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Why NRIs Are Shifting Towards Commercial Real Estate In India?

The commercial real estate market in India is undoubtedly far more organized and professionalised than the residential sector

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NRIs have been the favourite for real estate developers and it continues to be so. Not just because of their financial capabilities but due to their ability to gauge the new investment trends in the market.  

While the rental yields in real estate are low on residential assets, the return on investment (ROI) were rewarding with significant capital appreciation for NRIs generally. But the rate of capital appreciation has also reduced for the past two years with the market slowdown which has not been in line with NRI investors' expectations.

This is what has pushed NRI investors to look for opportunities in commercial real estate in India which offer superior rental yields as well as capital appreciation. The change has taken place due to the constant demand for commercial spaces which is on the rise owing to large-scale space requirements and probability of Real Estate Investment Trusts (REITs) formation, say for IT Parks, logistics centres and Grade A offices.

The cities in India that are witnessing vibrant demand for office spaces, IT parks, co-working units, and Grade A offices are Mumbai, National Capital Region or NCR, Hyderabad, Bengaluru, Chennai and Pune. The demand continues to remain vibrant owing to the business being generated in these cities which has contributed towards demand for quality office spaces. However, supply is not keeping up with the demand which means that quality spaces are assured of tenancy demand. India's push towards start-ups has also driven the rise in demand for co-working spaces which are shared office spaces and don't pinch the pockets of start-ups.

Though generally the information is out there for NRI investors, not all of the NRI clan can gauge the market trends at exactly the right time. Even if an NRI investor keeps himself/herself abreast of the changing trends back home, there are a few minute pre-conditions that NRIs should keep in mind before taking an investment decision.

These are:
"    Citizenship rule: A valid Indian passport is mandatory for NRIs and doesn't need any approval unless they are citizens of India's neighbours like Bangladesh, Pakistan, Iran, Nepal, Afghanistan, Pakistan and China.

"    Type of property: NRIs are only allowed to invest in as many commercial or residential properties but are not allowed to buy plantation properties, farmhouses or agricultural lands. That doesn't mean they can't either gift such properties or receive them as gifts.

"    Banking: The transactions must be done through regular banking channels and in Indian currency via NRI account.  

"    Property loans: NRIs are eligible for property loans just like any other Indian citizens. The maximum loan amount can cover 80 per cent of the property value.

"    Gifted or inherited immovable: NRIs are allowed to either rent or lease such properties as the RBI doesn't have any restrictions in this regard.

It is also paramount that NRIs pay attention to some basic investment rules such as:

"    Hiring a reputed lawyer to conduct due diligence and vet property documents.

"    Verifying original title deed documents and ensuring that the property title is in the name of the seller.

"    Doing a background check of the developer and ensure that all the necessary approvals are in place. You should also check the properties that a developer has developed in the past. That will give you an idea about his capabilities to deliver a project and maintain it as well.
"    Ensuring the seller hasn't diluted rights to transfer the property to a buyer.

"    Checking the property doesn't exist on agricultural land without requisite permissions.

NRIs often expose themselves to huge legal problems by not checking on the above aspects and that is why it is imperative for them to follow all the fundamental rules in order to safeguard their investment and take an informed decision.

The commercial real estate market in India is undoubtedly far more organized and professionalised than the residential sector. The space abounds with tremendous opportunities that can generate superior returns. Just that one needs to make an informed decision and make the best out of this vibrant market.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Ashish Bhutani

The author is CEO, Bhutani Group

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