NRIs fuel realty boom in India

NRIs buy up homes in India

Rajesh Unnikrishnan

Only a slice of the money sent by the Indian Diaspora goes towards maintenance of the family back home. A chunk flows into the India’s burgeoning property market.

India's real estate market appears to be truly going global, with millions of Non-Resident-Indians (NRIs) from global cities like London, Frankfurt, Paris, New York and Dubai investing heavily in property.

Bakul Benga is typical of thousands of first generation non-resident-Indians living in London. Mr Benga has spent £100,000 on houses in Gurgaon, a small suburb near Delhi last month. He plans to live in one when he retires and the other is an investment.

London was always a dream for Mr Bakul Benga. He came here in 1984 when he was posted as manager in the State Bank of India’s commercial services wing in Wembley. He came, settled, enjoyed the western life and saved. He has changed jobs three times since then. Now he is 52 and working as a senior executive with the JP Morgan’s equity services. He is looking forward to an early retirement. His two children are in their mid twenties and settled, he owns a three-bed room house near Euston station worth over  £1million.

“The Indian property market now offers 25 to 30% returns compared to 10% returns offered by the London markets. It is certainly an attractive element.” Mr Benga said.

The trend he represents is not restricted to the first generation alone; even NRIs in their 30s and 40s are investing significantly in the Indian property market. During the past four months more than £50 million pounds of NRI investment from London alone have poured into areas such as Delhi, Bangalore, Goa and Mumbai.

A study on remittances conducted by the Reserve Bank of India (RBI), India’s apex bank, reveals 46% of NRI money is parked in various investment avenues. Of the 46%, NRIs invested 15% in real estate and the balance in other instruments such as shares and bank deposits.

In the financial year 2006, India received $24.6 billion as remittance. An extrapolation of the figures arrived at by RBI shows that families of the diaspora have invested $11.04 billion in various instruments. Of this, $4.92 billion or Rs 22,140 crore landed up as bank deposits, while $2.46 billion (Rs 11,070 crore) went into buying property and $738 million (Rs 3,321 crore) chased equities.

In the past two years, India has been witnessing unprecedented growth in the property market fuelled by GDP growth rate of 8% a year. Real estate development in India is estimated at $12billion and growing at 33% every year. Though all the segments of India’s property market such as corporate, retail and residential have been driving this growth, investment in residential property itself constitutes 80% of the sector.

“We are getting at least 100 enquiries a month and the conversion rate is between 5 to 10 per cent. We have completed deals worth over £2 million during the past two months but the market can bring business deals worth over 10 million pounds in a month,” said Vinay Shaha , managing director of MoneyWise, a London based international property consultantancy.

He says that the strong purchasing power of Indians in London is due to their high disposable income.

Restrictions eased in India

The Indian government has considerably eased restrictions on investment by NRIs in residential property. Last month, RBI  announced a bonanza for NRIs. NRIs have been permitted to remit money up to $ 1million US  per year immediately after they sell their immovable properties abroad. The RBI plans to offer NRIs a perfect market for remitting money to India.

Till now, NRIs and persons of Indian origin (PIO) were necessarily required to lock in their sale proceeds from immovable property for a certain period in their non resident ordinary (NRO) accounts. In the mid-year credit policy announced recently, the RBI has removed the lock-in period norm. The RBI proposals are based on an internal report on NRI remittances.

India’s leading property developers and housing mortgage providers have smelled the huge business opportunity. ICICI and HDFC, two leading new generations banks in India, have started property service operations in London while developers have already organized an “India property mart” show here recently.

Houses and condominiums in India are cheaper than in London or US markets. The currency exchange difference between the countries is making it more affordable for NRIs, allowing them to go for two or three houses instead of one in London.

“What makes the Indian market more attractive to an NRI is that if he spends around £20,000 to buy a one bedroom-hall-kitchen in London, the same amount allows him to buy two or three homes in India’s prime markets. Even if he sells one after a year, he is getting approximately 25% returns for his investment in the property while in the London market the return on investment is just 10 per cent,” confirmed Chanakaya Chkroborthy who heads the Indian operations of Cushman and Wakefield, a leading International property consultants.

MoneyWise expects the wave of buyers which has just started –both London and European NRIs—to continue especially after Indian bankers have started to offer various property schemes to the Indian community abroad and Indian developers are now announcing new schemes to woo NRIs.

“There is a large crowd waiting in the wings to purchase properties in India. Many hesitate because of delay in mortgage processing by the banks and cold response from Indian developers for their queries,” says Vikram Goyal, consultant at MoneyWise.  “The scenario will change soon. NRIs across the world are just becoming the deciding factor in the Indian real estate.”