07 Dec 2012
A House For Mr Biswas
Real estate market gains favour with NRIs as rupee decline makes India attractive for parking funds
The inevitable slowdown of our economy, coupled with Foreign Institutional Investors (FII) pulling funds out of the stock market, sent the rupee into a free-fall. Additionally, real estate in other parts of the world is sinking. Volatile or flat-lining economies in the Middle East and Europe make investing in these regions risky and further make the case for a more lucrative return on investment within the Indian real estate sector.
With the rupee on the decline, Indian homes have become significantly cheaper for NRIs. For example, NRIs living in the US could receive as much as a 20 per cent savings on their purchase price. Many from the NRI community look to invest in residential apartments that have comprehensive amenities and safety features required for a comfortable living. Some NRIs residing abroad look for opulent homes with absolute luxury; a property that can be used as a second home investment and eventually be used as a retirement home. Second home is extending good support and an attractive investment option for property buyers. This also becomes a good investment avenue, as the second home segment all over the country has been appreciated astronomically in recent times.
Real estate is considered a great long-term investment, and a second home is great way to get into the action. Given this, many domestic realtors are focusing their efforts on making upcoming property development sites attractive to NRIs.
Ultra-premium residential projects in cities like Bengaluru are attracting investments from NRIs, who find favor with all the amenities to support and maintain their lifestyle choices like clubhouses, indoor temperature-controlled pools, private gymnasium, squash courts etc.
The New Affluents
Affluence is relative. What might appear as affluence to one class, might be conceived as sheer necessity by another.
The Boston Consulting Group rightly divides the affluent class in India into the professional affluents and traditional affluents. The former has climbed the social ladder and established its presence in professional and social circles, while the latter has mostly inherited both.
The affluent class in India numbers around 13 million households and has an annual household income of US$ 18,500 and above.
The professional affluent – we have re-christened them ‘New’ Affluents – and the NRI can be safely termed as New Affluents.
They accounted for 16 per cent ($158.56 billion) of India’s overall consumption of $991 billion in 2010. By 2020, this class will account for 26% of total consumption ($3,584 billion).
Over the next eight years, the New Affluent class will add 18.8 new households into its fold.
With the value of the Indian rupee dropping, and the simultaneous pick-up of interest from NRIs in domestic property investments, several banks have made it easier for NRIs to buy property. Reserve Bank of India has also granted general permission to a few financial institutions providing housing finance to grant loans to NRIs for acquisition of residential property for self-occupation, subject to certain conditions. Similarly, authorized dealers have been given permission to grant loans to NRIs for acquisition of house/flat for self-occupation on their return to India subject to certain conditions.
The inflow of NRI money will also benefit real estate companies in paying off their dues and commitment against property already purchased as their revenue will simultaneously increase. This is a good time for developers to market existing and new projects to NRI community and create a win-win situation on both sides by offering attractive deals in new investments, offering schemes for higher interest benefits on early payment rebate options on existing projects that have investments from members in the NRI community.
The average investment in Indian real estate properties seems to be currently priced between Rs 40 and 80 lakh. However, some invest in hi-end luxury properties priced between Rs 1.5-2 crore. A small percentage of this NRI population also invests in properties above Rs 2 crore. This trend is mainly prominent in Indian metros.
Being clued-in to economic developments across seven seas can sometimes help one in many ways than one. Buying a home is every individual’s dream, and for NRIs aka New Affluents, the time is now.
(Brotin Banerjee is MD & CEO, Tata Housing)