NRI Investors Zero in on Indian Real Estate’s Revival Signals

Shajai Jacob, CEO – GCC (Middle East) – ANAROCK Property Consultants

• NRI investments into Indian real estate are led Indian expatriates from UAE, USA, UK, and Canada
• Bengaluru, Mumbai, Pune, Hyderabad, Chennai and Delhi-NCR currently attract the lion’s share of NRI investments
• Equities score higher than real estate on capital appreciation, but residential property comes with the benefit of rental yield, relatively lower risk and considerable tax benefits

Riding on a wave of economic reforms, improving transparency and better governance, foreign investments in Indian real estate are set to scale new heights. With laws now allowing 100% FDI (foreign direct investment) in construction development and REITs now in place for commercial real estate, the Indian real estate industry will see increasing investment infusions from NRIs (non-resident Indians).

According to a World Bank report, India received USD 79 billion in remittances in 2018 – with a sizeable portion going into real estate. NRI investments into Indian real estate are led Indian expatriates from UAE, USA, UK, and Canada. In terms of Indian cities, Bengaluru, Mumbai, Pune, Hyderabad, Chennai and Delhi-NCR currently attract the lion’s share of NRI investments.

Several factors have made these cities top picks:

• Their growing economic environment giving rise to fresh employment opportunities
• Ease of doing business
• Improving infrastructure upping their liveability quotient
• Improving air connectivity with world cities as well as better intra-city connectivity via escalated highway construction

UAE – The Leading NRI Nexus

The Indian population in UAE has grown to 3.3 million – the largest concentration of Indians outside India. According to the Reserve Bank of India, the UAE accounted for 26.9% of inward remittances in 2018. The NRI segment of Dubai is a particularly large buyer base for Indian real estate. The rupee’s decline in value against the dirham has further boosted remittances and made Indian real estate investments even more lucrative for NRIs.

What NRIs Invest In

Previously, NRIs traditionally invested in high-end luxury properties back home. For end-users, such properties offered them the international lifestyle they are accustomed to. For investors, luxury properties generated sizeable rental income.

While the end-user demand for Indian luxury properties continues, albeit on a more muted note, many NRI investors have now turned their focus to affordable and mid-segment housing. This is because the Indian Government has provided considerable incentives to buyers of such housing, and also because such properties are in higher demand and therefore give a higher rental yield as well as better long-term appreciation.

Having burnt their fingers on dubious developers in previous years, NRIs now prefer to park their investment with reliable, organized builders who register their projects under the Real Estate Regulation and Development Act (RERA) and are generally known for transparent business practices.

NRIs generally prefer investing in properties in their home state or city, largely because they are more familiar with those territories and invariably have family or friends who can handle the management and renting aspects. However, more experienced investors with sufficient knowledge about other cities – or those working with reputed real estate consultancies – do foray into other cities as well.

Residential Rental Yields in Major Indian Cities:

• Delhi NCR: 2.63%
• MMR: 3.00%
• Pune: 3.10%
• Chennai: 2.72%
• Kolkata: 2.65%
• Bengaluru: 3.30%
• Hyderabad: 3.70%

(Source: ANAROCK Research)

Real Estate Vs Equities

When it comes to investment, NRIs can pick and choose from a variety of asset classes. The equity markets draw considerable interest as they have performed consistently with a CAGR (compound annual growth rate) of 12-15% over the last 5 years. Real estate investments in Delhi, Mumbai, and Bengaluru have seen CAGR growth of 2-3% over the same period.

While equities may score higher than real estate in terms of capital appreciation, they do not share some of the additional benefits of real estate. For instance, a residential property also comes with the additional benefit of rental yield. Moreover, real estate investment carries a relatively lower risk and comes with considerable tax benefits – not only for resident Indians but NRIs, as well.

Real Estate Investments – What the Future Holds

Always attuned to this high-potential clientele, developers extend attractive offers to NRI buyers and also leverage technology to reach their expatriate audience. Concepts like Augmented Reality (AR) and Virtual Reality (VR) help them to reach out to NRI investors across the globe.

Simultaneously, the implementation of Goods and Services Tax (GST) and RERA have given the Indian residential real estate industry an aura of transparency and accountability, which has further strengthened NRI investor interest. Compared to the opacity of the market 5 years ago, the Indian real estate market now exudes far more trustworthiness.

The various policy initiatives now herald a sustainable revival for the industry, and NRI investors are once again turning their attention to the asset class that has always been closest to the heart of every Indian, regardless of where they live and work’s heart – real estate.