As the indian economy is facing a slowdown in the wake of volatile international markets, its property sector will continue to attract investments from Non Resident Indians (NRIs) due to consistent depreciation of rupee this year.
The Indian currency nosedived from Rs44.07 to a dollar in June 2011 to record lows of Rs56.13 to a dollar on Tuesday, reflecting an over 20 per cent decline in last one year. Some foreign institutions sold their investments to book profits while some investors moved their assets to other lucrative international markets, but NRIs pose full confidence in the realty sector by investing more money during the last three months.
An estimated 30 million NRIs, who have wide financing options, are borrowing at low rates and investing back home in residential and commercial projects to get the higher returns. The property demand from NRIs has grown by around 15 per cent in last three months due to unexpected decline in rupee’s value.
“I think rupee will have consistent pressure in future and will remain vulnerable due to wide current account depreciation, fallen investments and policy clumsiness and volatile global economy. Hence, the trend will remain same and NRIs will continue to remit funds to invest in real estate while structured debt instruments, capital protection schemes and fixed maturity plans are also attracting investments,” Jitendra Gianchandani, chairman and managing partner of Jitendra Consulting Group, told Khaleej Times.
He said many NRIs are borrowing from banks at four to five per cent rate of interest and remitting funds to NRI/NRO term deposits at eight to nine per cent rate of interest.
“The present property market in India is a bit slow due to limited availability of capital and bank finance, hence the NRIs are taking advantage of rupee depreciation and investing funds in the real estate, which is always first and preferred choice of investment. In a way NRIs have given some support to lacklustre property market.”
Manav Ahuja, head of sales and marketing of Auric Acres, echoed the same views and said the real estate market is expected to reach $90 billion by 2015 from a mere $12 billion in 2005. “The fall of the rupee is encouraging more investment by NRIs into the realty market, which offers relatively higher returns,” he said.
Auric Acres is an independent real estate brokerage firm based in Dubai. Its prime responsibility is to bridge the real estate investment needs of NRIs in the Gulf region with appropriate developments offered by real estate managers in India.
Nishant Singhal of real estate consultancy Investors Clinic advised the NRIs to take the advantage of the present situation and invest in the country.
“We don’t expect rupee to go beyond 57 levels, so we would advise NRIs to encash the current scenario and not wait indefinitely. It is always difficult to catch last 10 per cent movements in currency market,” he said.
In reply to a question, he said it is difficult to quantify total investments made by NRIs in real estate sector. However, the balances in NRE/NRO accounts in India are at all-time high. Most of this amount will be utilised for real estate investments in next six months.
He said NRIs do invest in commercial properties as they provide good returns to them and that too in a very short span of time.
Ahuja said: “Surely, the first preference for an NRI is residential, but few commercial projects in some cities are also starting to attract interest because its yields are better than residential projects like assured returns or assured rentals.”
“I can’t estimate, but most of the NRIs invest in residential or housing projects rather than commercial, as mortgage loan from banks is easier as against loan for commercial properties,” Gianchandani said.
Record remittances
The analysts said the real estate sector is the major beneficiary of record remittances of $63.7 billion in 2011 and the trend is likely to continue this year.
About 30 million NRIs, living in 130 countries, are sending remittances back home regularly, which has finally lead 22 to 25 per cent increase in real estate investments this year.
According to the World Bank, India continues to retain the top slot in remittances by expatriates from abroad. In 2011, NRIs remittances were reached at $63.7 billion, as against China’s $62.5 billion. The same trend is expected to continue this year due to depreciation of rupee and slowdown in Indian economy.
“The remittances are mainly used for family needs and investments in stocks, property and term deposits. Real estate here is preferred because of a desire to create a higher lifestyle for the family and the price appreciation in the long term,” Ahuja said.
Popular NRI destinations
Nishant Singhal said Southern Indian cities like Chennai and Bangalore continue to be the NRIs favourite destinations. However, there is good demand from Northern cities of Delhi/NCR and Punjab. Demand for Mumbai is muted due to high prices.
“The demand from NRIs has grown by around 15 per cent in last three months primarily due to unexpected depreciation in rupee. NRIs continue to prefer metro cities like Delhi/NCR, Mumbai, Bangalore and Chennai. Ahmedabad is another favourite destination due to progressive state government,” he said.
Ahuja also expressed the same views and said Banglore, Chennai, Mumbai, Delhi/NCR, Pune and some other smaller cities are among the top most preferred real estate hubs in India. He said majority of NRIs are end users and some buyers are looking for second home for use by their family members to earn periodical returns on the investment, or even to retain as a buffer to meet contingencies.
“The constant depreciation of the Indian rupee in the past few months is perceived as an exciting opportunity for NRIs to invest in real estate. This can be translated as real estate becoming cheaper and competitive. Yields from NRIs investments in commercial as well as residential will improve with rupee appreciation. Cities like Bengaluru and Mumbai are benefiting the most from this trend,” Ahuja said.
He said projects located in identified growth corridors attract the maximum attention from NRI clients, as the price appreciation is expected to be greatest there.
Financing options
Singhal said NRIs practically have all options for financing like resident Indians. Home loans continue to be most popular source of financing. “Banks generally take 30 to 45 days to process home loans, which are available to finance up to 80 per cent of property value for maximum period of 20 years.”
He said NRIs generally make timely repayments for home loans and accordingly, the banks are happy to give maximum possible facilities to them.
Ahuja said there is hardly any home loan defaults in case of NRIs because they are highly organised in term of their investments back home. “Following the rupee depreciation, many NRIs have started making partial pre payments against their debts this year,” he said.
To a question regarding taxation on NRIs for investing in real estate projects, he said, “Now every real estate investor has to pay service tax and VAT as per central government ruling, weather resident Indian, or NRI. But there is no income tax benefit available for NRI customers unless you file returns and hence become eligible to avail the tax rebates available for home loans.”
muzaffarrizvi@khaleejtimes.com
Source: www.khaleejtimes.com
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