As the Indian real estate sector is anticipated to be more transparent, credible and attractive with only organised players on the ground, NRI investment is poised for accelerated growth.
The year 2016-17 has seen a series of radical and transformational reforms such as Real Estate (Regulation and Development) Act 2016, (RERA), demonetisation, Foreign Direct Investments (FDI) relaxations, Goods and Services Tax (GST), Benami Transactions (Prohibition) Amendment Act, change in accounting standards IFRS and Infrastructure Status. The proliferation of initiatives in 2016-17 reflects the fact that the housing sector has eventually received the attention it deserves from the policymakers.
The Indian real estate sector is witnessing a gradual transformation leaving developers and home buyers alike uncertain how best to navigate this changed business environment. The Indian property market has always been quite attractive for Non-Resident Indians (NRIs). We look at whether these policies will make any difference to NRI buyers.
Radical reforms to boost NRI investment
More than 90 percent of NRIs across the globe are employees and wage earners who cannot afford luxury property in India. Insecurity in the global job market is forcing NRIs to be realistic in their housing investments, back home. Over these years, lack of a trusted platform for due diligence on real estate problems has emerged as the biggest concern for NRIs wishing to invest in properties across India. Most of the information in the public domain is from the industry’s point of view and there is no universally accepted due diligence mechanism, for the housing market. The opaque nature of the business, with its lack of information and scientific process of due diligence, has been always the concern for NRIs.
On the other hand, taking experience from rich NRIs who have burnt their fingers or had bitter experiences of buying luxurious properties, NRIs are more careful about huge investments. However, with some of the key policy changes in 2016-17, the Indian real estate market will be able to influence NRIs investment decision.
Affordable options gaining prominence
The availability of affordable properties and ready-to-move options in the Indian property market are major attractions for NRIs. As compared to ultra-luxury properties or saturated locations, mid-segment apartments in relatively affordable markets, seem to be witnessing high demand. Rather than investing in the most luxurious properties, NRIs are now putting their money in smaller projects that they can sell quickly or use on their own. Small-ticket investments, provide easier options for exit and better rental returns.
As a sector, traditionally reliant on cash transactions, the real estate industry was particularly affected by the bold step like demonetisation. However, although consumers and investors held off transactions during the initial economic turbulence caused by demonetisation, the policy may yet provide a boost to the housing sector in the long-term. This is because, prior to demonetisation, developers were more focused on offering solutions in the premium segment of the market, since high demand was expected in this area. Certainly, demonetisation has increased transparency in the real estate sector and curbed unaccounted cash transactions.
Greater transparency has improved the element of trust in the Indian realty market and this will make NRIs more confident about investing.
To simplify the purchasing processes, several rules and regulations have been amended. Lenient FEMA policies and relaxation of laws by the RBI regarding property buying by NRIs are likely to boost their participation.
Obviously, the year 2017 will see the Indian real estate sector to be still more transparent, credible and attractive with only organised players on the ground and Indian Real Estate with the NRI diaspora at the forefront is poised for accelerated growth.