India’s rules tilt in NRIs’ favour on property investments

The quantum of NRI investments into Indian properties rises significantly during festive periods. For instance, the period between December 15 to January 31 is usually holiday time in most western countries. Several companies in these countries give their employees a vacation during this period.

Likewise, the Ramadan period yields long holidays for Gulf-based NRIs.

These festive seasons are naturally the perfect time for NRIs to travel back to India and include property buying in their schedule. The known trend is that NRIs do a lot of online research beforehand, then schedule site visits of shortlisted properties and meet the concerned developer or consultants to seal the deal.

Back in India, these periods are not high traffic property buying seasons with locals. The primary festival times are Dussehra, Diwali and Onam (in south India) and Indian developers sharp-focus their festive season discounts and other offers in these periods. They tend to play heavily on the “auspiciousness’ factor”, as this approach still gets traction.

Developers also step up their marketing efforts during the non-Indian festive seasons pertaining to NRIs. However, they know that NRIs intent on buying a home in India are less likely to focus on auspicious elements. What matters more is that an extended vacation allows them enough time to scout for and finalise property purchases in India.

This does not mean that NRIs buy property in India only during certain periods. In any given quarter, NRIs account for 5-7 per cent of total housing sales in India. This often rises to 12-15 per cent during the fourth quarter.

Our data on sales numbers in the fourth quarter in the past three years indicate a quarter-on-quarter decline in 2016 and 2017, by 47 and 21 per cent respectively. This can be attributed to a number of reasons, including DeMo (demonetisation) and Rera (Real Estate Regulation Act). However, in Q4-18, sales picked up by nearly 51 per cent in comparison to 2017.

NRI end-users naturally gravitate towards properties in their cities of origin. That said, recent trends — fuelled by the increasingly attractive currency exchange rates as well as an improving regulatory environment — is that more NRI investors are now considering cities that will yield superior investment returns.

The most favourable cities for NRI investors today include Bengaluru, Mumbai Metropolitan Region, Pune and Hyderabad.

NRIs are likelier to invest in under-construction properties than local Indians, as they are in no particular hurry to take possession and instead prefer to lock in lower prices. This makes them an important target for builders with a lot of unsold under-construction inventory.

However, they are well aware of the plague of project delays and give the highest preference to developers who have a good reputation for timely project completion.

The recent interim budget gave NRI property investment sentiment a considerable boost. The removal of notional rent on second homes and the provision to roll over capital gains tax incurred on the sale of a property within Rs20 million (Dh1.03 million) to purchase of two new homes instead of the previous one is a major incentive for long-term NRI investors — perhaps more than for resident Indians.

Thanks to their superior purchasing power and historic focus on real estate as an investment asset class, many NRIs already own large properties in prime locations in India — properties which are usually out of the financial reach of most resident Indians. The latest provision for rolling over capital gains tax now enables NRIs to sell such properties and eliminate capital gains tax by investing in two mid-range homes.

ANAROCK’s recently-published Consumer Sentiment survey reaffirms that NRIs continue to view real estate as a favourable investment asset class. No less than 78 per cent of the NRI respondents in this survey indicated that they prefer real estate over other asset classes like stocks, fixed deposits, gold and mutual funds.

NRIs, who were previously seen as the prime sitting ducks for misleading real estate promotions and deals, are now seeing Indian real estate in a far more favourable light.

— Shajai Jacob is CEO — GCC at Anarock Property Consultants.