NRIs should take advantage of rupee depreciation
Property prices have reduced by 10% or more compared to last year
Last year when US-based Pawan Chadha was looking for a property in Mumbai’s western suburbs (Andheri and Goregaon), the houses he liked cost about $220,000 (~16.1 million). Stagnant real estate prices and a depreciating rupee have made the same houses cheaper for him by 12 per cent.
The improving regulatory environment is also giving the Indian diaspora the confidence to invest in its home country. “Most people of Indian origin today believe that the recent regulatory changes have made the real estate sector more efficient and transparent, rendering the environment conducive for investment,” says Anuj Puri, chairman, ANAROCK Property Consultants. Puri adds that there has been about a 20 per cent surge in enquiries from NRIs compared to last year.
Most non-resident property buyers come from the United Arab Emirates (UAE), the United States (US), Saudi Arabia, Singapore and the UK. The rupee has depreciated by 9-12 per cent against the currencies of these countries.
Time to act: Investments by NRIs in Indian real estate have been stagnant for the past few years (see table: Growth in NRI investment). “Many NRIs have been sitting on the sidelines waiting for an appropriate time to buy. The weaker Indian currency has provided the impetus,” says Gagan Randev, national director– capital markets and investment services, Colliers International India.
Experts say that there is a good case for buying now since India is a growing market with sound long-term prospects. Historically, price escalation of Indian real estate has been much higher than in the developed countries. The market may have slowed down in the past threefour years, but the appreciation that NRIs can get in India over the long term is likely to be higher than they would get in their countries of residence.
Real estate is a long-term, cyclical play. If NRIs invest now, they will have to wait out the period of slowdown. Having an investment horizon of at least seven years is a must. However, they can get properties at attractive valuations today. Developers are offering special deals and are also willing to be flexible on price. Cutting down purchase time: Most NRIs prefer to invest in residential properties in India, which they can occupy when they return, or for their relatives to live in. Commercial property is not popular with them as rental yields are lower in India. Here, they prefer to buy a house in their home town or in a bigger city close to it. The idea is to get long-term capital appreciation.
When they come to India, NRIs have limited time on hand. The best option, therefore, is to shortlist the properties and speak to those developers before reaching India. “Now, a person can find all the details from property portals. They can take a virtual walk through. They can check online how property prices have moved over the past few years. It’s easy to shortlist properties before coming down, and it saves time,” says Ankur Dhawan, chief investment officer, PropTiger.
With NRIs showing greater interest, several developers have started maintaining sales teams that cater specifically to their needs. “Developers are nowadays wooing NRIs by holding road shows in foreign countries and participating in property expos. They even target them with special offers,” says Anshul Jain, country head and managing director, Cushman & Wakefield India. Jain points out that NRIs, too, have become savvier. Before they land in India, they do a lot of due diligence on properties, based on information available on web sites, through RERA portals, and via their own local contacts. They also check industry updates to ensure that the developer is in sound health.
Maintenance is crucial: NRIs should preferably invest in a city with which they have some connection. They should have relatives or friends living nearby, who can manage and keep a watch on the property on their behalf. If they invest in a city where they don’t know anybody, even carrying out minor repairs or paintwork could become an ordeal and they could be overcharged.
A few start-ups like Nestaway have entered the property management space. They take care of the property while the owner is away. They offer services such as finding tenants, collecting rent and depositing it in the owner’s bank account, conducting minor repairs, and so on. “They charge 8-10 per cent of the monthly rent,” says Dhawan.
If you are investing purely for returns, choose a micro-market where economic growth and job creation are likely to be high. Pay attention to its demand-supply dynamics. Markets where there is oversupply and where investors dominate will take longer to emerge from the slump. Those where there is greater equilibrium between demand and supply, and which are more end-user driven, will recover faster. “Opt for established developer brands. Choose completed residential options for family or for settling down over the short to medium term. For investment purpose choose one of the metro cities,” says Jain.
Choosing the right micro-market has become especially important today. Sharma says that even amid this slowdown, there are pockets where prices have remained stable (that is, they have not corrected). Usually these are areas that are well inhabited, where apartments are ready and easy to rent out, and which are at a comfortable distance from places of employment. Look for such pockets. As the market recovers, projects situated in such localities will witness good appreciation.
Money matters: NRIs are free to buy immovable property in India, barring agricultural land, farm houses, and plantation property. Money meant for real estate purchases can be either remitted from outside India through normal banking channels, or the money lying in their NRO account, FCNR account, or NRE account can be used. “When a property so acquired is sold, the money can be repatriated outside India. If an NRI puts the money from the sale in an NRO account, he can remit up to $1 million in a financial year,” says Sumit Naib, director, Nangia Advisors.