Luxury lures the NRI

India's economy is no shrinking violet and has in recent times been complemented with adjectives such as giant, bullish and accelerated. Apart from the feel-good factor and the numerous opportunities this creates, it has also changed the world's pecking order. As a result, the nation's long-bemoaned brain drain is finally kicking into reverse gear.

While doctors, scientists, engineers and Wall Street whizz-kids are returning to India, the return of the prodigals is also driving the demand for luxury real estate. Many expats and Non-Resident Indians (NRIs) want the same comforts that they were used to abroad and will settle for nothing less. Here, we are not just talking about Indians coming home to their motherland but also about many multinationals employing expats, for whom one of the incentives to move in is the whole maharaja experience that includes private pools, maids' rooms and gardens that open onto golf courses.

"International investments contribute around 10 per cent of the total demand pie," says Anand Narayanan, National Director, Residential Agency, Knight Frank India. "We have witnessed a good inflow of investments from the UAE, Saudi Arabia, the US, the UK, Canada and Singapore."

There is no doubt that the demand pie is dominated by domestic buyers who prefer luxury housing projects as an upgrade to their lifestyle, he says. With economy growing at a good pace and income levels moving up, housing has no more been restricted to be considered for accommodation or investment perspective, but is also seen as a lifestyle statement. This sentiment has enabled many developers to introduce new product offerings and concepts such as branded residences, designer homes and theme-based housing projects.

"This makes the Indian residential market a realty hot spot for investors including NRIs, and lately for foreign financial institutions and private equity firms. It is considered to be an asset class that is set on a long-term growth trajectory," says Narayanan.

So just how hot is the market? Currently valued at more than $100 billion (Dh367 billion), the Indian real estate sector is poised to grow at 20 per cent CAGR (compound annual growth rate) in capital values over a longer time frame, thereby equalling long-term asset class returns of equity, explains Narayanan. "However, real estate would score over equity in its ability to generate annuity returns in the form of rentals, where rental yields (residential: 2 to 5 per cent and commercial, 8 to 12 per cent) are far superior than dividend yields (1 to 3 per cent)."

Considering this, Narayanan thinks it is also prudent to point out that there is no widespread liquidity crunch in the market as the developers are well capitalised. "We don't foresee any significant fall in pricing but prices will be stable for some time," he says.

He says buyer confidence will drive the return of demand in the market, provided there are no further interest rate hikes and major price appreciations. "Developmental rules in Mumbai and tier one cities have rationalised. But stringent government regulation may lead to limited supply," he says.

Need for transparency

Luring investors like flies to honey are the sweet returns on investments — but these same investors are often duped and end up with the short end of the stick — which is why the Indian realty sector is agitating for a regulator. "The introduction of a real estate regulator will bring more transparency to the industry. The regulator will further smoothen the process for approvals and guard consumers' interests, which will boost credibility and reliability, resulting in higher investor demand," says Narayanan.