Opportunities galore for NRIs in Indian real estate market

Indian real estate has become even more lucrative for NRI community as rupee depreciates by almost 11 per cent against the US dollar

India's economy is one of the fastest growing in the world and several multilateral agencies have projected that the Indian economy will grow decently. Despite a global slowdown in the real estate market, the Indian real estate sector has been on a path of sustainable recovery.

A recent report by Naredco and EY estimated that the Indian real estate industry will be valued at $1 trillion by 2030 and will offer many attractive investment opportunities. All major real estate segments, including residential, commercial, and emerging ones such as co-working, co-living, and housing for senior citizens and students are expected to see significant growth in the coming years. The recent Union Budget has already set the wheels in motion with several initiatives, including substantial allocations to the Pradhan Mantri Awas Yojana (PMAY) and the Urban Infrastructure Development Fund (UIDF) to facilitate employment opportunities and infrastructure development.

According to a report by 360 Realtors, NRI investments in Indian real estate amounted to $13.1 billion in 2021 and was expected to grow by 12 per cent in 2022. Investing in India has helped them diversify their investment portfolio and enjoy higher returns, as emerging markets tend to have higher growth rates. The research shows that NRIs from Gulf countries contribute to a major part of the foreign investments in India, followed by investors from South Africa, Kenya, Canada, Germany, the US, and Singapore. This interest has further accelerated with the depreciation of the Indian rupee against major currencies, such as US dollar and euro. In 2022, INR depreciated by almost 11.5 per cent, allowing them to enjoy higher returns. At the same time, several policy and regulatory steps by the government have encouraged them to invest in their home country. Since investing in a property is a high involvement and high value decision, a lot is dependent on transparency and authenticity. The Real Estate Regulation and Development Act (RERA), implemented in 2016, was a significant step in this direction and continues to be a major catalyst in driving NRI investments in the country. A simplified tax regime also makes India an investment-friendly destination. Immovable properties held for more than two years are considered to be long-term capital assets and receive indexation benefits with simplified taxation at 20 per cent along with deductions under Section 80C and 80TTA.

This interest is further deepening with the Indian government's focus on infrastructure development with Smart Cities Mission and investments to expand existing ones. With the efforts made by the government to develop and strengthen infrastructure for intra country connectivity, the real estate market is now spread 360 degrees unlike earlier where only metro cities were the focus. Tier 2 towns like Lucknow, Chandigarh, Nagpur amongst others, are emerging as growth engines for real estate in the country and in due time, we will see interest from NRIs in these cities, especially from those, who plan to return to the country and stay in their hometown.

Investing in Indian real estate has also become lucrative because of increasing rental yields. The average pan-India rent increased 13.5 per cent in 2022 and is expected to inch up in 2023 as well. We are also observing growing interest from the NRI community to invest in premium second homes and luxury residences as it meets their lifestyle requirements and offers higher appreciation compared to other real-estate assets.

The average monthly rental of luxury properties increased by 8-18 per cent between 2020 and 2022. The highest growth was recorded in Worli, Mumbai where the rents increased from 2 lakh in 2020 to 2.35 lakh per month in 2022; followed by Rajaji Nagar in Bengaluru where rents have increased by 16 per cent.

As India continues on its path of economic growth, it is encouraging to see the interest from the NRI community to invest and be a part of its growth journey. Fueled by the booming IT sector, swift infrastructure expansion, and promising investment opportunities, the partnership between the Indian real estate market and the NRI community is on an exciting trajectory of growth and collaboration.

(The author is Head of Research at Magicbricks)