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Over the past few decades, the urge to ensure a better life for themselves and their families back home has led countless Indians to migrate to countries offering highly attractive work-pay equations. This income-generating objective is a common factor, and although non-resident Indians’ (NRIs) ties with their country sometimes erode with time, the willingness to earn a decent profit on investments back home does not.
For a protracted period, investments in India did not offer good returns, leading NRIs to choose to invest in the countries they migrated to — or anywhere else where the markets were attractive. However, with the resurgence of the Indian economy after the arrival of a stable government intent on boosting business in the country, things are changing. Today, the realty market is once again a prime focus for NRI investors.
The fact remains that the Indian real estate sector is dynamic, and long-term investments will pay off if the investment decision is sound. It is expected to grow at 30 per cent over the next decade across the housing, retail, hospitality and commercial verticals. The market size is expected to touch $180 billion (Dh661 billion) by 2020.
NRIs are aware that Indian real estate is a hot investment proposition. That said, they do have their own leanings when it comes to where to invest. Generally, they prefer to invest in their states of origin, namely Kerala, Karnataka, Tamil Nadu and Maharashtra.
As the inventory has piled up in the two major cities of New Delhi and Mumbai, customers can expect to get good bargains in these markets. Developers are offering discounts and attractive financial schemes in ratios such as 20:80, 30:70 and 10:80:10.
The advantage that UAEbased NRIs have is that they earn in dirhams, which trades strongly against the rupee. This factor offsets a part of the cost lready. However, the rupee is bound to strengthen over time, and the advantageous difference between the currencies will reduce as the economy grows more secure.
Indian developers have had to wake up to certain realities over the past two years. In many cities, they 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 oversupply of larger-configuration apartments.
Thankfully, developers are now more earnest in offering the right sizes and prices. Smaller but betterdesigned and more efficient homes will be visible in new launches in 2015-16. Meanwhile, selective corrections in some of the overpriced cities will eventually bring about faster sales for stagnated supply of larger properties. Townships will become more prevalent, and the supply of luxury homes will moderate to align with slow demand for them.
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 annual returns of 10 per cent can be expected from the third year. 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 struggling to sell inventory.
For NRIs on the verge of retiring to India, this is the right time to invest. Social infrastructure in most of the larger cities has improved considerably. Hospitals, shopping malls and better connectivity have made life significantly easier.
Once the primary residence is secured, NRIs with surplus funds can invest in income-generating rental apartments. However, they must be aware of all the bylaws and regulations that apply to NRI investors, especially on the tax front, since rental income is taxable.
Being capital-intensive, real estate investment decisions need to be backed by sound advice from professionals coming from a strong research-driven background. NRI investors are advised to opt only for reputed developers, unless they can actually travel to India and look at projects in different areas of their preferred cities. Alternatively, they can depend on their friends and relatives to look beyond options by leading developers.
They should have a general checklist to verify the track record and brand visibility of a developer as well as the soundness of the location in terms of social and civic infrastructure and amenities on offer. Investors looking for discounts could book during the prelaunch stage of a project to get competitive prices.
Developers have traditionally tried to attract highnet- worth individuals with exclusive investment opportunities. Due diligence is important for end users, and even more so in the case of those looking at upcoming or peripheral locations around big cities. Professional advisers should be consulted for the different real estate asset classes.
Source: Ashwinder Raj Singh
Ashwinder Raj Singh is the CEO of Residential Services at JLL India.