India’s economy has been experiencing significant growth and is expected to become the world’s fourth-largest economy by 2026, surpassing Japan. One of the major drivers of this growth has been the country’s foreign investment sector, which has been performing remarkably well. In the financial year 2022-23, India recorded an unprecedented $112 billion in inward foreign remittances, marking an all-time high in the last five years. This achievement is particularly noteworthy given the economic challenges posed by the pandemic. It underscores the resilience and potential of India’s economy. In this blog, let’s understand the trends in NRI investment and what drives NRI’s to invest in India’s real estate market amid global uncertainty.
Trends of NRI Investment in Indian Real Estate
According to the latest survey report, the NRIs’ contribution to the Indian real estate market has increased from 10 percent in 2019-2020 to a significant 15 percent today. And it is expected to surge even higher, projecting a staggering 20 percent by 2025.
NRI Investment in the Luxury Real Estate Market
Experts who have closely studied Mumbai’s luxury real estate market estimate that Non-Resident Indians (NRIs) contribute to around 20-25% of the total luxury housing market in the city. The Mumbai real estate market, in particular, has witnessed a noteworthy surge in promising rental yields, escalating from 3.5% in 2019 to an impressive 4.05%. The cityscape is, therefore, an increasingly attractive investment landscape, with a substantial growth rate exceeding 15%.
This is due to a pivotal shift in real estate preferences among high-net-worth individuals (HNIs), which is driving the trend of NRIs investing in India’s luxury real estate sector. The industry is becoming increasingly lucrative for NRIs due to various factors, such as a growing economy, regulatory reforms, and a stable government, which have further fueled their interest in investing. As a result, the real estate sector is witnessing a considerable upswing in NRI investments.
Focus on Commercial Real Estate
In the coming years, NRI investors might redirect their focus from residential to Grade A commercial real estate, leading to an expected 9.2% CAGR growth between 2023 and 2028.
Commercial properties are better in terms of returns driven by rental income & capital appreciation when compared to residential properties. To add more, commercial properties involve fewer management complexities even though the risk involved is higher.
Significant transactions involving NRIs in 2023 demonstrate their strong position in India’s commercial real estate sector. NRIs have strategically invested in acquiring premium office space in Bangalore, cementing the city’s tech hub status, and collaborating on a state-of-the-art warehouse facility in Mumbai. These transactions highlight NRIs’ ability to align their investments with the dynamic shifts in India’s commercial real estate sector, showcasing their expertise and driving growth in the industry.
Factors influencing NRI investment in Indian real estate
Building Emotional Connection
NRIs often feel a deep connection to their home country, and investing in Indian luxury real estate can help them maintain that connection. By owning a property in a familiar location, they can feel more connected to their roots and develop a sense of belonging.
Investment Diversification
NRIs see Indian luxury real estate as an excellent option for diversifying their investment portfolio. They believe it’s a stable asset class that can provide long-term capital appreciation and rental income. Which makes it a smart way to diversify their investments and build wealth over time.
Technology & Innovative Marketing Strategy
The integration of modern technology like Virtual Reality (VR) and big data analytics has significantly expanded the industry’s reach and engagement with potential investors and homebuyers. Innovative marketing strategies and emotional connections have also contributed to this growth.
Favorable Exchange Rates
NRIs can take advantage of favorable exchange rates to make substantial gains. When the Indian rupee weakens against foreign currencies, it presents lucrative opportunities for NRIs to acquire luxury properties at a more favorable cost. This fluctuation in exchange rates can be an excellent chance for NRIs to invest in India and maximize their returns. By utilizing this opportunity, NRIs can gain a significant advantage and make the most of their investments.
Growing Economy
India’s economy has been experiencing a consistent growth path, which has made it an appealing destination for investments. Confidence among NRIs has been boosted by a strong economy, along with government initiatives like Make in India and Smart Cities, leading them to invest in the Indian luxury real estate market.
Return On Investment
The real estate market in India has experienced a consistent increase in property values over time. Non-resident Indians view this as a chance to receive favorable returns on their investments, particularly in high-demand areas and premium market segments.
Demand & Prices
The surge in NRI investments in the luxury real estate sector has significantly impacted the demand and pricing dynamics of the market. This has resulted in intensified competition and a steady surge in prices. However, it has also acted as a catalyst for the development of luxury projects that cater to the needs of elite buyers with discerning tastes.
Foreign Direct Investments
NRI investments in Indian luxury real estate contribute to the foreign direct investment inflows into the country. This infusion of foreign capital helps boost the economy. It creates job opportunities and fuels the growth of the real estate sector.
Stringent Regulations
Some people are worried that too much investment from non-resident Indians (NRI) could cause a bubble in the real estate market. However, India’s luxury real estate market has been strong and stable for a long time. Strict rules, like the Real Estate (Regulation and Development) Act 2016, protect buyers and keep the market stable.
Know the Rules & Regulations
NRI investing in Indian luxury real estate requires knowledge of property laws and regulations. Understanding Indian real estate market operations, taxes, ability to transfer funds, and property ownership rights is essential.. Knowing these details helps ensure a seamless investment experience.
Availability of Property Management Services
Owning luxury properties remotely can be quite a challenge for NRIs. However, these issues can be easily addressed with the help of professional property management services.
To conclude,
Looking ahead, it seems that real estate will remain one of the key NRI investment options in India, seeking to tap into the Indian growth market. In 2024, it is anticipated that NRIs will continue to prioritize real estate investments, particularly in the commercial sector. This is due to a combination of factors, including high rental yields, favorable government policies, and the resilience of the Indian real estate market in the face of challenges. With the ongoing growth and development in this sector, NRIs will likely see even more opportunities for generating wealth and achieving their investment goals.