When Rupee was on a decline Real Estate companies were upbeat that now NRIs will invest more in real estate. Refer to NRIs keen to invest in real estate in India, says developer in Economic Times and NRIs keen to invest in real estate in India, says developer in thepropertytimes. However, reality does bite.
Why are NRIs Not Interested in Indian Real Estate?
- High cost of Real Estate in India compared to that in US. In US one may buy a decent family house for around $ 500,000. However, one may get a 4 bed room apartment in India (especially Delhi NCR region) for similar locality as in US for Rs 2.5 Crore or $500,000.
- Family house in US = Rs 2.5 Crore or $500,000
- Family house in India = Rs 5 Crore or $1 million
- Buying property in US/UK is less complicated and more transparent than it is in India. A buyer may need to do extensive research to ensure that title is clear, there is no litigation, property is free-hold or on lease, and then prepare paper work (affidavit/Power of Attorney/Title Transfer) to that effect.
- Resale of property is even more complicated with amount payable in accounted and unaccounted component. An NRI may not even have unaccounted amount to pay for real estate.
- NRIs living abroad sometimes prefer to buy property in the cities they live in to save on their rents and tax on interest component of mortgage.
- Security, maintenance and safety of continuity of ownership of property is another big deterrant for NRIs who may be willing to invest in Real Estate. A house is not very secure if the owner lives in another city, leave aside another country. Moreover, land grabbing incidents still occur. Land grabbing mostly occurs with land rather than an apartment in an apartment complex.
- In US/UK, one may give his/her property to professional Maintenance Company who would lease out the property to tenants and continue to pay rent to owner after deducting their fees and maintenance expenses.
- One may not think of handing over property to such company in India.
- Rental yield in India is very low compared to rental yields in US and UK. For example for an apartment of Rs 1 crore in Delhi, one may expect Rs 20,000 rent per month.
- This works out to a yield of 2.4% in Delhi.
- Annual residential yields in London and New York are 4.7% and 6.2% respectively.
- Less transparency from builders, price escalation and delayed deliveries have always turned off investors interest in real estate.
- Inferior infrastructure in India is another cause of concern for NRIs who would otherwise may be willing to invest.
NRIs would not be willing to invest in India just because 1 USD can buy a lot more INR than it used to fetch. India needs to look at addressing other shortcomings which can make India an investor’s destination.