Investing in India’s Commercial Real Estate: Why NRIs are Leading the Way
Overview
From the government’s liberal investment policies to a supportive investment framework to the country’s growing economic prowess and vibrant business climate, the Indian economy today is ripe for breaking all records. While the global economy was faced with turbulent headwinds, the Indian economy stood stalwart, bolstered by a steady real estate sector. This has led to foreign direct investments in the country surpassing all previous records, increasing 20 times from 2000-01 to 2021-21. Indeed, today the country is a FDI powerhouse, securing the third highest foreign investment globally in 2022.
The real estate sector in the country in particular has significantly benefited from this positive momentum, with the country securing US$ 55.5 billion of FDI from April 2000 to December 2022. The real estate sector in India has been witnessing unprecedented growth momentum in the last five years. As per leading industry experts, the industry, estimated to be worth USD 265.18 billion in 2023, is projected to grow at a CAGR of 25.60 percent from FY 23–28.
As a result, the robust sector is witnessing increasing interest and investment from the NRI sector, with a report from a leading NRI investment portal revealing a special inclination towards investing in commercial real estate assets. The surge in interest in commercial real estate assets can be attributed to various factors. Let’s delve into some of these reasons.
India’s Powerful Economic Standing
NRIs are increasingly inclined towards investing in commercial real estate, which is India’s powerful economic stature in the contemporary global ecosystem. Today, the country has emerged as the third-most powerful economy in the world, as per the International Monetary Fund. As mentioned above, the global economy has had to pay a substantial cost due to the pandemic, the ongoing wars, and the shift to a multipolar global power system. The Indian economy, on the other hand, has been a bright spot in the midst of ravages, boasting a stable political climate, increasing urbanisation, and a progressively growing modern built environment.
This has led to many of the world’s leading companies finding a home in the country, further boosting the country’s economy. Further, while the Indian economy is undoubtedly getting stronger day by day, many of the NRIs are from countries like the United States, Singapore, the United Arab Emirates, etc., which not only have significantly stronger currencies but also have citizens with higher purchasing power and disposable income. These factors have made the country’s investment ecosystem very attractive to NRIs.
High Return on Investment
Commercial real estate assets have an average yield of 6–10 percent gross rental yield, as compared to 3-5 percent of residential real estate. In addition to this, the potential for capital appreciation is also usually significantly higher for commercial real estate. The increased potential for a higher return on investment has been a motivating factor for 34 percent of NRIs investment in commercial properties in India.
In addition to providing a stable source of passive, secondary income, investing in these assets also leads to enhanced wealth generation capacity, as these assets can be leveraged to invest in other assets, thus facilitating the building of a strong capital base.
Ease of Investing
The same survey also highlights convenience as a motivating factor for 48 NRI investors, who cite streamlined processes, availability of Grade A spaces, and integration of technology as the leading driving forces. The establishment of standardised frameworks such as RERA has also significantly boosted interest in real estate, as it enables a transparent and hassle-free buying and selling process without any hidden charges.
The days when the commercial real estate sector was only considered the purview of the rich and wealthy are no more. The increasing transparency and information about the sector, along with the emergence of real estate investment trusts, has made it easier than ever for people to invest in even more sophisticated asset classes, such as commercial real estate.
A surprising 18 percent of investors cited the ease of investing in a real estate asset that offers property management facilities such as property maintenance, finding tenants, etc. to enhance their interest in commercial properties. This is because these professionally managed assets enhance ease, providing a hassle-free investment experience while guaranteeing long-term rental yields.
Portfolio Diversification
Any discerning investor knows the importance of possessing a diversified portfolio to protect their investments from volatile market forces. Real estate assets provide a perfect opportunity to have a portfolio, even when the market is undergoing fluctuations. While other investment asset classes, such as stocks and bonds, are vulnerable to macroeconomic fluctuations, real estate is not. The asset’s inherent nature, longer pricing cycle, and tangibility can help investors mitigate adverse losses, thereby reducing portfolio risk.
Final Thoughts
The increasing interest of NRIs in Indian commercial real estate can be attributed to a combination of factors which make India an appealing destination for NRIs looking to make sound investments while contributing to the growth of their homeland. As the Indian commercial real estate market continues to thrive, NRIs are likely to play a significant role in shaping its future.
