains amount in another residential property. However, for this, you need to fulfill the following conditions:
  • Allowed to purchase only one residential property in India.
  • It should be purchased within 1 year before or 2 years after the sale. Additionally, three years for the under-construction.
  • You are not allowed to sell the newly purchased property within three years.
  • Up to INR 10 crores in tax exemptions is allowed.
• Using section 54EC, reinvest in bonds. Under this, you can invest up to INR 50,00,000 capital gains in NHAI and REC bonds within 6 months of property sale. The lock-in period for it is 5 years, and the interest is ~5.25% a year, which is taxable.

Mistake 8: Not Prepared for Repatriation Limits and Currency Risk

Imagine you bought a flat in Mumbai and after some time sold it for INR 1.5 crore. Now, you want to transfer this money to your US bank account. You think the fund transfer process is straightforward, but it is not. You need to follow the FEMA repatriation rules to transfer your funds to your foreign bank account. In case of property purchase, it depends on how you bought the property.

Further, currency fluctuation also plays a key role when investing in Indian property. The exchange rate between the currency of your home country and the Indian rupee can impact the total investment cost. For instance, in 2016, you purchased a property in India when $1 = INR 63. Now, in 2025, when $1 = INR 83, you sell the property.

Here in rupees, you made a profit of INR 60,00,000. However, in dollars, your profit is less, as the value of the rupee has depreciated by 32% against the dollar. So, when calculating profits, think in dollars, not in rupees.

Moreover, these were some of the real estate investment mistakes NRIs make while purchasing property in India.

Final Thoughts

Lastly, for NRIs, investing in the Indian real estate market is a good way to generate passive income and long-term growth. However, the path to success is avoiding the common mistakes that impact your investment. From understanding FEMA and RBI regulations to managing financial risks and fulfilling tax implications, every step needs careful consideration.

Further, by connecting with reputable financial and investment NRI professionals like Savetaxs, you can make informed decisions and reduce risk. With expert guidance, your NRI real investment in India can be a profitable and hassle-free experience.