The total investment by NRIs in real estate in India is projected to reach anywhere near the range of $13.5 billion by the end of the next financial year.
Transparency in the real estate sector, brought about through legislations enacted by the Narendra Modi-led BJP government at the Centre since the year 2014 other than assured high returns on investments, is the major factor that has wooed Non-Resident Indians (NRIs) back into the property market in India.
As per a study conducted recently by a private agency, investments by NRIs in the real estate sector stood at a mere six per cent in the financial year 2014-15. However, this figure has nearly doubled to reach the 11 per cent mark in the current financial year. The survey predicts that the figure is expected to reach 12.5 per cent in the next financial year. The total investment by NRIs in Indian real estate is projected to reach anywhere near the range of $13.5 billion by the end of the next financial year.
Nearly half of the investments in real estate are being made by NRIs settled in the Gulf countries, including Saudi Arabia, UAE, Oman, Kuwait, Qatar and Bahrain. Investments have also been coming from North America, including Canada, as well as from certain European countries and the East Asian nations of Singapore, Malaysia, Japan and Korea.
And investments are not only being made in Tier 1 metro cities in India that are replete with civic and commercial amenities, but also in fast-expanding Tier 2 and Tier 3 cities. Investments in Tier 2 and Tier 3 cities like Jaipur, Pune, Bengaluru, Bhubaneshwar, Hyderabad and Kochi can be attributed to the NRI instinct of hedge against the future: most NRIs aspire to return to their hometown at some point of time instead of permanently settling abroad. Tier 2 and Tier 3 cities have also witnessed rapid growth in infrastructure over the past few years with a maze of highways, expressways, metro networks and air connectivity routes linking them to the major cities of the country. The small cities have thereby become the preferred destination of NRIs in many instances.
The Real Estate (Regulation & Development) Act, 2016 has restored the faith of homebuyers, particularly NRIs, in the property market in India. Ensuring greater transparency and accountability apart from a clear timeline for delivery of projects to investors, the Act has been very crucial in the growth of NRI investments in the country. Those settled outside the country are assured of a government mechanism to keep track of their investments in the property market and proper redressal of their grievances, if any, in a timebound manner through the various provisions of the Act.
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The steadily depreciating value of the rupee, though it does not augur good for imports, has ensured that NRIs find it more lucrative to invest their forex earnings in India. Every dollar invested by an NRI in India has now greater returns in terms of the rupee. As of September 2019, the US dollar has touched an all-time high of Rs 70.99 while the Euro stands higher at Rs 78.56. With these exchange values, investing in the property market in India had never been more lucrative for NRIs.
At the same time, real estate developers have cashed in on the concept of affordable housing over the past few years to attract more investors. Several development projects have been offering discounts and freebies, particularly to NRI investors, thereby making the market more attractive and lucrative. Discounts are generally being offered to the segment of first-time NRI buyers in real estate projects in several housing hubs, particularly during the festive season every year.
Over the past few years, rental values in residential projects located in areas considered cut-off from the main city have soared. With developers handing over housing units to end-users within the specified time, housing projects in suburbs or peripheries of major Tier 1 cities have begun being populated. For example, housing hubs in Raj Nagar Extension of Ghaziabad or Noida Extension of Greater Noida have grown by leaps and bounds with more end-users moving into their properties particularly with connectivity options like road networks having been established to these areas. Greater occupancy has led to higher rental values of housing units in these residential projects.
With growth of housing hubs and greater occupancy in completed residential projects, there has been a commensurate demand for commercial real estate. There has been growth of malls, retail spaces, market complexes and shopping plazas adjacent to the recently developed housing hubs for meeting the daily needs of residents. These suffice to offer merchandise, clothing, food and beverages, entertainment and even medical needs of local populace. Besides, there is a demand for huge warehouses in these areas due to the expansion in logistics and e-commerce markets. The concept of co-working spaces is also fast catching up with big corporations as well as start-ups for firms in the sector particularly of IT and IT-related services. This way, the commercial real estate space is also proving to be lucrative for investments by NRIs. Commercial units, as compared to residential projects, offer greater value for money. Unlike residential units, rental values in commercial properties are not only higher but are also subject to annual increase in rents and higher capital in terms of security deposits.
The property market in India has been getting greater exposure globally due to online advertisements and sales pitch by real estate developers. NRIs, therefore, have a wide range of choices to invest in the Indian property market. Besides, India is also considered a safe destination for investment in properties due to the stable law and order situation and the burgeoning retail market in the country.
(By Ashish Bhutani, CEO, Bhutani Infra)