Once again, a combination of rather stressful factors for the home economy has turned out to the advantage of non-resident Indians (NRIs). The record low levels at which overseas Indians can now purchase the Indian rupee combined with a sluggish real estate market promises yet another very good investment opportunity for the expats.
This time, the chance of good returns on property investments is underlined by the recent RBI directive that restricts resident Indians from buying real estate outside India. This bottling up of outflow will surely find a vent in more money being pumped into the domestic real estate sector thus pushing up the prices in future for those who invest now.
The import of these factors is by no means lost on property developers and dealers in India who are bracing for a 30 to 35 per cent surge in demand from NRIs.
There is no economic or financial expert worth his salt who can, at this point, venture to take a shot at predicting where the rupee will bottom out against the US dollar. However, they are near unanimous in forcasting a rather long period of gloom. During this time, those who can set aside some money out of their earnings in foreign currencies, particularly those pegged to the greenback, stand to gain substantially.
NRIs can purchase residential or commercial property in India but not agricultural land, plantation property or farm house. There are no upper limits for inward remittances and normal banking channels and NRE, NRO or FCNR accounts can be used.
NRIs can also take interest-free loans from close relatives who are resident in India. The lender is subject to the FEMA limit of $200,000 per financial year under the Liberalised Remittance Scheme. NRIs are also subject to TDS withholding (at the rate of 1 per cent) for property purchases over Rs 500,000.
Media reports from the Gulf suggest that Indian expats are busy taking loans from institutional as well as personal sources to send more and more money home. Exchanges and money transfer houses in the GCC region have reported a huge surge in remittances to India. The last time, we discussed how the liberalisation of interest rates on fixed deposits in banks in India offers a better chance to NRIs to make their money grow.
For those with higher incomes and savings, there is an opportunity to go beyond the NRE and FCNR deposits and buy property, particularly in the commercial segment, to sell higher in a few years time. According to realty experts, NRIs buying property in India now can save between 20 to 30 per cent on the investment’s value.
In a recent survey across India, developers have reported a jump of 30 to 40 per cent in enquiries from NRIs. The Associated Chamber of Commerce and Industry of India (Assocham) recently released a study on ‘Falling rupee sparks property boom from NRIs’ that speaks of an impending surge in demand. The paper is based on a random survey of nearly 1250 real estate developers in Delhi-NCR, Dera Basi, Mohali near Chandigarh, Mumbai, Kolkata, Bangalore, Hyderabad, Ahmedabad, Pune, Dehradun, Chennai etc. The survey reveals that interest for buying property by NRIs have increased due to favourable exchange rates.
According to the survey a majority of real estate developers said that the NRI demand is coming primarily from the Gulf region, US, Singapore, Australia, UK, Canada and South-Africa. The demand is more for high end properties and commercial buildings.
Three in every four realtor surveyed said that buying a property back home is the top-most priority of every NRI and the weakening rupee has given an impetus to fulfill that objective.
The study ranked Bangalore as the most favoured destination based on early enquiries, followed by Chennai, Mumbai, Ahmedabad and Dehradun in that order. The demand appears dull in the Delhi-NCR belt.
The findings were further confirmed by Confederation of Real Estate Developers’ Association of India (CREDAI) whose members too reported an increase of around 35 per cent in enquiries from NRIs. CREDAI chairman Lalit Kumar Jain was quoted by the media as saying: “People (NRIs) are waiting to see to how far rupee will fall. Since financial experts are projecting that rupee will stabilize in the long run, NRIs who invest now will can cash in on a weak rupee and also expect good real estate appreciation”.
NRI investments in the country varies from city to city. Going by past sales, Jain has pointed out that NRIs account for 40 per cent of apartment sales in Kochi and 15 to 20 per cent in Bangalore. In other Indian cities they are in the region of five to 10 per cent.
There are certain areas and pockets that NRIs have traditionally favoured. NRI property investors tend to stay away from unfamiliar, historically over-speculative cities and focus on either on their cities of origin or on those that offer assured and stable returns on investment.
A study by realty consultancy firm Cushman & Wakefield has also confirmed that depreciation in the Indian rupee provides a psychological boost to the NRIs.
The Reserve Bank of India’s curbs on Indians investing in international real estate under the liberalised remittance scheme will further push up the prices in a few months as these investors will look to put money in domestic properties.
More and more rich Indians had been investing in properties abroad. For example, Indians were among the top 10 buyers of residential real estate in Central London. An average purchase by an Indian in prime London was for around 1.5mn pounds. In the last three years, Indians have also been the fourth largest property buyers in Singapore.
According to one report, high networth individuals typically with Rs.10 to15 crore set aside for property investments abroad have already begun enquiring about real estate opportunities in India. The premium and luxury segment, in particular, is likely to get a boost.The Peninsula