Good time for NRIs to invest in Indian real estate

Key policy transformations such as RERA, REIT, PMAY affordable housing, and the GST have positively impacted the realty sector. Shubhra Saini, delves deeper to understand the trends of NRI investment pattern. NRIs predominantly invest in Indian markets for factors such as emotional connect with home country, retirement plans or simply to as an exigency plan for the future. Presently, the other better returns and yield on investments, and depreciation in the rupee’s value also have become the reasons for NRI investments in Indian real estate. Further, the element of risk once associated with property investment in India has been largely mitigated with the implementation of RERA. Ease of FDI norms and general government focus on housing also adds to the confidence of an NRI Investor. In addition to property appreciation a decent rental yield is also available to NRI’s adding to the lure of owning a property in their native country.NRIs from UAE, USA and Saudi Arabia are the frontrunners to invest in Indian realty. As the industry experts explain, earlier only NRIs and foreigners with PIO card were permitted to invest in the housing and the real estate sectors. Foreign investors, other than NRIs, were allowed to invest only in development of integrated townships and settlements, either through a wholly owned subsidiary or through a joint venture company along with a local partner. However, the new guidelines have opened out FDI in townships, housing, built-up infrastructure and construction-development projects. Moreover, recent sharp rupee depreciation has provided stimulus to investments from NRIs. Reinstating the sentiment, Farook Mahmood, President, FIABCI and Chairman and Managing Director, Silverline Realty stated,“The NRI’s are inclined to the Indian market currently as the dollar has shot up considerably and they are able to get a better value in terms of the currency conversion. Also, The Indian developers are becoming more professional and the project quality, workmanship and standardization has improved.” Catching the ‘FDI & REIT’ Bandwagon The foreign Direct Investment (FDI) and Real Estate Investment Trusts (REITs) are in the favour of the Non Resident Indians. If implemented correctly, both FDI reforms and REIT norms have the potential to boost consumer and investor sentiment in real estate. Over the last couple of years, several amendments were brought to the REIT regulations in terms of taxation. The earlier requirement of having to hold at least two projects has now been diluted to one project. REITs are now also allowed to raise funds by issuing debt instruments.As REIT provides an opportunity to gain the benefits of investments in real estate without having the hassle of purchasing and maintaining properties, there is a strong probability of NRI investments in real estate in India being diverted to REITs. Betting Big on Commercial Market: According to Mahmoodthe NRI investors who have for long invested in residential real estate market are now gradually shifting gears toward much lucrative commercial real estate market. “The commercial market has been performing reasonably well. Funds are investing into world class assets of large IT buildings malls and warehousing, there is a regular reasonable demand for A grade assets as leasing is happening and thus the funds are able to perform well and give good returns to the investors. The REIT ensures transparency and easy entry and exit.” Reiterating Mahmood’s sentiment, Ravish Kapoor, Director, ELAN Group, also believes that there is a distinct shift of well-heeled NRI investor's focus towards commercial properties as this sector now delivers very satisfactory yields, he said, “There has been a fairly consistent rise in demand for commercial spaces like Grade A offices, IT parks, malls, service apartments and etc.” The Key Investment Cities Emerging Investment Destinations Mumbai, Kochi Bangalore Coimbatore Hyderabad Ahmedabad Chennai Vadodara Delhi-NCR Nashik Gurugram and Noida are most popular investment destination for NRI of northern India like Punjab, Himachal Pradesh and Rajasthan. Especially Gurugram that enjoys good connectivity through three highways: National Highway 8, Dwarka Expressway (Northern Peripheral Road), and KMP Highway. The millennium city has maximum number of commercial spaces which include shopping malls, service apartments and etc. This overall attracts NRIs to invest here. Mumbai is another major attractive investment destination for NRIs as it offers several types of investment options such as residential flats, offices, houses, etc. However, it does seem to be overpriced compared to the surrounding infrastructure it provides. Other metro cities like Bengaluru, Chennai, Hyderabad and Pune, etc. provide ample of options including different locations, facilities, pricesand infrastructure. Challenges The main challenges that are faced by the NRI investors, while purchasing the property in India are currency fluctuations, lack of clarity on legal rights of NRI homebuyers, and illegal possession of property or gate-crashing by the locals. While, international markets are mostly regulated with minimal risk of default or delayed projects, in theIndian scenario, foreign exchange fluctuations, high maintenance costs of property and tax implications remain key challenges for NRIs. Role of Indian Developers The developers are doing everything thing to attract overseas buyers from setting up offshore offices and organizing events to help find tenants. To push up the sales, the developers are also offering discounts and flexi-payment schemes.Working with local channel partners continues to be among the best ways to market properties to NRI’s. They are well versed with local rules and norms and often have a strong database of NRI’s looking to purchase property. These efforts must be backed up by strong digital marketing and participation in key local exhibitions.” The Way Forward Experts believe that it is a good time for NRIs to invest in the real estate sector and overall investments are expected to cross $10 billion-dollar mark by 2020. A slew of reforms undertaken by government such as RERA, GST have made processes much more transparent, time-bound and increased accountability. As the sector becomes more streamlined on the back of GST and RERA, the investor and consumer sentiment has been positive and should further boost the ecosystem in future. The resultant mechanism has made the market conducive enough for NRI investors to invest across the asset classes of real estate. Investing Checklist • Transactions must be done in Indian rupee (INR) through regular banking channels via an existing NRI account. • NRI/PIO can invest in real estate by remitting fund to India through Normal banking channel or funds held in NRE/FCNR/NRO accounts maintained in India. • • • • • • NRIs with a valid Indian passport need no prior approval unless they are citizens of a Pakistan, Bangladesh, Sri Lanka, Iran, Nepal, Bhutan, Afghanistan and China. • • • • • NRIs can buy residential or commercial properties but are not allowed to buy agricultural land, plantation properties and farmhouses. However, such properties can be gifted to or inherited by NRIs. • • NRIs are eligible to avail loans to purchase a property in India. The maximum loan amount is generally 80% of the property value. NRIs can lease or rent such properties without any restrictions. • According to the new FDI policy, NRIs can invest in real estate development through Indian companies. There is a lock-in period of three years before which the minimum investment can be repatriated.