8 Real Estate Investment Mistakes NRIs Make (And How to Avoid Them)

You're sitting in your Dubai apartment, scrolling through property listings in Bangalore. A 2BHK in Whitefield for ₹80 lakhs. "Great location," the agent says. 

"Prices will double in three years." Your cousin back home is pushing you to buy. 

Your parents think it's a smart move. But something feels off.

At Belong, we work with thousands of NRIs across the UAE who've asked us this exact question: "Should I buy property in India?" 

Over the years, we've seen too many make costly mistakes-overpaying, getting stuck with unsellable units, or facing tax nightmares they didn't see coming. We've also seen smart NRIs build wealth through real estate when done right.

This guide covers the eight biggest mistakes NRIs make when investing in Indian real estate, real stories from our community, what regulations you need to know, tax traps, repatriation rules, and safer alternatives if property isn't right for you. 

By the end, you'll know exactly what to watch out for and how to make smarter decisions.

👉 Tip: Join our WhatsApp community where NRIs share real property experiences and due diligence checklists, and download the Belong app to explore tax-efficient investment options beyond real estate.

Why NRIs Love (and Fear) Indian Real Estate

Indian real estate has always held emotional appeal for NRIs. It's home. It's tangible. Your parents lived through decades when property prices only went up. Buying a flat in Mumbai or a plot in Gurgaon feels like securing your future.

But the reality today is different. According to a 2024 Knight Frank India report, residential property prices in Tier-1 cities grew at an average of 6% annually over the past decade-barely keeping pace with inflation (source). 

Factor in maintenance costs, vacancy periods, property tax, and the illiquidity of real estate, and the actual returns often disappoint.

A 2025 HSBC Affluent Investor Survey indicates growing interest in Indian investments, but earlier data suggests around 40% of affluent NRIs express concerns over property returns; rental yields in Tier-1 cities remain low at 2-3% (source).

Why the disconnect?
Information asymmetry. You're 3,000 km away, relying on agents, relatives, and WhatsApp forwards. You don't see the unfinished construction, the builder's financial stress, or the property tax notices piling up. You don't know about the new metro line that was "coming soon" five years ago and still hasn't started.

This article exists to close that gap.

Mistake 1: Buying Property for Emotional Reasons, Not Financial Ones

The scenario:
Ramesh, an IT manager in Abu Dhabi, bought a 3BHK flat in Pune in 2018 because "it's close to where I grew up." He paid ₹1.2 crore. Today, similar flats in the same complex are selling for ₹1.15 crore. He's spent ₹8 lakhs on maintenance, property tax, and repairs. Rental income? ₹18,000/month, which barely covers the society fees.

What went wrong:
Ramesh bought with his heart, not his head. He didn't analyze rental yields, capital appreciation trends, or liquidity. He assumed "property always goes up." It doesn't.

How to avoid this:

1. Treat property like any other investment. Ask: What's my expected annual return? How does it compare to mutual funds, FDs, or GIFT City investments?
2. Run the numbers. Use this formula:
   Annual Rental Yield = (Annual Rent / Property Price) × 100
   If it's below 3% in Tier-1 cities (or 5-5.5% gross average nationally), you're likely better off investing elsewhere.
3. Factor in all costs: Maintenance (₹3-5/sq ft/month), property tax (0.5-2% of capital value), repair reserves, and vacancy periods (assume 2-3 months/year without rent).
4. Ask yourself: If this property were in Dubai and not India, would I still buy it at this price and yield?

👉 Tip: Before buying, use Belong's Compliance Compass to understand your tax and reporting obligations. Property ownership triggers multiple filings.

Better approach:
If you want exposure to Indian real estate without buying physical property, consider Real Estate Investment Trusts (REITs). They're listed on stock exchanges, liquid, and offer 6-8% dividend yields. You can invest in REITs from abroad through your demat account.

Source: Knight Frank India Real Estate Report 2024 (knightfrank.co.in).

Also Read - Real Estate Investment in India for NRIs - Rules and Pitfalls

Mistake 2: Not Understanding FEMA and RBI Rules for NRI Property Purchase

Many NRIs don't realize that not all properties can be legally purchased by non-residents. India's Foreign Exchange Management Act (FEMA) has strict rules.

What NRIs CAN buy:

• Residential property (flats, villas, plots for residential construction)
• Commercial property (offices, shops, but not agricultural land, farmhouses, or plantation property)

What NRIs CANNOT buy:

• Agricultural land
• Farmhouses
• Plantation property (tea estates, coffee plantations, etc.)

Exception: If you inherited agricultural land or a farmhouse from a relative, you can hold it but cannot sell it without RBI permission. You also cannot buy additional agricultural land.

Also Read -RBI's New Rules for Investment - What Every NRI Must Know

What happens if you violate this?
The transaction is void. You can face penalties under FEMA (up to three times the transaction value or ₹2 lakh if not quantifiable) and potential asset confiscation; criminal prosecution in severe cases.

Also Read -FEMA Guidelines Every NRI Should Know

Real case:
In 2021, an NRI based in the UK bought a farmhouse near Lonavala for ₹3.5 crore, hoping to use it as a retirement home. The RBI flagged the transaction. He had to sell it at a loss and pay a penalty of ₹50 lakhs

How to avoid this:

1. Verify property type with a lawyer before signing.
   Don't rely on the builder or agent.
2. Check FEMA classification.
   Your lawyer should confirm the land-use classification from municipal records.
3. Use repatriable funds.
   If you use money from your NRE account or foreign remittance to buy property, you can later repatriate the sale proceeds (up to two properties). If you use NRO funds (India-sourced income), repatriation is capped at $1 million/year.

Read our detailed guide: Real Estate Rules for NRIs.

Mistake 3: Falling for Builder Hype and Pre-Launch "Deals"

The pitch:
"Sir, this is a pre-launch offer. Only for select NRI investors. You'll get 25% discount. Project will launch next month. Prices will jump 40%."

The reality:
You pay ₹50 lakhs as booking + installments. The project gets delayed. The builder goes bankrupt. You're stuck with an unfinished flat, no possession, and no legal recourse.

The numbers are shocking:
According to a 2024 report, nearly 2,000 housing projects comprising 5.08 lakh units are stalled across 42 cities, mainly due to financial issues (source). Many buyers are NRIs who cannot physically visit sites and relied on agents or relatives.

How builders target NRIs:

• Fancy brochures and virtual tours that look nothing like the actual site.
• "NRI-exclusive" pricing that's often the same as regular pricing, just repackaged.
• Payment plans where you pay 80% upfront before possession.
• "Guaranteed rental income" promises that are never honored.

Red flags to watch for:

1. Builder has no RERA registration. Since 2016, all real estate projects in India must be registered under the Real Estate (Regulation and Development) Act (RERA). Check your state's RERA website (example: Maharashtra RERA).
2. Builder asks for cash payments or "adjustments." This is illegal and a sign of tax evasion.
3. Unrealistic timelines. If they promise possession in 12 months for a 20-floor tower, run.
4. No bank tie-ups. Reputable projects have home loan tie-ups with major banks. If no bank is willing to finance the project, that's a warning.
5. Builder's financial health is poor. Check recent project completion records, pending litigation, and CRISIL/ICRA ratings.

How to avoid this:

1. Only buy completed or near-completed projects. Under-construction projects carry massive risk.
2. Visit the site in person or hire a trusted local surveyor. Don't rely on photos/videos.
3. Verify RERA registration. Check project details, builder credentials, and timeline on the official RERA portal.
4. Use escrow accounts. Ensure your payments go into a RERA-mandated escrow account, not the builder's personal account.
5. Read the sale agreement carefully. Insist on penalty clauses for delayed possession.

👉 Tip: Our WhatsApp community has a checklist of 15 RERA verification steps before signing. Download it for free.

Mistake 4: Ignoring Tax Implications-Especially Capital Gains

This is where most NRIs get blindsided. You bought property in 2015 for ₹60 lakhs. You sell in 2025 for ₹1.2 crore. Profit = ₹60 lakhs. Sounds great, right?

Then the tax bill arrives.

Here's what you owe:

Long-Term Capital Gains (LTCG) Tax

If you hold the property for more than 24 months, it's long-term capital gains.

Tax rate:12.5% without indexation for sales after July 23, 2024.

Example:
Purchase price (2015): ₹60 lakhs

Sale price (2025): ₹1.2 crore
Taxable LTCG: ₹1.2 crore - ₹60 lakhs = ₹60 lakhs
Tax @ 12.5%: ₹7.5 lakhs

But wait, there's TDS.

TDS on Property Sale

When you sell property as an NRI, the buyer must deduct TDS before paying you.

• LTCG: 12.5% + surcharge/cess on the capital gain.
• STCG (Short-Term Capital Gains, held \<24 months): 30% TDS.

In the example above, the buyer deducts ₹7.5 lakhs as TDS (12.5% of ₹60L gross gain). You then file your ITR, claim indexation benefit, and get a refund of the excess TDS. But this process takes 6-18 months.

Also Read -NRI's Complete Guide to Selling Property in India

How to reduce capital gains tax:

Section 54: Reinvest in Another Residential Property

If you reinvest the capital gains (or full sale proceeds, whichever is lower) into another residential property within 2 years (or 3 years if under construction), you can claim full exemption.

Conditions:

• You can only buy one residential property in India.
• Must be purchased within 1 year before or 2 years after sale (3 years for under-construction).
• You must not sell the new property within 3 years, or the exemption is reversed.
• Exemption allowed up to ₹10 crore (source)

Example:
You sell for ₹1.2 crore (gain ₹60 lakhs). You buy another flat for ₹1.2 crore within 2 years. Entire gain is exempt. Tax = ₹0.

Source: Income Tax Act Section 54 (incometax.gov.in).

Read more: Section 54: How NRIs Can Save Capital Gains Tax.

Section 54EC: Invest in Bonds

Alternatively, invest capital gains (up to ₹50 lakhs) in REC or NHAI bonds within 6 months of sale. Lock-in period: 5 years. Interest: ~5.25%/year, taxable.

👉 Tip: Most NRIs miss the 2-year reinvestment window and end up paying full tax. Plan your next purchase before selling.

What if you don't reinvest?
You pay the full LTCG tax. File your ITR within the due date to avoid penalties and interest.

Also Read - How to Invest in Bonds - Beginner's Guide for NRIs

Mistake 5: Not Planning for Property Management and Maintenance

You bought a beautiful 3BHK in Gurgaon. You rent it out. Six months later, the tenant calls: "The AC stopped working. The bathroom is leaking. When are you fixing this?"

You're in Dubai. You call a local plumber. He quotes ₹15,000. You suspect he's overcharging, but you can't verify. The tenant is unhappy. They move out. The flat stays empty for three months. You lose ₹54,000 in rent.

The hidden costs of owning property from abroad:

Total: ₹1,15,000-₹3,50,000/year

If your annual rent is ₹2,40,000 (₹20,000/month), your net rental yield after expenses can drop to near zero.

How to avoid this:

1. Hire a reputable property management company. Expect to pay 8-10% of rent, but they handle tenants, repairs, and compliance. Verify references before hiring.
2. Set up auto-debit for society fees and property tax from your NRO account to avoid late fees.
3. Visit the property at least once a year or hire a local relative/friend to inspect and send photos.
4. Maintain a repair reserve. Set aside 10% of annual rent for unexpected repairs.
5. Use digital rent collection. Apps like NoBroker, MagicBricks, and Housing.com offer rent agreements, tenant verification, and rent collection with automatic TDS deduction.

👉 Tip: Some NRIs keep properties vacant to avoid tenant hassles. This is the worst financial decision-you're paying all costs with zero income. Either rent it out properly or sell.

Source: Property management industry standards, Housing.com.

Mistake 6: Buying in the Wrong Location (Overpaying for "Potential")

The story:
Priya, an NRI in London, bought a 2BHK in an "upcoming" suburb of Pune in 2017. The agent promised a new metro station, an IT park, and international schools. She paid ₹75 lakhs. Today, there's no metro, no IT park, and property prices have dropped to ₹65 lakhs.

What went wrong:
She bought based on future "potential" that never materialized. Real estate agents love selling the future-"This area will be the next Whitefield," "The government is planning a highway," "Big IT companies are coming."

The reality:
Infrastructure projects in India are routinely delayed by 5-10 years. Builders and agents have zero accountability for promises.

How to avoid this:

Only Buy in Locations with Existing Infrastructure

• Operational metro/public transport
• Established schools, hospitals, malls
• Active IT parks or commercial hubs
• Good road connectivity

Check Historical Price Trends

Use platforms like MagicBricks, 99acres, and Housing.com to see price trends over the past 5 years. If prices have been flat or declining, that's a red flag.

Verify "Upcoming" Projects

Search for government project announcements on official websites (e.g., Mumbai Metro, Bangalore Metro). If the project isn't in the "under construction" phase with a clear timeline, ignore agent claims.

Talk to Current Residents

Visit the location. Speak with people living there. Ask about water supply, traffic, safety, pollution, and any issues. You'll learn more in 30 minutes than from ten brochures.

👉 Tip: Focus on Grade A locations with proven demand-Whitefield (Bangalore), Powai (Mumbai), Cyber City (Gurgaon), Banjara Hills (Hyderabad). Yes, they're expensive, but they hold value and rent easily.

Source: Knight Frank, Anarock, Housing.com price trend data.

Mistake 7: Not Accounting for Repatriation Limits and Currency Risk

You sold your Mumbai flat for ₹1.5 crore. You want to transfer the money to your UAE bank account. You assume it's straightforward.

It's not.

Repatriation Rules Depend on How You Bought the Property

Example:
You bought two flats using NRE funds. You sell both for ₹3 crore total. You can repatriate the full ₹3 crore (subject to tax deductions).

If you bought using NRO funds (or inherited the property), you can only repatriate $1 million (~₹8.3 crore at ₹83/$ ) per year. If you need more, you must wait another year or apply for RBI permission (rarely granted).

Also Read -How to Repatriate Funds from NRO/NRE Accounts

Currency Risk: The Rupee Factor

You bought property in 2015 when $1 = ₹63. You sell in 2025 when $1 = ₹83.

In rupees: You made ₹60 lakhs profit.
In dollars: Your profit is actually lower because the rupee depreciated 32% against the dollar.

Also Read - How Inflation in India Impacts Your Retirement Savings

Example:
Purchase: ₹60L = $95,238 (at ₹63/$)
Sale: ₹1.2 crore = $1,44,578 (at ₹83/$)
Dollar profit: $49,340 (vs. ₹60L rupee profit)

Your real dollar return is much lower than it appears in rupee terms.

How to avoid this:

1. Think in dollars, not rupees. If you earn in USD/AED, calculate property returns in your earning currency.
2. Hedge with dollar assets. Instead of 100% property, diversify into USD fixed deposits in GIFT City (5%+ tax-free via Belong), international mutual funds, or gold.
3. Use GIFT City as an alternative. Park funds in USD, avoid rupee risk entirely, and earn higher returns than domestic FDs.

👉 Tip: Use Belong's Rupee vs. Dollar Tracker to monitor long-term currency trends before making property decisions.

Source: RBI, historical USD/INR exchange data.

Read more: INR vs USD: NRI Investment Guide.

Mistake 8: Ignoring Safer, More Liquid Alternatives

Real estate is illiquid. Selling a property takes 3-12 months, often longer. You're also competing with thousands of unsold units in every city.

Liquidity crisis example:
During COVID-19 (2020-2021), thousands of NRIs tried to sell properties to cover income losses or medical expenses abroad. Properties worth ₹1 crore were being sold for ₹75-80 lakhs just to find buyers quickly.

Better alternatives for NRIs:

1. REITs (Real Estate Investment Trusts)

What they are: Listed trusts that own commercial real estate (offices, malls, warehouses). You buy units on the stock exchange like shares.

Returns: 6-8% dividend yield + potential capital appreciation.

Liquidity: Sell anytime on NSE/BSE.

Tax: Dividends taxed at slab rates; LTCG on sale = 12.5% (if held >12 months).

Popular REITs: Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India REIT.

Minimum investment: ₹50,000-₹1,00,000.

Source: SEBI REIT Guidelines (sebi.gov.in).

2. GIFT City USD Fixed Deposits

Returns: 4.5-6% tax-free in USD.

Tenure: 1-3 years.

Liquidity: Fixed lock-in, but better than property.

Tax: Fully tax-free under IFSC regulations.

Repatriation: Fully repatriable, no limits.

Learn more: GIFT City FD Rates and Belong NRI Investment in GIFT City.

3. Indian Equity Mutual Funds

Returns: 10-12% historical average (equity funds).

Liquidity: Redeem anytime (T+2 days for equity, T+1 for debt).

Tax: LTCG 12.5% (equity held >1 year), Slab rate up to 30% for debts (irrespective of holding period

How to invest: Open NRE/NRO demat + mutual fund account with platforms like Zerodha, Groww, or Kuvera.

Read: How NRIs Can Invest in Mutual Funds.

4. NRI Fixed Deposits (NRE/FCNR)

Returns: 6-7.5% (NRE), 4-5% (FCNR).

Liquidity: Fixed tenure (1-5 years), premature withdrawal allowed with penalty.

Tax: NRE interest tax-free; FCNR interest tax-free.

Compare rates: Best NRI FD Rates.

Comparison Table: Real Estate vs. Alternatives

👉 Tip: Diversify. Instead of putting ₹1 crore into one property, consider ₹40L in REITs, ₹30L in GIFT City FDs, and ₹30L in equity mutual funds. You'll get better returns, liquidity, and lower risk.

When DOES It Make Sense to Buy Property in India?

Despite everything above, there are scenarios where buying property makes sense:

1. You're Returning to India Permanently

If you're moving back within 2-5 years and need a home to live in, buying can make sense-but only if you're buying at fair value in a good location.

2. You Want to Lock in Retirement Housing

If you plan to retire in India 10-15 years from now, buying a property today in your preferred city can hedge against future price increases. Rent it out in the interim.

3. You Inherited Property and Don't Want to Sell

Holding inherited property can make sense if it's in a prime location, rents easily, and doesn't require heavy maintenance.

4. You Want Tangible Assets for Estate Planning

Some NRIs prefer owning physical assets for their children. If that's your priority, ensure proper will documentation and nominee details.

But even in these cases:

• Buy only in Grade A locations.
• Verify builder credentials.
• Hire a property manager.
• Factor in all costs (tax, maintenance, vacancy).
• Plan repatriation strategy in advance.

Source: Financial planning best practices, SEBI investor education materials.

How to Buy Property Smartly (If You Decide to Proceed)

If you've read everything above and still want to buy, here's your due diligence checklist:

Legal & Compliance

• Verify title deed with a lawyer (check for clear ownership, no pending litigation).
• Confirm RERA registration (for under-construction projects).
• Check encumbrance certificate (no loans/mortgages on the property).
• Verify zoning and land-use classification (residential vs. agricultural).
• Confirm builder's financial health (CRISIL rating, recent project completions).
• Ensure sale agreement includes penalty clauses for delays.

Financial

• Negotiate price (never pay the first asking price).
• Confirm all-in cost (registration, stamp duty = 5-8% extra).
• Plan funding (use NRE account for full repatriation rights).
• Set up NRO account for rental income and expense management.
• Budget for annual expenses (maintenance, tax, repairs).

Tax

• Understand TDS deduction rules (buyer deducts 20-30% on sale).
• Plan for Section 54 reinvestment if selling in the future.
• File ITR annually even if rental income is low (to avoid penalties).
• Claim DTAA benefits if taxed in your country of residence.

Read: NRI Tax Guide: DTAA, ITR, Capital Gains.

Property Management

• Hire a property manager (verify references, negotiate 8% fees).
• Set up rent auto-collection and TDS deduction.
• Visit the property annually or hire a local inspector.

👉 Tip: Download our NRI Property Buying Checklist (35 points) from the WhatsApp community.

Real Stories from Our Belong Community

Story 1: Suresh, Dubai

Suresh bought a 2BHK in Noida in 2016 for ₹55 lakhs. By 2024, the flat was worth ₹48 lakhs due to oversupply. He spent ₹12 lakhs on maintenance and repairs. Rental income was ₹12,000/month. He sold at a ₹7 lakh loss and reinvested the proceeds in GIFT City USD FDs. Today, he earns 5.2% tax-free with zero maintenance stress.

Lesson: Location matters. Oversupplied markets destroy wealth.

Story 2: Anjali, London

Anjali inherited a house in Bangalore. She held it for 10 years, rented it out, and sold in 2023 for ₹2.8 crore. She reinvested ₹1.5 crore in a new flat (Section 54 exemption) and put ₹1.3 crore into equity mutual funds and REITs. She diversified her wealth and reduced risk.

Lesson: Use tax exemptions wisely. Don't put all proceeds back into property.

Story 3: Rajeev, Abu Dhabi

Rajeev bought an under-construction flat in Gurgaon in 2015. The project stalled. The builder went bankrupt. He lost ₹40 lakhs and spent three years in legal battles. He finally got a partial refund in 2024.

Lesson: Never buy under-construction from unproven builders. Only buy ready-to-move-in units.

Bottom Line: Should You Buy Property in India?

Buy property ONLY if:

• You're returning to India within 5 years and need a home.
• You're buying in a Grade A location with proven demand.
• You can afford to lock funds for 5-10 years.
• You have local support for property management.
• You've verified builder credentials and legal title.

DON'T buy property if:

• You're buying for "investment returns" - REITs, mutual funds, and GIFT City FDs offer better risk-adjusted returns.
• You're relying on agents' promises about "upcoming" infrastructure.
• You can't afford to visit India and verify the site.
• You need liquidity in the next 3-5 years.
• You're buying under-construction from an unproven builder.

Our advice at Belong:
For most NRIs, real estate should be a lifestyle choice, not an investment. If you want exposure to Indian real estate for returns, buy REITs. If you want safety and liquidity, choose GIFT City USD FDs or NRE fixed deposits. If you want growth, invest in equity mutual funds.

Real estate can be part of your portfolio, but it shouldn't be the only part.

What's Next?

1. Explore better alternatives: Download the Belong app to compare GIFT City FDs, REITs, mutual funds, and NRE/NRO FD rates side-by-side.
2. Join the community: Our WhatsApp group has 2,000+ NRIs sharing property horror stories, lawyer references, and due diligence checklists.
3. Check your compliance: Use Belong's Compliance Compass to ensure you're meeting tax, FEMA, and reporting requirements.
4. Calculate your residential status: Use our Residential Status Calculator to confirm your NRI status and tax obligations.

At Belong, we're not here to sell you property. We're here to help you make smarter, safer, more tax-efficient decisions. Whether you buy property, invest in GIFT City, or build a diversified portfolio, we've got your back.

Questions? Drop them in our WhatsApp group or email us at support@getbelong.com.

Read: Selling Indian Property as an NRI.

Sources

• Reserve Bank of India (RBI)
• Income Tax Department, Government of India
• Knight Frank India
• Anarock Property Consultants
• RERA Maharashtra
• SEBI REIT Guidelines