When a four-bedroom apartment in Mumbai was bought for $8.62 m by a UK-based NRI about a week back, the record deal left people gasping. Agreed that this was the super-elite Nariman Point area, but prices in the same building were less than a tenth of that just over a decade back.
We have been saying in this column that real estate in India is a splendid investment option for NRIs. Not that they don't know already. Only, news like this bumper Mumbai sale tends to shock people who are watching from a distance. There is a growing feeling in some quarters that speculative overdoses of domestic 'black money' and foreign institutional investments have caused the Indian real estate market to overheat beyond reasonable limits.
The questions before many an overseas Indian would be whether or not to enter a market that's already on such a high. Do not worry. The potential is mind-boggling and probably even the surface of the upcoming demand hasn't been scratched yet. Real estate prices in Mumbai and some other metros may have soared by 25-55 per cent in the last year alone, but huge untapped markets remain elsewhere.
It is not for no reason that Indian real estate shows have veritably invaded the Gulf region looking for NRI investments. Take for example the 9th India Property 2007 - Dubai, organized by The Confederation of Real Estate Developers Association of India (CREDAI) and Maharashtra Chamber of Housing Industry (MCHI), recently.
Leading developers showcased both residential and commercial properties from Mumbai, Navi Mumbai, Pune, Nashik, Goa, Bangalore, Kolkata, Cochin, Chennai, Lucknow, Nagpur, Thane and Hyderabad among other places.
Similarly, the three day Indian Property Show sponsored by Axis Bank and Prince Foundations Ltd, returns to Airport Expo Dubai, for the third time in a few days from now. Following on from the success of the inaugural Indian Property Show 2006 which received over 12,000 visitors and generated enquiries to the tune of $450m, show will feature over 250 developments worth over $6.25bn from across India.
According to the promoters, first Indian Property Show in 2006 yielded deals worth at least $25m, and the second edition in May this year saw deals worth $55m inked and property enquiries of a further $500m.
Muscat too recently hosted the second India Property (IPRO) Show 2007, organised by Pan-Eastern Trade and Exhibitors Worldwide. Reputed builders from Kerala, Mumbai, Pune, Hyderabad, Goa, Jaipur, Nagpur, Bangalore and other cities of India participated and were overwhelmed by the response.
For the second year running, the Bahrain International Exhibition Centre (BIEC) will host The Homes of India Property Exhibition 2008 in January 2008. The first edition attractedsome 3,500 visitors. Estimated deals worth $15m were finalised with inquiries worth $35m negotiated.
Developers are optimistic because the Indian economy and the property market is booming making it a lucrative sector for NRIs. With the benefits of investments, including 25-30 per cent returns in a space of two to three years and Indian banks ready to pay 85 per cent of the value of the property, the Indian real estate sector is seen as low-risk with high returns.
A Price Waterhouse Coopers study conducted on the investment environment in terms of Indian real estate gave a verdict of �Undeniably Tremendous!�
Estimated to be in the region of $12bn, real estate development in India is growing by as much as 30 per cent each year.
Tax reform measures in the last few years have ensured real estate in India is one of the most productive investment sectors, with money invested in real estate offering regular returns on investment including appreciating in value. And, the Government of India by opening up 100 per cent foreign direct investment, and fiscal reforms like stamp duty and property tax reductions, setting up real estate mutual funds has turned real estate into a promising investment option.
There is a perception amongst some NRIs that they can buy a maximum of two houses in India. Well, this is not true � NRIs can freely purchase real estate in India.
There is absolutely no restriction whatsoever on the number of houses that an NRI or even a person of Indian origin (PIO) can buy or sell � only agricultural land remains out of bounds.
Moreover, since the RBI has given a general permission in this regard, there is no requirement of notifying any authority or filing any paperwork for your real estate transactions.
When property is sold, depending upon the holding period, you will either earn short-term or long-term capital gains. If you sell the property after 3 years of purchase, the gain will be long-term, else it will be short-term.
In either case, once the tax is paid, the money is freely repatriable, once a chartered accountant certifies that the tax has been provided for. NRIs can buy or sell any number of properties, but repatriation is restricted to just two.
As mentioned earlier, there is some good news for the small investor too. Developers are now focusing on the middle income segment. Some Bangalore developers, for instance, have already begun work on an entry strategy for the below Rs2m-a-unit segment and are expected to hit the market sometime next year. Elsewhere too, particularly in the tier-II and III cities, entry prices are low at the moment but expected to shoot in the next two to three years.
So, if it�s not Mumbai, Delhi or Bangalore, it could well be Nagpur, Visakhapatnam or Indore where real estate investments could bring in very handsome returns.
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