Wanna buy a home in US?

Britain, home

If you’ve dreamt of being a home owner in the land of opportunity, now may be the perfect time to realize your dreams!

Housing lacks sparkle this season

The property market in the US, which until 2007 was out of bounds for several, is suddenly within reach, thanks to the sub-prime crisis causing a fall by over 30 to 35 per cent in the price of properties according to the latest S&P Case-Shiller Home Price Index. This has prompted many people in other countries to consider buying property in the US.

According to recently liberalised RBI policy, resident individuals are free to acquire and hold immovable property outside India up to $2 lakh (or Rs 1 crore approximately) per financial year without approval of RBI.

Home loan defaults hit Vijaya Bank

A look at prices now prevailing in the US property market suggests that an investment of Rs 1 crore may find you a good residential property in prime areas of the US while it may still remain a dream in India.

Home loan growth slowing

One person’s misfortune is often another’s good luck. With the home market in the US going through a crisis and as more homes line up for foreclosure, you may be able to get your dream home at a price that fits your budget.

Don’t buy unfinished homes

RealtyTrac, a leading online marketer of foreclosed properties in the US, said that 765,558 foreclosure filings were made in the third quarter of this year – up 71 per cent from the same period last year. This mounting inventory has resulted in deep price cuts, leaving it at a 17-year low and an inventory pile-up of foreclosed properties to rise to an average of 10 months worth of unsold homes. Forty-eight of 50 States and 95 out of the nation’s 100 largest metro areas experienced year-over-year increases in foreclosure activity, reports the firm. The highest numbers of foreclosures were reported in Nevada followed by California, Arizona, Florida and Texas.

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If these numbers interest you, here are a few critical aspects to ponder before you take the leap:

Hire an agent

Given the size and nature of the investment, housing must be seen as a long-term investment. Procuring a long-term asset requires extensive background check and that may not be possible sitting in India. Hence, it is recommended that you hire a good property consultant and a reliable broker or realtor to take care of the legalities. If a dependable person residing in US chooses to come to your rescue, it could be even better for your investment plans.

Move to offer affordable rental homes

Though the US real estate market is opening up for non-residents, financing options are becoming tough. The ongoing financial crisis and credit crunch don’t permit lenders to be liberal. One has to go though cumbersome scrutiny for a loan sanction. There are numerous private lending agencies that may be approached through consultant. Further, foreign investors are required to make down payment of 30 to 40 per cent against the value of the purchase, as against the usual 10 per cent.

Due diligence

Do remember, prices of foreclosed properties are only declining. So when you are buying one of them, due diligence is extremely vital. Check for the legal title, specifically to see if the house bears any defect other than the owner not being able to service the home loan.

Track the macros

If you are keen to make a big commitment in the US, tracking certain macro indicators is essential to make good decisions. Experts advise careful following of implementation of the $700-billion bailout package.

The package is aimed at improving the liquidity crunch. Upon the implementation of the plan, if the financiers are cash-rich again, property prices may not be rock bottom. So, acting quickly may be wise if you decide to invest in a US property.

According to Aditi Vijaykar, Director-Residential Services, Cushman & Wakefield, “One needs to understand the pattern of investment. There should be clear personal or business connections to buy a house in US. Though the lending rates are lower as compared to India, the US has high tax regime.”

When acquired property is let out or sold, the accruing income is taxed in US. Depending on the residential status, these incomes will be taxable in India also. However, one may avail tax credits with respect to tax paid in the US.

The other vital issues are the appreciating dollar exchange rate and expectations of a correction in the Indian realty sector, which can make Indian homes attractive again.

A further depreciation in the rupee may escalate purchase costs. Similarly, if the trend reverses when you decide to sell your house, you may have to sell your property at a lower price.

Whose bet is it?

Two lakh dollars is a lot of money, so who is going to be interested? Young globetrotters with sizeable disposable income and not many financial commitments may be contenders. Wealthy individuals whose children are studying or working in US may find it a viable legacy to pass on to the younger generation.

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Affluent and independent senior citizens wanting to spend the rest of their old age with their children can also tap this once-in-a-lifetime opportunity. Undoubtedly, it is a plum chance for non-resident Indians desirous of settling down in the US.

“If you plan to buy a house in the US with a pure investment motive, that may not be the best move. Though it is popular in the UK and Dubai to accumulate property outside the country, it is yet to take off in India,” says Vijaykar.

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