By Vishnu Prakash Rathore
The Indian real estate had observed a significant rebound despite increasing construction costs and a record spike in the repo rate (225 bps) in 2022. As an asset class, the Indian real estate is finally able to take a deep breath after a prolonged period of stagnation. After two grueling years of lockdowns brought on by the pandemic and the consequent economic unrest, the industry has seen a thorough recovery this year across Tier I, II, and III cities. The market size of the Indian real estate sector in FY21 is $200 billion which will be $1 trillion by FY25 and will be 13% of country’s GDP.
Backed by conducive policies by Indian regulatory bodies, NRI (Non-resident Indian) investments in the country have gone from strength to strength over the last few years. The NRI investment has grown by 33 per cent, with five countries including the US, UK, UAE, Australia, and Singapore accounting for most of the investments. This was much helped by improvement in rental yield across major cities by upwards of 12 per cent. While the NRIs contributed a whopping $15.06 billion in 2022 in the Indian Real Estate, with a forecasted increase of 12% in 2023.
Why invest in Indian Real Estate
- Strict regulatory control
- Higher resale value good market
- Increased procedural transparency
- Recent depreciation in the Indian Rupee
- Extensive development
India’s high-quality, resilient, and transparent economy, which is supported by a stable banking system, has allowed it to withstand the financial crisis in past making it a thriving economy. Being an emerging market, India houses the oldest stock exchange which is efficient, less expensive and has a modern setting which has been offering returns on investment of over 15% annually for the past few decades. These attributed as catalyst which has enabled several businesses more accessible for investment. Investors are also learning the necessary information to invest in knowledge-based businesses.
With more than 64% of its population of working age, India is the world’s youngest country with benefits of demographic dividends. As a result, there is room for growth in both productivity and innovation, which will accelerate economic growth. Market’s rapid development has caused the traditional investments to be substituted by stock-based instruments among Indian investors. This is an opportune moment to invest in India due to growing market and stock prices.
NRIs are transferring their investment focus to India as a response of the Indian government’s increased friendliness towards foreign investors and the creation of several laws and guidelines to assist FDI (Foreign Direct Investments) by the RBI and SEBI. Moreover, due to the consolidation in the real estate market, incapable developer have been weeded out. This has helped the NRIs investor in making better holistic decisions since they are exposed to a better pool of developers, increasing the credibility and trust factor and attracting a lot of NRIs; aggressively investing in the Indian real estate.
In the Indian real estate business, a transparent market has replaced an opaque and inefficient one. With the implementation of RERA, it has substantially streamlined the accessibility and availability of documentation, giving more definite timelines to understand the lifecycle of projects. Developers have become more stringent of laws and regulations which has in turn attracted a lot of FDIs developing more trust and value in the RE business. The Indian real estate boom, increasing transparency, a weakening rupee, and stronger real estate regulations are all driving NRI demand for real estate asset class. It also gives them an opportunity to gain better yield value by using this asset class in upscaling properties and reselling in the market or by being a sheer investor and reap profits out of their investment. Given the strength of the asset class with a CAGR of 9.2% for residential and 13.85% in the commercial asset class forecasted for 2022-27, this trend is expected to continue for some time.
(By Vishnu Prakash Rathore, CEO – Credent Asset Management. Views express are author’s own. Please consult your financial advisor before investing.)