NRIs Head Home
|Growing numbers of NRIs are beginning to seek out Real Estate in India.
In the real estate game, every builder and promoter worth his salt in India is out to seduce overseas Indian buyers with tempting offers for independent villas and luxury apartments and townships.
In Bangalore, currently the most dynamic real estate market, at least one dozen new projects are vying for Non Resident Indian (NRI) attention, including a few by the three leading builders in the city. Lifestyle Habitat, one of the most spectacular projects in Bangalore, modeled after the Malaysian Petronas Towers, comprising 24 floors and 100 units, boasts of having already sold 60 percent of its inventory within four months of launch.
Its promoter, Syed Mohammed Beary, founder of Beary’s Group, says, “Most of the people who bought our properties at Lakeside Habitat project are software professionals. About 40 percent were NRIs. A good numbers were from USA.”
His roster of buyers in Lifestyle Habitat includes overseas Indians from Singapore, Nigeria, Djakarta and the Middle East. But more recently, he says, U.S. based Indians have been snapping up top end residential properties, “luxury apartments or independent villas with facilities, which they can relate with their lifestyle.”
Prestige Shantiniketan, another hot property of the season, was sold entirely in just three days. Between 35 to 40 percent of the buyers were NRIs, according to Beary. He estimates the top end segment, which includes bungalows and independent villas, constitutes about 20 percent of the market.
It is not simply the new developments that are hot. Shilpa Ramteke, who has lived overseas for many years, but settled in Bangalore for the last five, recently purchased an apartment on Airport Road. She says, “We were staying in the apartment for some time as tenants, paying Rs.10,000 ($240) monthly. So when the owner offered to sell it for Rs.15 lakhs ($35,000) we just picked it up as it was within our budget and we were able to buy the flat quite fast. I think in a city like Bangalore, buying a flat must be a decision based on how much one has to travel to work. If it is too long a distance, it is simply not worth it, as one would spend half the day traveling.”
Boom Time In India
Real estate is booming all over India, thanks to a vibrant economy fueled by information technology and business process outsourcing services. Even Calcutta, a city that former Prime Minister Rajiv Gandhi once famously lamented was dying, is today transforming into a hub of construction with 50 major building projects. New residential developments are growing at an annual 30 percent clip. The Confederation of Real Estate Developers Association forecasts that 250 million sq. ft of space will be built in the Greater Calcutta area in the next five years.
The high-end residential property market is also exploding in Mumbai, according to a report prepared by Jones Lang LaSalle, International Real Estate Consultants. Luxury housing projects, which have been traditionally concentrated in South and Central Mumbai, are now visible in suburban regions like Malad and Thane townships. High end housing projects in integrated townships like Mindspace in Malad and Hiranandani Gardens in Powai are also on the anvil.
Bangalore is especially hot in the residential market. Concorde Silicon Valley, a project of the Concorde Group, sold like hot cakes early this year. Situated in the heart of electronic city, the project attracted attention for its “independent villas,” priced at the cost of an apartment, ranging from $45,500 to $160,000. The township boasts a swimming pool, gymnasium, shopping malls, medical facilities, and tennis courts, among other amenities. Similar projects by developers such as Sobha, Brigade and Mantri have attracted considerable buyer attention.
The new developments are concentrated in North Bangalore or around the proposed Hi-Tech City. Earlier, high-end residential developments were saturated in the Central Business District. But developments are now spread across the city, including Aristocrat, Gardenia, and Temple Trees from the Gopalan Group; Ittina Abha, Ittina Akkala, and Ittina Haveli from the Ittina group; and Sobha Amber and Sobha Aster from the Sobha Group. Other top end projects aimed at NRIs in Bangalore are Prestige Shantiniketan, Puravankara Fountain Square, Prestige Ozone, and Orchid Green.
Homes in these developments range from $70,000 to $350,000. They boast imported wood and fittings – and exclusivity. Says Lakeside Habitat’s Beary: “The entire project has just 100 apartments – not 1,000 or 2,000 like many projects aimed at the masses. These are easier to maintain since the volumes are low. The projects have squash court, health spa, and what have you – we have it all with in our projects. Also, we provide 24 hour electricity backup. We have a total backup generator.”
The National Capital Region (NCR), which includes New Delhi, Gurgaon and Noida, is also experiencing a housing boom, in part because it is at the nerve center of the country and also because of the booming IT sector. Because there is no space to expand within New Delhi, the focus of real estate growth has been Noida, Faridabad and Gurgaon, which are also the hub of the IT industries. Gurgaon especially has seen spectacular growth in upscale residential projects. The new developments offer uninterrupted power supply, community and health centres, club houses, swimming pools, and other services.
Most NRIs are not looking at property principally as an investment. “When people buy property here, it is more for living, not only for investing in a property. The first generation or second generation of NRIs want to come back and live here, for their longing to return to their homeland is high,” says Beary. “There are opportunities beckoning the NRIs back home, which did not exist before. If an NRI is coming back to live, it is to help in inculcating the values, culture in his children.”
Commercial real estate is also not high on their list. Says S Benne Bette, executive vice president and chief technology officer, M Cube Investment Technologies, an NRI who juggles his time between India and USA: “Currently, as I see it, individual NRIs are primarily involved in buying residential properties. Some large NRI investments have come into commercial space. The problem with individual NRIs getting involved in commercial properties is transparency and management of larger number of investors. There are no mechanisms.”
New taxation laws in India are fueling the housing industry. “Traditionally we are not good tax payers. But with the tax deduction happening at the source, people have to pay taxes. To save this money which goes to tax, people want to take home loans so that this money is used more productively,” says architect Najeeb Khan, founder of KhanGlobal Engineering Consultants. “Many NRIs have enough money to pick up property without loans, but a few of them do go in for loans.”
Khan, who holds a M. Arch degree from the United States and also worked there, recently shifted his base to India and is keenly watching the market in India and Middle East.
Beary says, “Practically all builders are aiming at developing projects for NRIs. But not many know the requirements of developing an NRI project. It is not just about jazzy brochures. For NRIs, the location, the number of buyers, design elements matter to the discerning buyer.”
The NRIs have high expectations for properties that live up to international standards, so there is a demand for quality construction and aesthetics, says Najeeb Khan.
Other factors that a prospective buyer must consider are the soundness of the property documents, and what Ramteke calls “disturbances” (read noise pollution, mosquitoes, etc.). She believes this is the best time to invest in property in Bangalore, given the soaring real estate prices. “The only other option I see is the stock market,” she quips.
Higher returns in India
The annual return on investment in Residential Real Estate in India is currently around 15 to 20 percent. But this could change as more developers step into the high end market. “This may lead to a return rate of 4 to 5 percent only in the future,” says Khan. “This is a very good time to buy a property in India as NRIs would get about 5 to 10 percent appreciation at the most in USA.” However, several experts demur, arguing that current rates are already highly inflated and unstable.
TR Shastri, assistant general manager of Karur Vysya Bank, who has worked for 25 years in banking in Dubai and other countries, says most NRIs buying properties in India have saved up enough money and want to have a home in the country of their origin. It is more of an emotional bond, coupled with an incentive of higher returns on investment. “But there is a huge information gap among the NRIs,” he says. “Many of them are not aware of the rules and those who have read have not understood the implications of the rules. The basic questions about repatriation and permission of RBI (Reserve Bank of India), etc. are frequent.”
Sreenivas Velugula, a techie who works in Bangalore and juggles time between India and United States, says: “My experience of buying a flat in Sharada Tulip has been pretty good. The builder and bankers co-operated with me to get things done speedily as I had a sudden schedule to leave for USA on my company assignment. The bank and builder took that extra interest to get everything done in time.” He paid almost $57,000 for his flat and his only gripe against buying property in India is over the legalities involved, which can be frustrating for someone unfamiliar with the system.
He believes that housing is a solid investment. “The price hike may continue for another year or so and I suspect there would be a correction process and adjustments phase, where prices may fall, after that it would be a steady one.”
Saif Khan, an employee of a UK based company, says the process of purchasing a home was befuddling. “The whole experience was very confusing initially and as I started to know more about the property scenario it became more and more challenging. But finally it was rewarding, as I was able to understand the nuances involved in buying property. This was the first time I bought a property. I was looking for a property that was within budget as well as being close to our workplace and the city. I had to spend considerable time and effort in understanding the various parameters that go into choosing properties and then ranking them in order of my preference, which is mostly driven by budgets and time constraints and then coming up with a final list and in the end finalizing with a bank and completing the deal.”
Khan says, “I was looking for a flat that was pre-approved by a bank, which reduces the risk, the experience of the builder in completing similar projects, quality of construction, reputation of the builder (throughreference checks), amenities provided, and above all how much of premium was the builder quoting as compared to similar properties in the same areas.”
Ajay Kumar PK , who purchased an apartment for $35,000 says he was disappointed as it did not live up to his expectations. “Check out the credibility of builders, have a look at his other properties or flats and have a word with residents about builders promise and his delivery.”
Price is not the best indicator of quality, Kumar says, warning potential purchasers to be vary of tall claims about the builder’s experience. But his positive experience, he says, has been living in an apartment complex that is a close knit community, which can be a good support mechanism in the absence of an extended family.
Notwithstanding the swanky housing developments, architect Najeeb Khan says, “Our construction methods are primordial. The changes in construction methodologies have been very superficial. Also our documentation during construction is very bad. We still have a long way to go before we catch up with construction in the West.”
“Some groups like Prestige, Puravankara, Sobha are trying to create some global standards. I am not sure about how good the quality of construction is. But I believe they are putting in good effort. There are also other groups, which are doing a bad job. They are breaking a lot of building rules. One should be careful before investing in property in India, which claims to be of international standards, unless they are reputed firms.”
The lack of infrastructure is a perennial complaint of both developers as well buyers. Bette, who travels frequently, says: “The infrastructure is bad and seems like it is getting worse. However, there is easier access through air travel and telecommunications. Most modern comforts are available. This growth spurt and positive sentiment can change quickly if some basic structural issues are not addressed.”
Khan concurs: “I think nationally, there is a lot of room for growth. We do not have some very basic things for a city like Bangalore. There is no airport worth its name, no convention center, no mass rapid transport system. We need at least 10-15 years to become a city with decent infrastructure and become a global city. All these things will take time and I hope things will be better.”
The recent torrential rains in Mumbai laid bare the crumbling infrastructure of that city as well as the callousness with which town planning is often conducted in India. All said and done, Real Estate is not for the faint hearted. But for NRIs with nerves, it is an appealing option either for investment or living.
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