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The Change of Course of Real Estate with the Entry of NRI Investors

Sanjay Dutt
Executive Managing Director-Cushman & Wakefield
Friday, September 19, 2014
Sanjay Dutt
Founded in 1917, New York, Cushman & Wakefield is one of the largest private real estate services company in the world. Expanding first throughout the United States and then globally, today Cushman & Wakefield has approximately 250 offices in 60 countries delivering quality services to its diversified global client base.

Indian residential real estate sector has witnessed a tremendous growth over the last decade, resulting in the transformation of many cities with the development of suburban and peripheral areas. The residential markets in major Indian cities are expected to witness healthy growth in the future periods. However, it is essential to invest over the long term to maximize the returns. But due to an overall slowdown in the economy and political uncertainty, residential real estate sales have remained subdued during the past couple of years. As a result, during the past one year, the prices have remained stable in many cities such as Mumbai, Pune, Chennai, Hyderabad and Kolkata. While prices were corrected in Delhi-NCR, Bangalore continued to outperform other cities with healthy capital value appreciation due to continued housing demand from IT-ITeS professionals in the city. Although the sales remained subdued and capital values being stagnated, new launch activity continued in major cities, albeit at a slower pace. With the sliding rupee the NRI’s became more and more interested in investing into the country’s real estate eventually changing the course of this sector and making a much bigger sector then it already was.

As a consequence of the major changes witnessed by the sector, the non-transparent image of Indian real estate industry is now being revamped with the introduction of the Real Estate Regulatory and Development Bill. These customer friendly rules and regulations define the processes to be adhered to by developers for marketing and selling of residential apartments. The Bill also necessitates the creation of a real estate regulator, which will increase transparency in the sector and protect consumer interests. With expected improvement in the economy, increased investments in the sector and high amount of regulations governing real estate developments, this sector possesses significant potential to provide healthy returns in the long term.

Also, several efforts are taken by the government of India to attract and encourage the investments from NRIs and Person of Indian Origin (PIOs). Indian laws also permit NRIs and PIOs to invest in both the commercial and residential segments. In addition, Indian laws also allow repatriation of profits arising from sale of property after paying a long term Capital Gains Tax of 20%; in certain cases NRIs/PIOs can also get a tax waiver, if the capital gains are re-invested in another property. NRIs can also reap benefits from the fluctuating rupee and benefit from the foreign exchange impact. With healthy growth prospects, investing in the real estate sector is an excellent opportunity to participate in the country’s growth and gain substantial returns on investments. With current prices in most residential markets in the country being stable or more or less reaching their bottom, there is now an excellent opportunity for Indian community in the US to buy a property in India.

Challenges Encountered by the NRIs

The major challenges for any NRI home buyer includes the short-listing of the city, developer and the project to invest in. Before buying a property, the prospective buyer should conduct an extensive research of available options in the market along with the track record of the developer. Other challenges that an NRI buyer encounters is remitting funds through banking channels for buying the property along with the legal documentations and regulatory processes required to execute the transaction. It is recommended for a NRI to hire a reputed real estate consultant to provide requisite support to the buyer (NRI). Also it is highly advisable for the NRI investors to plan a visit to India and assess the shortlisted location and project. It is also important to check track record of the developer by evaluating past projects’ execution. Although most of the consulting agencies do assist in the legal process involved, it is still recommended for investors to carry out the necessary due diligence to ensure that all legal documents and formalities are complete. Only after conducting necessary research and seeking advice of a seasoned real estate consultant, NRIs should make an investment decision. Also to conclude the transaction, NRIs are required to have a NRE/FCNR/NRO account in India to remit required funds.

Prices in most residential markets in the country have remained stable during the past one year. This has provided a huge opportunity for first time buyers to do bottom-fishing and gain significant returns on investments.

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