INDIAN REAL ESTATE: NRI’S INVESTMENT HAVEN

BY Sapna

Between 2019 and 2020, NRIs constituted 10% of total real estate investments in India, reaching 15% in 2023 and is projected to reach 20% by 2025, as per a NoBroker survey report. Alongside, the Magicbricks report has noted that in 2023, demand from NRIs constituted a substantial 9.4% of the total demand. Another simultaneous study conducted by the NRI-focused fintech platform SBNRI revealed that approximately 53% of surveyed NRI investors asserted that India delivers superior investment returns compared to other countries where they have invested.

INDIA A LUCRATIVE INVESTMENT DESTINATION

India is becoming a investment destination for overseas Indian residents for a variety of reasons. One of the biggest drivers is the robust economy of India that not only has weathered the pandemic but has stayed resilient to geo-political pressures. Apart from the lucrative investment landscape, India’s emergence as the global hub for entrepreneurship and start-ups is luring NRIs to tap into its flourishing economy. Other factors playing their part are Indian friendlier government policies for foreign investors and RBI and SEBI developing programmes to encourage FDI or Foreign Direct Investment.

LOCATIONS ATTRACTING NRIS

Bengalurur, Mumbai, Delhi and Hyderabad are the preferred destinations for the obvious reasons of their cosmopolitan lifestyle, thriving business ecosystems, and vibrant real estate markets. In addition, to leverage the unique opportunities that the country has to offer from growing business to investment networks, NRIs are also buying in Tier 2 cities such as Ahmedabad, Chandigarh, Thiruvananthapuram, and Kochi, for their investment potential.

ASSET CLASSES ATTRACTING NRIS

As per the findings, over 60 percent of NRI buyers purchase property for self-use, showcasing their emotional connection with India. Commercial properties in prominent tier-one and tier-two cities too are popular investment choices.

Majority NRIs from Canada and Singapore consider investing in India's rapidly growing and transforming healthcare infrastructure, while IT sector is a preferred option for NRIs from other countries. Many NRIs are also planning to invest in tourism and transportation segment.

NRIs from the Gulf region are showing a growing interest in investing in resorts and vacation homes or luxury second homes as they can rent out these properties and generate a steady rental income. Another reason for buying property for NRIs is their families in India, mostly parents for which senior living projects are gaining prominence.

PREFERRED RESIDENTIAL SIZE & VALUE

There is a clear shift in demand for bigger size units. Preference for 3BHK units has surpassed that for 1BHK and 2BHK units, reflecting the NRIs favouring more spacious apartments to buy as they can offer better rental yields. Average home size demanded in terms or carpet area is around 1,000 sq ft and more.

In terms of ticket size majority of NRI buyers seek properties with budgets exceeding Rs 1 crore in central locations of the city and have also shown a strong inclination towards investing in gated communities. Super-premium homes of Rs 2-4 crore are drawing NRI interest for investment purposes across cities.

REASONS FOR INVESTING IN INDIA REALTY

Evidently, being a tangible asset, real estate can generate a wide range of income streams while simultaneously appreciating in value. Real estate is a relatively safer investment option than other assets like stock markets and crypto, especially in uncertain market conditions such as the pandemic, inflation, and recession. Furthermore, real estate has demonstrated a track record of consistent growth over the past few decades, positioning it as a stable and dependable investment choice for long-term financial security.

Indian real estate for once, has a lot to offer overseas clients from grade-A offices and holiday homes to senior living, townships and mixed-use commercial establishments. Indian Government too is easing the investment procedures for NRIs to buy Indian assets in foreign currencies, as it will improve RBI’s foreign currency reserves. The Indian government has also introduced several initiatives to encourage NRI investments, such as allowing repatriation of sale proceeds, tax benefits, and simplified property acquisition processes.

Government Initiatives:The Government of India has taken several measures to enhance transparency in the Indian real estate sector. GST is one such initiative as it offers seamless clarity on tax credits and, as a result, lower property prices. It has also been ensured that there is a quick grievance redressal system. The introduction of the RERA has increased transparency and accountability in the real estate industry, boosting investor confidence. The law now gives property buyers more power and trust, all of which are critical factors for a remote NRI buyer.

Infrastructure: The government focus on infrastructure has resulted in enhanced road, metro and air connectivity across the country, putting even smaller cities on the global map. Indian real estate sector is booming with the thrust towards infrastructure development which has opened new vistas for people to invest in evolving assets like holiday homes or even data parks and warehousing which provide regular and attractive returns in the long term.

Digital Technology: Real estate companies are leveraging digital technology to offer 3D walkthroughs and virtual property tours, allowing NRIs to invest in Indian real estate remotely without having to visit in person. Developers are also leveraging big data analytics to identify and target specific market segments for matching property options, making it easier for NRIs to select the prospective project.

Better RoI: The rental yield of Indian real estate has increased from an average of 2-3 percent earlier to 3-5 percent now, making it a promising investment decision for NRIs seeking a steady source of income. Alternatively, commercial properties offer higher returns and are easier to manage, making them a clear choice for NRIs seeking a favourable return on investment. With a simplified payment regime, there has been a massive surge in demand for commercial property investments, where NRI investors can expect an annual rental yield of 8-10 percent.

Property Price Appreciation: Major metropolitan cities like Mumbai, Delhi, Bengaluru and even Chennai, Pune and Hyderabad have seen increased property prices. It is one of the pivotal factors for NRI investors’ while considering investing in Indian real estate.

Depreciating Market Rupee: When the rupee is at an all-time low against the dollar, it is an excellent time to remit funds back to India and make real estate investments. NRI’s can claim tax benefits while investing in Indian real estate.

Investor-Friendly Market: Technology has made buying, selling, and managing properties easier, reducing reliance on third parties and promoting transparency. This has also spurred the demand for property management services, providing NRIs with hassle-free property management.

Easier Investment Regulations: The new simplified taxation regime is encouraging NRIs to keep their excess funds in India. NRIs also benefit from indexation for properties held in India. While investing, NRIs can deposit funds in their NRO account and pay the seller from this account. When purchasing a property in India, an NRI investor may transfer funds directly to the seller’sseller’s account. Adiitionally, the RBI has made the investment regulations NRI-friendly, with flexible market accessibility. It is no longer necessary to obtain RBI approval before purchasing a property.

POINTS FOR NRI INVESTORS TO CONSIDER

NRIs are free to buy any type of real estate, commercial or residential, without the approval of the Reserve Bank of India and they pay the same acquisition fees and taxes as Indian buyers, such as stamp duty, registration, annual real estate taxes, etc.

A Non-Resident Indian of Indian Origin can open NRI Accounts as Non-Resident External (NRE) and Non-Resident Ordinary (NRO), allowing them to transfer funds from abroad to India more quickly and conveniently. And NRIs are exempt from paying GST if they pay premiums from their NRE account or in foreign currency.

CHALLENGES TO OVERCOME

The lack of information and transparency still remains a major concern for NRI buyers. As online search is the major source of information for NRI buyers, they find obtaining accurate information and guidance a difficult task.

RERA websites in many cases have been helpful, however steps towards increasing easy access to project and developer with comprehensive data on property discovery portals can ease the process. Also, a industry or a government guide for clarity in the property purchase process in India could be helpful for the NRI buyers in making their decisions.

Property Management of the property is another big concern for NRIs. Managing rental properties remotely is challenging for NRIs, as not many organized proprty management firms are available in India to oversee their real estate investments effectively.

While, there are now Property Management firms sprouting in India, they are very few and are mainly limited to metro and tier-1 cities. Easy availability of professional assistance in managing properties of overseas buyers will be a welcome change.

IN TERMS OF INVESTMENT POTENTIAL, REAL ESTATE THUS REMAINS A PROMISING INVESTMENT VEHICLE, WITH THE NRI RESIDENTIAL SALES GROWING FROM 11 PERCENT TO 15 PERCENT AND EXPECTED TO REACH 20 PERCENT BY 2024.

IF THE INDUSTRY REPORTS ARE ANYTHING TO GO BY, THERE SEEMS TO BE A GROWING POSITIVE VIEW AMONG NRIS OF INVESTING IN INDIAN PROPERTIES, NOT ONLY IN TERMS OF AFFORDABILITY BUT, ALSO POTENTIAL FUTURE CAPITAL APPRECIATION IN COMPARISON TO INVESTMENT IN OTHER COUNTRIES.

Tags : NoBroker survey report Property Price Appreciation foreign currencies NRIs