NRIs and Indian realty

Total investments in the segment are expected to cross $10 billion-dollar mark by 2020. By Ruth Dsouza Prabhu
In 2000, Singapore-based scientific researcher Lata Raman, invested in a 1300sq.ft. apartment in Chennai for her parents. Settled abroad for the last two decades, she narrowed down on the apartment for the primary reason that she had other relatives who had purchased apartments in the same complex and it was a safer bet for her ageing parents. “As a Non-Resident India (NRI) I did not have any trouble making the purchase back then, but that was because I had the help of my relatives. But today, I would not want to invest in India again since the rules can be quite confusing,” says Raman.

The major concerns of NRIs have, very often, been the lack of information and standardised due diligence, delays in project delivery and tedious or no legal recourse for buyers. Cyriac Joseph of Bengaluru-based Vaishnavi Group explains how, for NRIs, the cumbersome and painstaking nature of follow-ups with developers are, more often than not, a deterrent to making a property purchase decision. “But, with the introduction of RERA and GST, NRIs have a renewed confidence to make such decisions.”

Besides the economic reforms and the regulations been brought in, the general unrest in the world is causing everyone to try and protect their own interests. NRIs no longer want a vanilla investment and are looking at a second home or an investment they can fall back on. “They prefer an asset that is on par with the standards that they are used to. NRI investment is on as rise, as compared to five years ago,” says Aakash Ohri, Senior Executive Director, DLF 5, Gurugram, adding, “Keeping in mind Brexit, the issues in Singapore and Dubai and numerous other regulations, the NRI investor of today doesn’t want to speculate and is on the lookout for good built up properties.” The fluctuating rupee, reduction in prices post demonetisation and policy reforms have also made Indian realty popular to the group.

What they look for

Given current market conditions, NRIs are now showing a greater preference for investing in commercial properties, which offer good rental yields as well as capital appreciation. This is because there is a continuous rise in demand for commercial spaces in the wake of large-scale requirements and the probability of REITs formation, especially for Grade A offices, IT parks and logistics centres. Anuj Puri of Anarock Property says this is also because during the last couple of years, the market slowdown resulted in capital appreciation on residential assets no longer meeting NRI investors’ expectations.

It is also important to note that yields on commercial properties are more attractive when compared to residential ones. “The average rental yield of a commercial property falls in the range of 6%-10%, almost double of the residential segment. This can go higher depending on specific locations, configurations, amenities and builder’s brand. We have also witnessed NRIs interest for large commercial spaces which are not available easily,” says Surendra Hiranandani, CMD, House of Hiranandani.

Furthermore, the ability to offer constant returns through rent-generating properties tenanted by blue-chip companies have made it an attractive option among NRIs. Puri adds that currently Mumbai, NCR, Bengaluru, Hyderabad, Chennai and Pune are the top cities for investments into Grade A offices, co-working office spaces and IT parks. The business being generated in these cities induces a constant upward trajectory on the demand for quality office spaces, while supply is not keeping up with this demand. That means that all available high-quality offices spaces are assured of tenancy.

Residential forecast

Experts say the Indian real estate market, which has been close to its lowest levels over the past 4 to 5 years, has witnessed a smart recovery in 2018 with more transparency and greater consolidation. Ohri explains that there are patterns to NRI investment: for residential properties, investors come in right at the beginning or towards the end, to make a purchase.

Right now, they are veering to the latter to be more careful. With GST, some of these properties became dearer but this has not bothered the NRI as the perception is that the system is cleaning up, getting better and there is more accountability.

Additionally, there is continued investment in luxury residential properties which offer better rental income and capital appreciation. With the current market scenario, both, commercial and residential realty in the South continues to hold immense potential as it is at the forefront of the IT, e-Commerce and start-up sectors in the country.

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