According to recent surveys and analysis by real estate experts, commercial real estate has been ranked as the best NRI investment option in India. Real estate in India has begun to show indications of resurgence as a result of the Shift in Covid-19 cases. Residential sales have begun to rise again, while the commercial real estate market in the country’s major cities is also gathering up steam, fueled by the IT/ITeS sectors. In the second quarter, gross office absorption in India’s largest cities reached 4.39 million square feet, up 32 percent year on year. The increased demand for office space in major cities is mostly driven by large-scale recruiting in the IT/ITeS industries. Offices have already begun to reopen in cities, and developers are optimistic about the commercial real estate market’s future development possibilities. This is why commercial real estate is considered to be the best NRI investment option in India.
Reasons for NRIs are eyeing commercial real estate in India
There are several compelling reasons why NRIs are interested in commercial real estate in India. Non-Resident Indians have long found investing in the Indian real estate business to be a lucrative venture (NRIs). Here are some of the reasons why non-resident Indians are buying real estate in India.
- Along with India’s tremendous expansion in the real estate industry, the commercial real estate market, which includes retail and hospitality, is exploding. Institutional investors are expected to expand commercial real estate in India in the coming years.
- Government changes in the commercial real estate sector, such as the establishment of the Real Estate Regulatory Authority (RERA) and the GST (Goods and Services Tax), have greatly bolstered the industry and attracted a growing number of foreign direct investment (FDI).
- The need for real estate infrastructure is being fueled by government efforts, urban development regulations, and programmes such as Smart City, AMRUT, and others. According to Housing and Urban Affairs Secretary Durga S. Mishra, India’s real estate business is expected to reach $1 trillion by 2030.
- In recent years, the IT and ITeS, retail, consultancy, and e-commerce industries have been the primary drivers of increased demand for office space. In the future years, net office absorption in key Indian cities is likely to increase dramatically. REITs are predicted to improve demand in industries such as manufacturing and IT-related institutions as a result of better pricing and growth potential. The commercial real estate sector in India will continue to expand and flourish as a result of this.
- In India, there has been a fast increase in the demand for co-working spaces. This concept appeals to both aspiring entrepreneurs and major IT companies. Given the popularity of this form of workplace, demand for shared spaces is projected to continue to grow in the coming years.
Commercial real estate as an NRI Investment Option in India
i. Outperforming returns and high rental yields:
The commercial office property asset class in India is a viable option for NRIs looking to optimise profits and provide a steady stream of income while maintaining a low-risk investment profile. NRI investment options in India in Grade A offices, logistics centres, IT parks, and REITs has surged because of the promise of excellent capital appreciation and rental income. The average rental yield on commercial property is 8-11 percent, which is significantly greater than the current rental yield on residential property (1.5-3.5 percent ). This is true for capital appreciation as well.
ii. Pre-leasing is at an all-time high:
NRIs have the ability to lease their commercial real estate property for an extended period of time. The liberalisation of FDI policy, particularly for expatriate participation in the Indian economy as domestic investors, has made India’s main cities hotspots for NRIs looking to engage in commercial real estate. NRIs can receive commercial property loans in the same way as natives can. However, there may be variances in aspects such as interest rates, loan processing fees, loan duration, and so on, between commercial and residential property loans.
iii. Returns tied to inflation
To adjust for inflation, commercial leases contain built-in escalation clauses that increase the rent by 5% each year or 15% every three years. This raises the return’s yield in pace with inflation while maintaining the real return after inflation. This is a sometimes ignored advantage of CRE investment that appeals to long-term real-estate investors.
Inflation-linked returns have been another factor that attracts NRI to choose commercial real estate as an ideal NRI investment option in India as it assists in building wealth without depreciating their assets or returns.
iv. Appreciation of Assets
CRE is a hybrid investment that delivers both monthly cash flow and interest, as well as capital appreciation. The value of the underlying real estate and land increases with time, adding a “kick” to the overall returns. The total returns, or IRR, climb to 15-20% per year with a 5-10% capital appreciation.
There is no other product that offers such a high return for such a low degree of risk. The only true risk of investing in a CRE asset class is vacancy, which can be avoided by employing conservative investing techniques such as selecting the correct building, location, and tenant, as well as doing extensive due diligence through Tier 1 legal firms.
When investing in the CRE asset class, it is critical that a novice investor considers a few key considerations. Unlike other asset classes such as bonds or mutual funds, an investor in commercial real estate must adhere to a few basic principles. This is also why CRE has been the domain of institutional investors and family offices until recently.
v. Due-diligence
The legal title to any property is the only thing that matters. By acquiring ready-to-move leased business buildings with occupancy certificates in place, many legal problems can be avoided. The receipt of OC indicates that the building has already received all of the necessary municipal and government permits to open for business. When an MNC tenant moves into a building, they will have previously completed legal due diligence. It is critical to engage a Tier 1 legal firm to check the property’s title and other relevant documents. For NRI investors, CRE is a particularly appealing asset class since it provides consistent cash flow and good risk adjusted returns. If you invest through real estate platforms such as Assetmonk, then you may not worry about conducting due diligence as the properties are only listed on Assetmonk after conducting proper and professional due diligence and legal compliance.
There are several reasons why NRI real estate purchasers are aggressively investing in commercial real estate in India, including higher rental yields, higher profits, and increased demand for office space.
If you’re planning to acquire a commercial property as an NRI investment option in India, you’ll need to think about a lot of things, including location, regulatory act, maintenance costs, documentation necessary for NRIs to buy property in India, financial transactions and funding, POA, No-due certificate, and so on. It will assist NRI purchasers in obtaining a decent return on investment.
