NRIs bide time to invest in India

Dubai - Modi's reforms on bureaucratic approvals and land acquisition yet to take off.

The Indian real estate sector is currently experiencing a sales slump owing to oversupply in tier-1 and tier-2 cities. Gulf-based Non-Resident Indians (NRIs) are an important buyer segment for this market. However, this section of buyers is not ploughing enough money to revive the Indian property market.
Meanwhile, Indians have again emerged as the top foreign investors in Dubai real estate in 2015. Prime Minister Narendra Modi could urge his countrymen in the UAE to increasingly invest back home during his visit here next week.
Despite being voted to power on the plank of reforms, the Modi government has only implemented a few programmes to improve transparency in the Indian real estate sector. The Real Estate Regulation and Development Bill is one such ordinance which allows for a regulator to be established to protect property buyers' interest.
However, the controversial Land Acquisition bill is stuck in a political quagmire. Its fate will now be determined in the winter session of the Indian Parliament. Other proposed reforms include establishing 100 smart cities and building 20 million homes for the urban poor under the 'Housing for All By 2022' scheme.
With the Indian rupee's recent devaluation against the dirham, there was reason to believe expatriate Indians would snap up properties in India. However, things are not exactly panning out that way.
Delivery delays
Rizwan Sajan, founder and chairman of Danube Group, said: "NRIs have always been investing in Indian real estate, primarily to have a home to go back to and because of the capital appreciation which they get on a long-term basis in India. In the short run, in the absence of strict regulations, delays in deliveries, etc., the buyers seem hesitant to invest.
"Also we have to keep in mind that property prices in the UAE are very lucrative now. An astute buyer can see great potential for capital appreciation with the upcoming Expo 2020. Thus, many NRIs are choosing to keep the investments here despite having a depreciated rupee," he said.
Niraj Masand, director of Banke International, a Dubai-based real estate company, said: "The Indian economy is seen to be struggling, with businesses under pressure. This hasn't had a major effect on real estate prices, at least on the face of it. The input cost has been rising steeply due to inflation, which makes it hard for developers to reduce prices of unsold units. Currently, there exists a huge number of unsold units in India's tier-1 and tier-2 cities, which is causing investors to hold back further purchases.
"Buyers abroad are playing the wait-and-watch game, expecting prices to go down further given the slump in sales," he added.
However, reports also suggest that almost 80 per cent of Gulf-based NRIs are showing an active interest in investing in the Indian property market for medium-term to long-term investment durations.
Ashwinder Raj Singh, CEO of residential services, JLL India, said: "The stabilising of property prices in major Indian cities like Bengaluru, Mumbai and Delhi, the offers of sops by the majority of well-known developers to offload their huge unsold inventories and the rupee devaluation have made Indian real estate very attractive for NRIs.
"The only reason they prefer to have their first property investment in countries like Dubai is because some properties there are cheaper in comparison to similar properties in Delhi or Mumbai. It makes sense for them to buy houses there and stop paying high rents. However, for those who want to buy property for investment, rent generation or as a second home, India is now the destination of choice," he suggested.
Capital appreciation
Rental yields in India (around two per cent) are among the lowest in the world. The Indian real estate market is, therefore, only driven by the hope of capital appreciation.
"Meanwhile, real estate investment in the UAE is backed by good laws, great potential of capital growth and superb rental yield, thus becoming an investor's choice," Sajan said.
Prolonged bureaucratic delays for securing approvals also discourage property developers and investors.
"The confounding regulatory framework of approvals is proof that the ease of doing business promised by the government is nowhere in sight. The real estate sector needs favourable regulations and policies to become transparent and efficient, and to help solve the nation's housing problem. However, administrative bottlenecks are proving to be party-spoilers," said JLL's Raj Singh.
Good infrastructure is another trump card to attract real estate investors. With Indian infrastructure reeling from the influence of rapid population expansion, Modi has announced plans to attract private investors into the sector.
Infrastructure spend
The premier has proposed an infrastructure company to attract investment from some of the world's wealthiest organisations, including sovereign wealth funds, pension funds, etc. However, land acquisition is likely to put a spanner in the works.
"Land acquisition is the single largest roadblock for development of infrastructure. Several projects have been stalled or delayed due to land acquisition issues. The primary reason is resistance from local communities.
"The gap between the registered value and the actual market value is huge, which results in disputes and litigation. Lack of well-planned, efficient and demonstrable rehabilitation packages adds to the distrust of local communities," explained Masand.
"Most central government infrastructure projects are running behind schedule or have overshot original cost estimates, providing evidence of the heavy toll taken on project execution by delayed regulatory approvals, financial constraints and stalled land acquisition," he added.
On a positive note, Ali Reza Alladin, chairman of Unitas Consultancy, concluded: "Regulatory impediments play a factor in investment decision making. However, this issue of opacity is being addressed and certain progress has already been achieved, with more on the anvil."
 

dubai - The Danube Group, which has branched out into property development in Dubai with projects in Studio City and Al Furjan, will soon open a branch office in India for client representation for Dubai ventures.
"We do not have any plans to foray into development in India at this point of time. We find the Dubai market more reliable and tightly controlled, based on which we are able to plan our developments better. When we find the confidence, we shall consider India, but not at this point of time when the market remains oversupplied," said Rizwan Sajan, founder and chairman of Danube Group.
"I am confident that with a pro-business government at the centre under the astute leadership of our Prime Minister, there will always be favourable opportunities available for us should we wish to start any developments in India."
­- deepthi@khaleejtimes.com

• India