By: Prameet Narula
Track2Realty Exclusive: The NRI enquiries are unlikely to materialise as sales because Indian real estate has lost its credibility. Moreover, given that general elections are around the corner, real estate is in doldrums as all the black money that has been pumped into realty, is slowly being drained out to fund elections.
The Indian real estate is over heated and unless a price correction happens the NRIs would prefer to stay away from peak price point in most of the major property markets across the country.
How can a market attract NRIs where the erosion of faith is so huge that Indian investors too are not ready to park money in Indian realty, and instead they are going abroad? Indians were among the top five foreign nationals buying real estate in the United States, according to the “2013 Profile of International Home Buying Activity” for the 12 months period ended March 2013.
Facts speak for themselves. Of the $68.5 billion that foreigners spent on buying homes in the US in the year ended March 2013, Indians accounted for nearly $3.5 billion. The data data from National Association of Realtors (NAR) suggests while home sales to foreign nationals in the US have declined overall, Indians ranked in the top five real estate buyers.
This despite a declining trend witnessed in foreigners acquiring properties there. Given the flight of dollars, the Reserve Bank of India banned property purchases abroad on August 14, 2013. It also reduced the amount that could be taken out of the country from $200,000 to $75,000 for individuals.
NRIs not keen to buy property in India also because the market is so over-heated that many of them are drawn to real estate markets in the US, UK, Singapore and Dubai where prices and borrowing costs are relatively subdued and returns are seen as being higher. Indian expats are focusing largely on suburban property. Where there is a significant price differential involved. Property in the US is cheaper than plush locations in metros like Mumbai and Delhi but slightly more expensive than Bangalore. One can easily get a two-bedroom apartment for around Rs 2.5 crore in the US.
So, the NRIs also find US and UK property more rational and organic in its growth pattern. Residential property prices around the world rose 2.4% in the second quarter of 2013, the fastest since the same quarter in 2010, according to Knight Frank’s Global House Price Index. The US and UK housing markets recorded quarterly growth of 7.1% and 2.6%, respectively, in the second quarter. “Prices in markets like US and London have not been moving sharply in the last few years after the economic troubles that led to a sharp fall in property prices there,” says Alistair Elliott, Senior Partner and Group Chairman, Knight Frank LLP.
Analysts believe buying property in India is a cumbersome affair—be it clarity on title, property registration and time it usually takes, whereas in the US property market these things are easy to deal with. Most importantly, Indian property market lacks transparency. Then it is also easier to hand over the property to a management company that takes care of security, maintenance and rental. In India the security of the property is an issue in many of the cities in the absence of the owner.
Alastair Hughes, Chief Executive Officer, Asia Pacific, JLL, says, “India’s ability to attract investments depends on the pace of reforms. There have been some initiatives in terms about bringing about an enactment and also a regulator, but these need to be addressed at a faster pace. Investors prefer predictable outcomes. They do not like hurdles. That is when they invest. This predictability is missing in India. They are wary of investments. It is not fair to compare China and India, both are different, each with some great attributes,” Hughes said.
…to be continued
