NRIs may want to buy a residential property in India for self-use—for the time when they decide to return to the country eventually. Whilst buying residential property in India, especially in the metros, has become an expensive proposition, it makes sense for NRIs to make this purchase in advance only if they are absolutely sure about the fact that they will return, and are clear about the geography and amenities that they will require on their return.
Image Source: dir.indiamart.com
Image Source: dir.indiamart.com
With the residential real estate segment witnessing a slowdown, there are multiple bargains and discounts to buy homes.
Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown. Since the Indian economy is growing more rapidly than the developed countries of the West, NRIs are likely to earn a higher return on their real estate investment in India than abroad.
Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown.
Outlook of the residential sector
The real estate sector in India continues to witness a slowdown, whose intensity, however, varies from one geography to another. Markets in the North, such as the NCR, have been affected more. When the bull market was on, these markets had witnessed higher price appreciation. These are also markets that were more investor-driven. On the other hand, markets in the South, such as Bangalore, where the price appreciation was more moderate, and which are more end-user driven, have been affected less.
Owing to the slowdown, developers are now focusing more on project completion and delivery rather than on launching new projects. A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.
A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.
Delhi NCR and Bengaluru together accounted for 35% of the total launches across the top eight cities. Delhi NCR witnessed a drop of 18% in new launches compared to the previous year, but still contributed 19% of total launches during the year. In 2015, Pune overtook Mumbai, Kolkata and Chennai in total units launched, although it barely witnessed an increase over the last year, suggesting a steep fall in new launches in other cities. Ahmedabad and Hyderabad were the only cities that recorded significant increases in the number of units launched.
Capital values showed a mixed trend across cities based on local market forces. In September 2015, capital values in Bengaluru saw y-o-y appreciation in four sub-markets in the range of 3-7%. Prices remained stable in the mid-segment in most sub- markets since September last year. Delhi-NCR, on the other hand, witnessed softening of capital values in two of its sub- markets by 5%, namely in South-East and South-Central Delhi. Gurgaon and Noida witnessed stable capital values in the mid segment. In Mumbai, quoted capital values have largely remained range bound in the last one year. However, the closing value of transactions, after negotiation and taking into account the schemes offered by developers, is definitely at a discount, thereby indicating that prices are under pressure.
The report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.
he report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.
Do’s and don’ts
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Many developers hold exhibitions in foreign destinations aimed at wooing NRI buyers. The latter should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.
NRI’s should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.
If the NRI buyer plans to return to India eventually, he should buy the property in the city where he intends to settle down. It is also preferable to buy in the city where the NRI has a relative or friend who can look after the property and manage it.
Like local buyers, NRIs should do the legal due diligence. They should hire a lawyer to find out whether the developer is the rightful owner of the land on which he is developing the project. Land acquisition for the project should be complete before he invests in it. The developer should also have obtained all the clearances for developing the project.
NRIs should do the legal due diligence.
The NRI buyer should get his representative to visit the builder’s past projects and check whether he had delivered them on time, and whether he had delivered the promised facilities and specifications.
If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future. The project should be located at a convenient distance from an office or manufacturing hub and should be well connected to it. This will make it easier for the NRI owner to find tenants.
If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future.
Owing to the slowdown, most developers, especially in the North, are facing a cash crunch. Consequently, project delays have become common. To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.
To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.
Developers are offering discounts to push sales amid the slowdown. NRIs should not agree to pay the initial price quoted by the builder but should get their representative to negotiate and get the best possible price.
NRIs should also avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.
NRIs should avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.
Finally, an NRI investing in residential real estate in India should not expect quick and easy returns. He should have an investment horizon of at least 10 years if he wants to enjoy a reasonable return on his investment.
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