By Aryaman Vir, Founder & CEO, MYRE Capital
With the troubled fall in the value of the Indian rupee against the US dollar and the increased fluctuations each day, the impact on various sectors of the economy has been multi-fold. However, not everything about rupee depreciation is considered to have a negative consequence. From an investment lens, the diminishing rupee value is considered a tailwind in the real estate sector, particularly for NRIs. This is because the cost of acquiring properties by NRIs and other foreign investors becomes cheaper and hence the purchasing power goes up despite the turbulent times. The present situation is particularly considered favourable to invest in commercial real estate as there exists a positive absorption rate and every dollar brought in to invest would offer more rupees.
Indian Commercial Real Estate (CRE) is at a growth stage and is set to offer a high annual return and gives the investors a tangible asset with an attractive appreciation potential over time. This enables effective diversification which helps in having a healthy portfolio during volatile times.
CRE is known to serve as a passive yet recurrent rental income as the returns from CRE are usually higher than returns from traditional assets. The stability of your rental income is dependent on the occupancy of properties which is in turn dependent on the demand for these properties amongst prospective tenants. With the rupee value depreciating, the demand from NRI investors to invest in these institutional grade assets is growing as it becomes easier for them to invest by exchanging dollars. This makes CRE a very flattering investment option.
However, when we look at investing in commercial real estate, there are multiple ways in which one can invest. The most beneficial method remains to be via fractional ownership without various intermediaries and middlemen. Fractional ownership helps investors in hedging their risks as well as allows investors to leverage an economy of scale model to negate high costs associated with acquiring institutional grade assets. At the same time, roping in a trustworthy PropTech firm can ease the job as it helps in eliminating multiple costs such as property maintenance expenses, intermediary charges, etc. Since PropTech firms are tech-enabled, they more often than not, help in the end-to-end management of properties keeping the investors worry-free.
As more and more NRI investors are eyeing Indian CRE markets, the method in which one chooses to invest can be critical and it requires more awareness as well as knowledge for people to pick the right avenue. The choice of investment avenue in commercial assets may differ depending on the capital to be deployed. In this case, fractional ownership is better suited for a commercial investor aiming at stable and long-term above-market returns. These Grade-A properties give access for investment at a slightly higher ticket size as it is considered to be a patient asset. This makes the fee structure worthy, as the longer one stays invested, the returns get better. On the other hand, for retail investors, there are other newer avenues made available with lower ticket size options. REITs allow retail investors with a lower investment appetite to access commercial properties via a blind pool fund.
Indian CRE is picking up momentum faster than ever and in an otherwise volatile time, it is now getting enticing to the mainstream investor base. The growth in this sector is catapulted by various economic factors, with the latest one being the currency depreciation, which would eventually result in the business growth of Indian real estate in the near future. This would aid in creating a positive impact on the sector for the NRI investors.