By: Ashwinder Raj Singh
Over the past few decades, the urge to ensure a better standard of living for themselves and their families back home has led countless Indians to migrate to countries offering attractive work-pay equations. This income-generating objective is the highest common factor — and though NRIs’ ties with their country of birth sometimes erode to a certain extent, willingness to turn a decent profit on investments back home does not.
For a protracted period, investments in India did not offer good returns, causing NRIs to choose to invest in the countries they migrated to or anywhere else. However, with resurgence of Indian economy after the arrival of a stable government, intent on boosting business in the country, things are changing. Today, the Indian realty market is once again a prime focus area for NRI investors.
The Indian realty sector as a whole — namely, across the residential, retail, hospitality and commercial verticals is slated to grow at 30 per cent over the next decade, attaining a market size of around $180 billion by 2020. However, investment opportunity lies less in Indian real estate sector’s speed of growth than in its overall dynamism. As such, it has been time and again vouchsafed that long-term investments into Indian realty pay-off very well as long as sound investment decisions have been taken.
NRIs today are keenly aware that Indian real estate once again presents them with a very hot investment proposition. That said, they do have their own leanings and predilections when it comes to where to invest. Generally, the NRI community prefers to invest in their states of origin — primarily Kerala, Karnataka, Tamil Nadu, Maharashtra and Delhi-NCR. However, since residential inventory has piled up in Delhi and Mumbai, investors are currently very well placed to find good bargains in these markets, as most developers there are offering discounts and attractive financial schemes.
The advantage that UAE-based NRIs (by far the largest contingent) have is that they earn in Gulf currencies that have traded strongly against the Rupee. This off-sets a part of the house cost already. However, the rupee is bound to strengthen further, and the advantageous difference between the currencies will reduce as economy grows under a stable Central government.
Current Indian Real Estate Scenario
Indian developers have had to wake up to certain immutable market realities over last two years. In many cities, they have misjudged where the actual demand is and how much buyers — including NRIs are willing to spend on their first or second homes. This has resulted in worrisome levels of supply overhang of larger-configuration apartments.
Real estate developers are now becoming quite serious about right-sizing and right-pricing their products to make them attractive to a larger cross-section of customers. In fact, smaller, better-designed and more efficient homes are very much in evidence when we study the project launches in 2015.
Selective corrections are already happening in some of the over-priced pockets of India’s larger cities — as this trend gathers momentum, we will start seeing a faster sales velocity in the stagnated supply of larger configurations.
Townships are becoming a lot more prevalent, since this is becoming the residential option of choice for many city dwellers looking for a better lifestyle for their families.
Supply pipeline for luxury home projects is now slowing down in reaction to the slow demand dynamics for these offerings.
Residential property prices have plateaued in both Delhi and Mumbai. Good returns can be expected only if one’s investment horizon is of three years or above — in which case, annualized returns of 10 per cent can be expected from the third year on. Sluggish sales, especially in the luxury segment, have led developers to offer several attractive financial schemes. World-class luxury projects are available in Indian cities now, but the market is currently struggling to sell inventory.
Advice For NRI Property Investors
For NRIs who are on the verge of retiring and planning to do so in India, this is the right time to invest. Social infrastructure in most of the larger Indian cities has improved a lot. Social and civic infrastructure is being ramped up in most of the larger cities, which means that more hospitals, schools and shopping malls as well as improved connectivity and availability of utilities are resulting in higher ease of living — equalling a higher-quality retired life.
Once the primary residence is secured, NRIs with surplus funds can invest in rental income-generating apartments, as well. However, they must be aware of all the bylaws and regulations that apply to NRI investors — especially on the taxation front, since rental income is taxable in India. It is also taxable in other nations, except in cases where a treaty exists between the two involved countries with regards to double taxation.
Under the best of circumstances, real estate is a capital intensive investment vertical. The best returns on investment are not attained by guesswork, but by decisions arrived at after weighing all the options for their merits and demerits. NRIs are best placed to reach such decisions if they consult professionals with a strong research-driven background.
As a rule, NRI investors should we wary of projects by unknown developers who have no existing track record. Untold number of buyers are currently falling in trouble because they have plugged their funds in projects which do not have all the mandatory clearances and fall short of even the minimum standards of quality construction. Unless an NRI plans to visit India and personally evaluate projects, he/she should opt only for reputed developers. In all cases, NRIs should strictly follow a check-list of points to verify, such as the track record and brand visibility of a developer, the soundness of the identified location in terms of social and civic infrastructure, the amenities in the project and the timelines for possession in the case of under-construction projects.
NRI investors focused on benefiting from discounts can consider booking in projects which are in the pre-launch stage, as prices tend to be competitive. Again, while due diligence is important for end-users, it is even more important for investors who are considering projects in upcoming or peripheral locations of the primary cities. Professional real estate advisors should be consulted to establish the legitimacy of such projects.
Developers have traditionally tried to attract NRIs by gearing marketing campaigns of projects which are ordinary in every respect straight at them. NRIs should be aware that there is nothing about ‘NRI projects’ that is any different from other offerings on the market – there are no ‘exclusive’ features that are otherwise unavailable to other buyers.
The author is Chief Executive Officer – Residential Services, JLL India.