Sentiment is a key factor, besides fundamentals, in determining investment decisions. Seen as stable and purposeful, the Narendra Modi government has brought back the feel good factor for domestic as well as foreign investors in good measure.
Among other sectors of the economy, real estate is one area that seems set to benefit the most from this revival of confidence. According to one estimate, non-resident Indians (NRIs) invested over $2bn in Indian real estate in 2013, mainly owing to the exchange advantage offered by a weak rupee.
However, a bearish sentiment persisted owing to political uncertainties and what has been termed as the ‘policy paralysis’ in the dying days of the UPA government at the Centre. Now, riding on a feeling of achhe din (good days) ahead, the industry expects an upward trend. This is reflected in a recent study by the Associated Chambers of Commerce and Industry of India (Assocham), Indian property developers are anticipating a 35 percent surge in enquiries from NRI-based purchasers as compared to last year about 18 percent.
Opening up to foreign direct investment (FDI) in 2005 brought about major changes in the Indian real estate sector. Capital inflows into the sector witnessed a spike especially in 2007 and 2008 when private equity investment was close to $14bn, according to a recent report titled ‘Inflection Point: Ten years of organised real estate in India (2005-2014)’, by property consultant CBRE. India’s housing landscape shifted from largely independent low-rise plotted developments to high-rise apartment complexes, mainly to meet the over increasing demand for homes, the report said.
From a little over 90 million sqft in 2005 to more than 400 million sqft in 2014, country’s investment grade office stock has undergone a generational shift in its composition, structure and spread backed by the private sector as well as intervention by the government.
In the Assocham report, its Secretary General D S Rawat says, “NRIs feel confident about the new government of India and waiting for an investment-friendly market in various fields.” In the survey conducted by the industry body, where 850 real estate developers were questioned, there has been a substantial increase in number of enquiries from NRIs. The survey was carried out in Delhi-NCR, Chandigarh, Mumbai, Kolkata, Bangalore, Hyderabad, Ahemdabad, Pune, Dehradun and Chennai among others.
NRI property buyers have shown inclination towards high-end residential and commercial properties in the country. A large number of enquiries are coming from Indians residing primarily in the Gulf, the US, Singapore, Australia, UK, Canada and South Africa.
The major factor that drives NRIs to invest in Bangalore’s property market is the booming IT sector. Growing number of IT/ITES companies in Bangalore provide lucrative job opportunities to NRIs who are considering settling in India. The demand has also shifted from mid-segment housing to luxury housing in Bangalore, adds the paper.
On the other hand, Ahmedabad has continued to be the most stable market in terms of demand and absorption of both residential and commercial spaces. NRI’s consider Ahmedabad as a safe place to invest in, with lenient government regulations regarding property investments by NRIs. While Pune takes the third place with 30.5 percent, Chennai at 28 percent and Goa with 23 percent, follow. Only 21 percent NRIs were found interested in property purchase in Delhi.
For NRIs, rupee-fall has made properties in India 15-20 percent cheaper. Jaxay Shah, Vice-President of industry body Confederation of Real Estate Developers’ Associations of India (Credai), was recently quoted by the Economic Times as saying that “NRIs saw the rebound in the Dubai property market after almost two years of lull. Their reading was that if a stable government comes in after elections, a similar rebound would be in order in India as well.”
The Assocham study has noted that developers are not just conducting property shows, exhibitions and opening overseas representative offices to tap NRIs, but are also expanding their existing distribution chains and entering into strategic partnerships to encourage investors from this cash-rich segment.
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