And What’s In Store for NRI Investors in 2021
Shajai Jacob, CEO – GCC, ANAROCK Property Consultants
The recovery from the setbacks caused by the COVID-19 has been rather stellar for Indian real estate. There has been a surge in investments, both from domestic and NRI buyers, causing all prominent micro-markets to register strong sales across budget segments in Q3 FY 20-21.
While developers definitely helped this process by bringing on several schemes and benefits for property buyers, much of the credit for this revival actually goes to the government which came through with proactive regulatory changes.
Real estate has a multiplier effect on the Indian economy with several allied industries reflecting the changes in this sector. Recognizing this, the government announced several initiatives to encourage investment in the sector.
The primary intention behind these initiatives was to ensure that more unsold inventories get liquidated at the earliest, bringing much needed cash flow into the sector. Developers pay interest on the cost of capital needed for construction – but with diminished sales, they were unable to balance their cashflows. For investors, such a cycle results in rigidity in terms of price and payment schedules offered by developers.
One of the government’s first major initiatives was the formation of a Special Window for Affordable and Mid Income Housing (SWAMIH) fund to aid projects which are stuck in the last mile of construction. As this fund evaluated projects and then began disbursing the monies, market sentiment saw a gradual uptick as many previously stuck projects could get back on track for delivery.
The SWAMIH fund is driven by transparency, with strict control mechanisms to mitigate the risk of fund diversion. It also underscores that, on the developer, regulatory bodies and the government, accountability for project delivery is sacrosanct. This fund heralds a new mindset for the Indian real estate sector – developer cannot launch projects, take monies from retail investors, and then not build the project, as has happened in multiple instances in the past.
A more recent initiative with a significant impact on sales was the reduction of stamp duty in Maharashtra and Karnataka. While Maharashtra kept this applicable for all projects, Karnataka’s reduction applied only for properties where units are priced under INR 20 Lakh. Karnataka clearly wanted to boost sales in the affordable category, while Maharashtra wanted buyers across price segments to avail the benefits of this scheme. This scheme comes with a sunset clause and will have run its course by March 2021.
Investors across India and GCC rushed to take advantage of this time-bound offer. In such a scheme, the value of benefit is directly proportional to the size of one’s investment. Not surprisingly, luxury property sales saw a significant jump in Q3 FY 20-21. This scheme allowed investors to save up to INR 6 Lakh on a property worth INR 2 Crore.
Seeing the success of this move, other states are now also campaigning for a similar drop their stamp duty charges – and it is expected that many will follow suit in the coming days.
In another big move, the difference between circle rate and agreement value was increased from 10% to 20% – another significant benefit for investors, who will get additional price flexibility from developers. Direct price reduction as well as savings on the tax paid on such transactions will add to the overall value brought on by this scheme.
The government has also earmarked more funds for improving the current infrastructure and capacity to accommodate the growing urban population in Indian metro cities. As these funds get deployed, urban infrastructure will gradually improve and provide significant capital gains for early investors over the next few quarters. NRIs, who are known for shrewd investments in upcoming localities, stand to gain significantly when they liquidate their assets.
For NRIs, the challenge usually lies in identifying suitable properties among the multitude of choices they are presented with. As digital adoption penetrates deeper into the sector, many of these concerns are being addressed. Investors anywhere in the world can now avail of a ‘look and feel’ experience of properties through virtual tours.
Regulatory body data is available on public servers and can be easily accessed by anyone who wishes to check the soundness of a particular developer or project. A generous spread of ready-to-move properties is available on the market, further mitigating construction risk perceptions for NRIs.
For NRI investors, the combined effect of these various factors has made this the best time to dive into Indian real estate. Property prices have withstood the storm of COVID-19 and can only go upward from here. However, like all good things, some of these offers and schemes – such as the reduced stamp duty – will also come to an end. There is, quite literally, no time like the present for NRI investors to make their move in Indian real estate.