In the face of dwindling investment returns and the grim prospects of an active securities market in the short-term in India, investment advisers in the UAE vouch for better returns by way of price appreciation and rental income from property investments in India.
“Property investment is increasingly emerging as the most preferred asset class among NRIs in view of the projected high returns, lower risks, attractive rental income and tax break.
Real estate has always been a favourite investment asset class for NRIs,” said Cherian Kuriakose, senior consultant, Ren & Cherry Consultants LLC, Dubai.
Higher returns and price appreciation are predicted by many market studies. “Affordable housing is expected to give returns of 8-10% for NRIs followed by 6-8% for mid-segment, 3-5% for luxury and 2-3% for ultra-luxury properties,” finds a survey by Anarock Property Consultants, Dubai.
Investments by NRIs in Indian property market are projected to reach $18bn (£13.8bn, €16.10bn) by 2020, from $10.2bn in 2018.
Overall, India’s real estate sector is expected to touch $180bn by 2020 from $126bn in 2015, according to a joint report by CREDAI and JLL.
More than the price appreciation, NRIs stand to gain from better rental returns. NRIs, mostly end-users, are looking at buying and renting the property out in the beginning, and some years down the line if they decide to return to India, they could stay in them.
NRIs with higher purchasing power are lapping up luxury homes along with affordable homes, as they offer better rental income and capital appreciation.
Attraction of affordability
Further, the affordable housing segment has been granted infrastructure status, offering more avenues for developers to take up more projects and offer ‘affordable’ price to investors.
On the tax liability front, NRIs, who pay tax on income from rental and capital gain in India, stand to gain.
The recent budget has given permission to divide capital gains from the sale of a property to be invested in two properties — instead of one as allowed earlier — increased limit of rental TDS (tax deducted at source) deduction and second self-occupied home to be exempted from notional rental income. This is a major incentive for long-term NRI investors.
Biju Radhakrishnan, director, FRG Consultants and Chartered Accountants, Dubai, said: “Considering all these factors, we can rightly say that this is the right time for investment in the realty sector as developers offer cheaper rates for best properties to clear unsold inventories. Property rates have dropped significantly after demonetisation.
“For NRIs, it is a bit of present-day rental income and down the line either self-occupation or arbitraging capital appreciation to buy a bigger home in the future.”
Long-term appreciation
Property developers in metropolitan cities like Mumbai and Bengaluru and smaller cities like Pune, Nagpur, Kochi, Chandigarh and Patna are getting good response from NRIs. As much as 25% of offerings are lapped up by NRIs.
“Before the slowdown in 2015, the return in investment on residential property was extremely rewarding for NRIs. However, after the slowdown, which was exacerbated by the demonitisation, the setting up of the Real Estate Regulatory Authority and implementation of Goods and Services Tax, there was a paradigm shift in wealthy NRIs’ focus specifically towards commercial properties as they promise higher yields”, the report said.
Shajai Jacob, Anarock Property Consultants’ CEO-GCC, said: “Year 2018 saw the beginning of a fairly decent recovery in the residential sector and today, NRI investors are also focused on affordable housing for rental income and better long-term appreciation.”
