Are NRIs the next leg of investors in real estate in India?

January 07, 2020 12:51 PM

A strong dollar implies that an NRI investor can purchase more in the Indian market in the year 2019 as compared to five years ago.

real estate, real estate in India, real estate investment, real estate investment by nri, NRI, RERA, NRI investorsMost NRIs nurse a dream of returning to their motherland and settling comfortably in their homes in the sunset years.

The real estate market in India is poised for the entry of a greater number of Non-Resident Indian (NRI) investors not only because there has been a steady strengthening of the dollar against the rupee over the past few years, but also because the inventory of properties now open for pumping in money is spread across a huge canvas across different categories.

The dollar crossed the Rs 70 mark in the year 2019. It had steadily increased from Rs 59 in the year 2014 to the mark of Rs 71.60 in the last week of November last year. Financial indices point towards an even stronger dollar over the next six months with the exchange rate touching anywhere in the range of Rs 75. A strong dollar implies that an NRI investor can purchase more in the Indian market in the year 2019 as compared to five years ago.

The Indian real estate market looks alluring for dollar investors because demand for institutional and commercial properties is also set to rise over the next few years with housing hubs in various parts of the country gradually getting occupied by end-users. The concurrent need for malls, shopping complexes, cinema halls, commercial buildings, office complexes and logistic and warehouse spaces is growing in tandem with increasing occupancy in residential apartments in housing hubs.

For NRIs, residential projects are, therefore, no longer the only avenues for investment. The NRI can invest in shopping units in malls, office rooms, logistics spaces and other commercial spaces. Investment in co-working spaces – where employees of a diverse range of firms come together to work under one roof – is also an attractive destination for NRI investors.

For decades, investing in the real estate sector in India was considered no less than a risk because of the lack of transparency as well as for the fact that there were operations by shady investors in properties. However, the Central government has brought about a great degree of transparency in the real estate sector in India by introducing a slew of laws and legislations.

The Real Estate (Regulation & Development) Act of 2016, which is the most important legislation pertaining to the property market in the past few years, not only promises transparency but also ensures security of investments of homebuyers. It has brought to an end the operation of fly-by-night operators in the real estate sector. Each project has to be registered with the government, be it residential, commercial or institutional. There is a fixed timeline for delivery of units booked by investors failing which the developer is liable to be punished. Quality of construction is no longer an issue to be dealt with solely by the investor but each complaint pertaining to this issue has to be meticulously addressed by the developer. The investor’s money is secure in an escrow account that is meant to fund only construction activities in the project in which the investment has been made.

A strong and stable government is key to economic prosperity and security from external threats. Thanks to Prime Minister Narendra Modi, at this point India has a stable political dispensation ruling at the centre by commanding an absolute majority in the Lok Sabha, which is necessary for forming the government. The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government at the centre has strengthened the country’s borders against external threats by investing in defence and has also ensured inland security by better mobilisation and deployment of central and state police forces. Any investment made by an NRI in India is safe against both external and internal threats.

The services sector in India has been growing at a tremendous pace over the past three decades and has shown the potential for further growth. Growth in services sector industries portends greater demand for real estate, particularly in housing, commercial and institutional categories. Tier II cities, like Hyderabad, Bengaluru, Bhubaneshwar, Pune, Chandigarh or Kochi, where services industries have been flocking, have the potential for growth in these categories of real estate. NRIs are eyeing these cities for investing in under-construction projects here which are projected for very high capital returns after the next few years.

Rentals against investments in Tier II cities have also been growing both across residential and commercial properties. The latter category has been offering greater returns in terms of rentals because of huge one-time capital investment on the part of the lessee to hire out a particular property as well as northward revision of rental values every year as compared to residential units where rents are revised once every three years. The influx of numerous foreign retail brands into the country has also ensured that commercial properties offer competitive rates of rents and never go vacant.

The Central government has launched the ‘Make in India’ initiative which calls for greater indigenisation of industries. Various initiatives are being offered to indigenous firms to set up manufacturing units within the country with partnerships from foreign investors. If the ambitious Make in India scheme of the BJP-led NDA government fructifies to any extent, it will mean expansion of the real estate market into hitherto unknown destinations of the country. The potential for investment by NRIs grows even further with the Make in India initiative.

For the NRI, home is where the heart is! Most NRIs nurse a dream of returning to their motherland and settling comfortably in their homes in the sunset years. A nest in the parent country has always been a dream for NRIs because of the need for security, comfort and attachments with family and relatives. No better time than the near future for NRIs to invest in a nest solely for themselves particularly with the real estate market offering a host of properties in many cities across the country.

(By Ashish Bhutani, CEO, Bhutani Infra)

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