scorecardresearch

Top reasons why NRIs are flocking to the Indian real estate market

In terms of purchasing power, NRIs are better placed than their Indian counterparts because of the exchange rate depreciation of the rupee against the dollar and other currencies.

Top reasons why NRIs are flocking to the Indian real estate market
Leading real estate cities of Delhi, Gurgaon, Hyderabad, Bengaluru and Pune are among the top destinations for NRIs for making real estate investments.

India’s central bank, the Reserve Bank of India, has hiked the repo rate by 50 basis points each in the previous three monetary policy reviews, apart from a 40-basis-point hike in an off-cycle monetary policy in May earlier this year. While India’s Consumer Price Index inflation has now eased to a three-month low of 6.77 per cent in October, it is still above the RBI’s target level of 4 per cent. This means the RBI could go for another repo rate hike.

The cost of borrowing for home buyers has increased with the successive repo rate hikes that we have seen this year, but it will have minimal to no impact on Non-Resident Indians (NRIs). On the contrary, NRIs could benefit from a higher interest rate on fixed deposits. Repo rates have a direct bearing on the rates of deposits as well. When the repo rate falls, commercial banks can get money from the central bank at a cheaper rate, which means they reduce the interest rate on deposits and provide loans to their customers at a lower rate.

On the positive side, the interest rate on deposits such as fixed deposits will increase. The era of low interest rates on fixed deposits is over. Leading banks have started increasing the interest rate on fixed deposits below Rs 2 crore. Higher interest rates will also lead to higher returns on NRO and NRE fixed deposits. Banks have started hiking interest rates on foreign currency deposits as well after the Reserve Bank of India decided to relax norms to increase the country’s forex inflows. Leading banks such as SBI, ICICI Bank, and HDFC Bank have raised interest rates on foreign currency non-resident (FCNR) deposits.

In terms of purchasing power, NRIs are better placed than their Indian counterparts because of the exchange rate depreciation of the rupee against the dollar and other currencies. NRIs now have more money on their hands to buy property and they have shown an interest in luxury and uber-luxury homes. NRIs are also buying homes in the cities and towns that they originally belong to. They have also shown a preference for plotted developments, which has seen many developers entering this space.

Also Read: Housing costs: Tips to reduce your rental expenses

Another new trend among NRIs is a preference for vacation homes such as homestays and investing in resorts. NRI home buyers are investing in resort suite ownership, which are resort units that are part of a large resort complex at popular vacation destinations. The owners can use the unit as a vacation home when they want to and incorporate it into the resort’s inventory when it is vacant, so that the resort can rent out the unit to the resort’s patrons. This model allows NRIs to earn a monthly rental, which pays for the purchase of the resort. It also frees up NRI home buyers from the responsibility of maintaining the property as the onus is on the resort’s management.

Leading real estate cities of Delhi, Gurgaon, Hyderabad, Bengaluru and Pune are among the top destinations for NRIs for making real estate investments. A report by the real estate consultancy firm Anarock reveals that NRIs have more faith in the Indian real estate market in the post-pandemic era than they had before the Covid pandemic. Almost 71 percent of NRIs consider investment in the Indian real estate market as one of the best investments, which is higher than the 55 percent number seen during the pre-Covid edition of the survey. The Indian real estate market has shown that it is resilient and the way the market has bounced back has convinced home buyers that it is a safe investment bet.

Technology has also played a key role in helping NRIs buy their dream homes in India. Real estate developers are using proptech such as Virtual Reality and Augmented Reality to showcase homes to NRIs, who can now view any property they wish to buy from the comfort of their homes. Builders are doing online launches to cater to their NRI buyers using video conferencing applications to interact with prospective homebuyers. The real estate sector has also been organizing webinars about their upcoming launches to attract potential investors. With digitisation, NRIs can sign a purchase deed without having to physically travel to India.

NRI buyers have in fact shown a strong preference for real estate over other asset classes such as equity and gold. Real estate is seen as the strongest asset class in the midst of the global economic and political turmoil. The price of gold, which is a global commodity, has increased in value against poor performing debt instruments. The equity market has also seen many volatile fluctuations as the world deals with a war and global recession. For NRIs, real estate is a safe investment that will yield good returns over a long period.

NRIs from all over the world have been investing in India’s real estate sector, although the Gulf region contributes to almost half of the total foreign investments in the country. NRIs from other countries such as the US, Singapore, Canada, the UK, Germany, South Africa, and Kenya have also shown an interest in the Indian real estate market. While interest rate hikes and a weakening rupee are bad news for Indian home buyers, nothing has changed for NRI home buyers. On the contrary, a weakening rupee has increased the purchasing power of NRIs, who have made use of this opportunity to invest in the Indian real estate market. The resilience shown by the Indian real estate market in the last few years has strengthened the confidence of NRIs, who are parking their money in Indian real estate.

(By Shiwang Suraj, Founder & Director, Inframantra)

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

X