The appeal of a residential address back home is not foreign to the non-resident Indian (NRI). Now, added to that is the attraction of owning an office, a shop, a piece of land in a location far away from the hometown.
For the NRI buyer looking at real estate as an investment, the depreciating rupee has resulted in making the Indian property market even more appealing. Not only are buyers getting more rupee for their dirham but developers are also more open to discounts because of ongoing liquidity concerns. While investing in commercial property is a top-line trend, buyers are now looking at more options in an increasingly complex and diverse market. GN Focus looks at five ways in which the NRI market is changing.
No-strings-attached investments: Recent developments point to the fact that real estate is moving from an emotional purchase to an investment. Buyers need not restrict themselves to a particular market just because they went to school there.
For an alert buyer, each location can work provided it meets the investment criteria of location, infrastructure development, return on investment and business potential of each property or piece of land. Markets traditionally dominated by those native to the place are seeing interest from those with few or no ties, especially in the commercial space.
Real estate professionals say that today Mumbai accounts for almost 50 per cent of all demand for property from outside India. Nishanth Mandody, Business Head of Indian Properties at Yard Real Estate, a Karama-based agency that helps expatriates in the UAE find and purchase property in India, is one of them.
“There is real demand for Mumbai,” Mandody says. “We advise people that if you are not planning to stay in a particular suburb then look at growth hotspots. Even if you are planning to move to India, say, three years down the line, it makes better sense to invest in a growth hotspot and sell it once you get to India. You can then invest that money into buying a property to stay in.
“In a good location, the price difference in three years will be about 40 per cent. You can sell it and invest that amount in a prelaunch property in the location where you want to live.”
While Mumbai and other metros have safe haven status, investing in other locations can pay off too, even if you don’t plan to live there. “I’ve visited Jaipur once or twice but it’s not a place I am very familiar with or where I will ever go and stay. But when an investment opportunity came up where our friends were investing, we also jumped in,” says Dubai-based technology professional Shruti Jain, who invested in a property under construction in Jaipur a couple of years ago. “The reason we could do it with confidence was because the developer was someone our friends had done business with earlier. It was a good decision since the prices have appreciated since then.”
Already a part of the Golden Triangle along with Delhi and Agra, Jaipur is an attractive market. It’s connected to Delhi, which acts as a feeder city. With hospitality majors such as Marriott and Fairmont opting for the city, investing in real estate there is certainly a smart choice.
Likewise, it is not uncommon to see NRIs from Mumbai who visit their home city return having invested in a development under construction on the outskirts of Pune. It pays to look at the budget and infrastructure development plans of various states, not just your home town. A large industrial development, an international hotel, a business process outsourcing (BPO) hub, a new airport, a large shopping centre and a chief minister with a proven track record for development are signs that a sleepy little town may grow to be a good investment.
These are the reasons Moolchandani is upbeat about the prospects of Bhopal. He says: “Bhopal is on a growth spree. Madhya Pradesh is becoming a centre for IT and BPO since the bigger markets are saturated. With the international airport coming up in Bhopal, the property market is sure to see upward movement,” he says.
Commercial property: Buyers are more interested in safe haven investments after the global economic downturn, which many insist India did not see, and as growth rates have plummeted in recent times. While residential property often comes with heartstrings attached, commercial property is purely investment driven.
HDFC Realty, India’s Regional Sales Manager — North, Kapil Kapur tells GN Focus, “While earlier people were content with one property, now they may look for a second or third one too. The demand for commercial property has increased.” HDFC Realty, a subsidiary of HDFC, a housing finance major in India, helps search properties in all major cities in the country.
Developers say that the interest in commercial properties is not limited to direct users or dealers. “High-net-worth individuals, including many professionals, have started showing interest in commercial properties in the past one or two years,” says Anita Kataria, Senior Vice-President, Raheja Universe, a Mumbai-based property developer.
Commercial properties have better potential for return on investment. “In commercial properties you have the advantage of capital value plus leaseable space,” she says.
The hotspots for commercial property are micro-markets in each location. According to real estate services firm Jones Lang LaSalle (JLL)’s note in April on commercial property in Mumbai, “Rentals and capital values in almost all Mumbai micro-markets except Lower Parel and Andheri have either remained stable or gone up over the past 30 months.”
The creation of newer industrial zones and companies moving en masse to a location cause prices to go up. The savvy investor should look at infrastructure development, which comes ahead of the development of commercial spaces. Access to public transport would be one of the defining points in rentals.
Good areas to look at are any of the growing markets. In Mumbai, Kataria says, this would mean Thane, Lower Parel, Bandra-Kurla Complex and Navi Mumbai.
Important considerations for those looking to invest in office space include ensuring that the quality of building, location, demand-supply dynamics and yield compression possibility work in their favour.
JLL’s note says that investors looking at income-producing office assets should look at the break-up of cash flows, vacancy factor, expenses such as maintenance, property tax and building insurance, lease term, lock-in period and expiry dates, long-term capital appreciation potential and refurbishment, refinancing and repositioning potential.
Land stakes: Suniel Moolchandani of Chinarr Group in Bhopal says that NRIs are not only looking at residential and commercial properties but also parcels of land.
Even a decade or half earlier, the lure of land was matched by the fear of being drawn into ownership or permission battles. Seeing the potential of the market, developers now create packages within a site, with an option to develop them.
“We have large plots for sale with each plot being 4,000 square feet and out of all our developments — commercial, residential and office — the demand for these plots is the highest,” says Moolchandani.
If the title is clear, then buying land is one of the most risk-free investments. The best route is via a developer who has created parcels within a community.
While cities such as Mumbai or Delhi are not likely to present any opportunities, buyers who have invested in land years ago in Tier II and Tier III cities have found it quite lucrative.
One of the best things about buying land is that apart from boundary creation and periodic checks, it is practically maintenance-free. Once bought it’s possible to forget about this asset that continues to appreciate. Tax policies on buying land are not the same as that for property, which adds to its appeal.
Customised appeal: Builders all over India say that when planning properties they increasingly keep the NRI customer in mind. While earlier this merely translated into higher costs for quick transactions, developers are now alert to the specific needs of the NRI customer. “The quality of build for NRIs is different. Developers try to match their style of life,” Moolchandani says. “And we know that they cannot be expected to take care of minor details such as carpentry, so we facilitate that for them. We have a legal cell for our NRI customers, which vets everything from leasing to power of attorney and helps them sell as well.”
Be that as it may, the standard vetting procedures still apply. It is best to buy properties from reputed developers and have the property vetted. If you are taking a loan, the bank will help with scrutiny of documents. Take, for instance, a retail property in which a developer may promise lease and guaranteed returns. HDCF’s Kapur says: “Builders sometimes offer lease options and that is a good thing. But even so those investing in retail need to check the location and verify who the builder is renting to since the returns would depend on both these factors.”
Complex products: One of the signs of a mature market is the complexity of products. The Indian property market is now tailor-making solutions to cater to various needs of its customers. For instance, consider the choice between property under construction and ready ones. It is common knowledge that properties under construction give better returns than ready ones. However, some projects under construction are vulnerable to being stalled due to various reasons — liquidity concerns with the developer, unavailability of raw materials, or legal battles related to titles. The investor, especially the NRI, is naturally cautious of abandoned projects.
Now many banks have come to the rescue with loans that make developers equally liable. Under these subvention schemes, Kapur says, “the buyer needs to invest about 20 per cent. The bank funds 80 per cent. The good thing is that the builder is responsible for paying interest until he hands the property over.”
While freeing up capital is the obvious advantage, the other benefit is that banks go through a process of thoroughly vetting the builders before listing them on their brochures. In India, both ICICI and HDFC offer this scheme. Buyers would do well to check the projects listed in their brochures. Some developers also take a down payment on flats under construction in ongoing projects and offer to pay back the difference in the current and future market rates should the market correct at a later stage.
For those who want to invest, if they look hard enough there is a scheme that is tailor-made for them.