The return of the NRI homebuyer

Consequently, they shunned the property market in India for many years. Then the pandemic hit and the under-performing housing market took off. Non-resident Indians (NRIs), in particular, were cut off and unable to visit their families back home.

“In October 2021, we were in Kolkata for the first time since the pandemic and thought of buying a property again. We looked only at flats in South Kolkata that were close to possession. We booked a 3BHK in a condominium in Picnic Garden, in early 2022. Prices had started to rise and it was a good time to buy," Basu, 44, a banking professional, told Mint. Last year, her cousin Chowdhury booked an apartment in another project that was a year away from completion. Her brother is also looking out and plans to buy a home this year.

After the prolonged slowdown in the residential sector, followed by the pandemic, NRI buyers and investors are back again. Corporate and finance executives, doctors, entrepreneurs, techies from West Asia, south-east Asia, the US, the UK, Europe, even business families from Africa have bought premium apartments, plots, villas, as well as homes in retirement communities in the last three years.

As per estimates by proptech firm NoBroker, the NRI share in annual home sales, which was sub-10% before 2020, increased to 15% in 2023, and will touch 20% by 2025. The residential market is currently upbeat and home prices have been increasing. Investors are already back in a big way in the National Capital Region (NCR), and the turnaround in the sector marks the return of the more cautious NRI investor base.

Shveta Jain, managing director, residential services, at property advisory Savills India, said NRI participation today is seeing an uptick. However, after many unpleasant investment experiences in the past, NRIs are routing their investments to developers who have a sound track record, have demonstrated timely project delivery, and honoured their commitments to buyers.

“These are developers whose projects are likely to see better capital appreciation. The primary objective for NRIs is a safe investment and capital appreciation, given that rental returns are still low," added Jain.

Window of opportunity

DLF Ltd, the country’s largest developer, pre-launched its luxury project, ‘The Arbour’, last February. There was little surprise when the project’s 1,137 apartments, with an average price of ₹7.5 crore, sold out in three days. What was surprising though, was that 15% ( ₹1,800 crore) of the sales came from NRIs. The NRI share in DLF’s Panchkula low-rise project launched last year, which offered independent floors, was also 15%.

In December, NRI investors from various countries grabbed a bigger share—25%—in the developer’s latest launch, ‘Privana South’, in Gurugram, which has over 1,100 apartments. Among other countries, NRIs from Tanzania and Kenya participated for the first time.

Aakash Ohri, joint managing director and chief business officer, DLF Home Developers Ltd, said that in the last two years, DLF’s NRI outreach programme has been actively engaging with investors, conducting meetings and updating them with information. NRIs are provided real-time support and DLF has initiated measures such as securing specific inventory for them and synchronizing launches in India and overseas, so that such customers have access to premier inventory.

“NRIs participated actively till a decade back, but then, in NCR, unscrupulous elements in the property market and construction delays kept them away. NRI interest in our recent projects is due to their trust in DLF, better connectivity and infrastructure, and the price points," Ohri said.

While markets such as Gurugram in NCR have seen faster capital appreciation, the surge in demand for certain under-construction projects, which offer cost arbitrage, makes it evident that investors are back.

Bengaluru-based Puravankara Ltd said its sales to NRIs have seen an uptick in the last two-three years, with 40% year-on-year growth. There is increased interest in luxury homes, plots and villas from NRIs in the US, South East Asia and West Asia.

Regulatory reforms under RERA, favourable government policies, price appreciation and increased trust in Grade A developers drove interest among NRIs, said Group CEO Abhishek Kapoor.

Bengaluru’s Prestige Group, which has projects across cities, said it has seen NRI- buying double in the last three years.

“Gulf countries, like before, contributed the most in terms of numbers, but the most significant uptick in interest has been from US-based NRIs. The renewed interest in investing back home is due to better economic growth, pricing and strengthening of the US dollar," said Praveer Srivastava, senior vice-president, residential, Prestige Group.

Similarly, Mumbai’s K Raheja Corp Homes is seeing increased interest from NRI buyers from Dubai and Kuwait, with Hyderabad and Pune as top choices.

Like domestic investors, NRI investors could be both short- and long-term investors. Investors coming into the market today have the capacity to hold on for the long term, said consultants.

“Prices are increasing, but not unreasonably. Rents are on the rise. NRIs typically buy for end-use or rent out. There is also an emotional factor. They are a close-knit community where many buy together, or if one buys, more will follow," said Prashant Thakur, director and research head, Anarock Group.

The infrastructure push

The consecration of the deity of Ram at the new temple in Ayodhya, Uttar Pradesh, in January witnessed NRIs celebrating across the globe. When Mumbai-based branded land developer House of Abhinandan Lodha invited enquiries for its first project in the temple town, called ‘The Sarayu’, roughly 27% were from NRIs. On 22 January, when the developer officially opened bookings for 250 plots, priced at ₹1.72 crore onwards, the NRI participation was around 33%. The entire inventory sold out in less than 24 hours. The developer is now in the process of setting up its first marketing office in Dubai.

While a strong emotional connection may have played a role, NRI investors also looked at the large-scale infrastructure projects in the temple town, which will drive prices.

Chairman Abhinandan Lodha said NRI participation even two-three years ago was peripheral. “NRIs are now buying with the next generation in mind. Our team has visited multiple countries and built a distribution network. In the Ayodhya project, NRIs from 63 countries expressed interest. There is underlying interest in buying land, because a real estate upside comes with land," he said.

In addition, Lodha has seen significant interest in its second-home projects—a plotted project in Goa as well as premium villas in Alibaug, a seaside town near Mumbai. NRI investors typically respond well to large infrastructure projects that improve connectivity and increase real estate value in the surrounding areas.

The Mumbai Trans Harbour Link (MTHL) or ‘Atal Setu’, a 21.8 km sea bridge connecting central Mumbai to Navi Mumbai, which was inaugurated in January, is expected to spark real estate activity in the latter, with industry experts forecasting a rise in property prices and demand. The long-pending Navi Mumbai international airport is expected to be operational by the year-end.

“NRI investor enquiries across all our projects have risen in the past year, but the highest is in Panvel (Navi Mumbai), for plots and villas. MTHL was in the works for the longest time, but investors will believe it when they see it happen. The airport is also a reality. They are viewing Panvel as a future destination," said Navin Makhija, managing director, Wadhwa Group, which has high-end projects in Mumbai and a large plotted and villa project, ‘Wadhwa Wise City’, in Panvel.

Not just residential

NRI investors have always focused on residential projects for the most part. Now, they are diversifying their real estate portfolios and looking at fractional investment platforms for commercial assets. These platforms offer investors part ownership of assets such as offices, warehouses, and even luxury holiday homes.

Strata, a fractional investment platform, which is into office and warehousing assets, has been operational for four years. It has a diverse NRI client base settled in Dubai, Japan, Kenya, the US, and the UK, among other countries. A quarter of its ₹1,300 crore in assets under management (AUM) is attributed to NRI investors.

“Fractional investment platforms have emerged as an important asset class. When investors come on our platform, all the information is available beforehand with complete transparency. There is ease of investment, stability, fully digitized transactions and good returns," said Nihar Shah, director and head of investments, Strata.

Residential yields in the country have typically been low, at 2-3%, compared to commercial office space, which offers higher yields of 7-9%. Fractional real estate ownership platforms, where operators typically buy out individual floors in office assets, small office buildings, or small warehouses, offer even better returns. Strata, for instance, has a targeted internal rate of return, or IRR, of 13-15%, which is a blend of rental yield and capital appreciation.

Now, with market regulator Securities and Exchange Board of India (SEBI) expected to bring such platforms under its jurisdiction, retail investor and NRI confidence and participation are expected to get another boost.

“NRI participation will grow in the next three-five years. Once the Sebi regulations are finalized, the minimum investment of ₹25 lakh is likely to reduce to ₹10 lakh. We are looking at growth and new acquisitions of assets, and our AUM will go up to ₹2,000 crore by March-end," Shah said.

Another platform, hBits, which is raising a ₹500 crore fund to invest in commercial real estate, has seen strong commitments from NRIs. “We do NRI outreach through digital marketing and use wealth managers, financial advisors and property brokers. Transactions are done digitally, including online walk-through of projects, and payments," said Shiv Parekh, founder and CEO, hBits.

Emotional connect

Senior living projects, too, are seeing big interest from NRIs, particularly during and since the pandemic. In 2022, Morley Muralidhar, who has lived in Raleigh, North Carolina, for 40 years, bought a three-bedroom apartment in Seattle-headquartered Columbia Pacific Communities’ retirement living project, ‘The Virtuoso’, in Bengaluru.

Muralidhar, 73, is now planning to sell the two apartments he had bought in Bengaluru in the past, mainly due to high maintenance charges and the complications in managing them.

“My wife and I are still working, but we want to spend more time in India every year. Our roots are in India," he said.

V. Sivakumar, director, Columbia Pacific Communities, noted that there are two target groups: those who have worked overseas and want to return, and those who want to be part of India’s growth story. The company, which runs such facilities in Bengaluru, Chennai, Coimbatore and Kanchipuram, now plans to enter Pune and Kerala, which attract a lot of NRI investor interest.

According to a survey published by NoBroker in November, the majority of NRI buyers are from the UAE and the US, with 37% working as IT/technology professionals. Around 29% of NRIs showed interest in buying property in Bengaluru.

The year gone by witnessed the highest capital appreciation in the last decade, and NRI investors didn’t want to miss the upcycle. “Around 60% of NRIs are buying properties of ₹80 lakh and above. Around 40% are buying for investment and 60% for the family in India or for later. Pre-covid, NRIs were scared to invest and there was no movement in property prices, but that has changed," said Saurabh Garg, co-founder and chief business officer, NoBroker.

The return of investors, including NRIs, in markets such as NCR’s Gurugram, which has seen a sharp rise in prices, leads to the question: Are speculators back, too?

In DLF’s earnings call in January, an analyst said investors in its project, ‘Arbour’, launched a few months ago, are already looking to sell their apartments. Secondary sales in the project now command a pricing premium. Is that worrying? Ohri responded saying 5-10% of the stock is up for trading every year, which is not alarming.

The current market conditions offer an opportunity to make short-term gains. Investors who book at the pre-launch stage wait for a few quarters for prices to increase, aiming to exit with a gain.

However, Amit Bhagat, MD and CEO, ASK Property Fund, argued that this is not an investor’s market since there is a 5% GST levy on under-construction projects in addition to stamp duty. Except for plotted projects, many are driven by end-users, he noted.

However, due to low inventory in markets such as Gurugram and Noida, there is a fear of missing out, which has brought back long-term investors, especially NRIs, Bhagat added.

Can such investors make adequate compound returns? For now, the outlook is positive and demand continues to be strong.