NRI’S and Indian Real Estate “ A Disconnect “
There are an estimated 30 million NRIs living in 130 countries and India retained the top spot in attracting overseas remittances, to a total $65 billion followed by China ($61 billion). That is just 25% less than the total Indian government’s plan expenditure. In essence, the few NRIs who are less than one percent of India’s total population put almost as much money in India as the whole of the Indian central government.
Now let’s consider the current conditions in the real estate sector in India.
RERA Energized -: With the implementation of RERA the government has been able to bring in much needed transparency in the sector.
Rupee Versus Dollar: – With the dollar’s appreciation the buying capacity of the NRI’s is at a historic high, “More Bang for The Buck”.
Price Stabilization: – The prices in real estate which had escalated to unimaginable levels fueled by the investors have also stabilized in the last year post demonetization.
Keeping all this into perspective one would come to a logical conclusion that the NRI’s investments in the real estate sector would have made tremendous gains. The actual story however does not exactly matchthe hypothesis. The diaspora is still not convinced and the reasons are varied.
Transparency still a distant dream: -It is not just the policies but its implementation that deters nearly seven out of ten of NRIs. They maintain that the grievance redressal mechanism in India is still poor and it would take years to get justice. “Even though the intention of the government may be right, to reform the property market and streamline the processes, the overall system in India is just chaotic. Once you land up in a wrong deal, it would end up taking a heavy toll, in bureaucratic and legal corridors. Indian real estate will never attract the kind of investment it should, simply because Indians who are exposed to transparency in other countries would not trust the market back home. A large number of NRI investors have suffered because of their investment in the wrong project and real estate developer who has delayed in giving you the possession.
Lack of clarity on rights: Most of the NRIs lack clarity on their legal rights when it comes to buying a property in India. All real estate dealings with NRIs take place under the Foreign Exchange Management Act (FEMA). FEMA is responsible for supervising all the real estate transactions of NRIs and according to this act an NRI can only purchase either commercial or residential property. The repatriation process although has been modified to make it NRI friendly, the flow of information is still riddled with bottlenecks.
Title Insurance is practically Non Existent: -Title insurance is yet to be a standard in real estate transactions in India. Title insurance can help in boosting the image of the sector, as it would instill confidence in the minds of the buyers especially NRI’s who are used to it in the western world. It will also act as a due diligence mechanism for home finance institutions. The land records in India are still not totally some digitized adding to the confusion. As an Analyst I firmly believe availability of title insurance, will encourage private equity investment in Indian real estate, as global investors are very particular about clear titles.
Illegal Land Grabbing Issues: In India, most of the vacant property is under illegal possession. It is not possible for an NRI to keep an eye on the property 24*7 of which land grabbers take the advantage.
Home inspections are not a norm: – Home / Property Inspection Industry is a multibillion dollar Industry in America, every 9 out of 10 homes gets inspected before they are sold out. However, in India home inspection is just starting off. RERA although does touch upon quality of construction and the developer’s responsibilities for the first five years but refrains from going into the details.
Developers Not in sync with the NRI Mindset: –The single biggest reason for the NRI’s still hesitating to invest in the Indian real estate is a complete lack of understanding on parts of developers and their sales teams in understanding the aspirations, likes, dislikes and essentially the mindset of the nri’s. The Indian real estate developers sitting over piles of inventory, and expecting the Non Resident Indians (NRIs) to end their sales drought. They are spending a fortune to attract the wealthy Indians from across the world. However, the developers have done nothing to understand an NRI psyche. They continue to entice NRI’s using the same tools as they would do in the domestic market. For instance, safety and security would take precedence over other attributes for a NRI. A marketing statement listing the amenities provided by the developer ending with “and much more” could be a standard for the domestic audience, an NRI however by virtue of the exposure to developed economies would like specifics. Any over the top marketing tools which might be very successful domestically would fall flat or even have adverse effects in case of NRI’s who prefer to keep it real. The quality of sales advisors the developers have hired is extremely poor with most of them having no knowledge of how business is conducted in the developed markets. Take for instance, most nri’s wouldprefer to borrowing funds from financial institutions rather than using their own money in terms of financing. The current rates of interest for a home mortgage being charged in the developed markets being much lower than what the banks charge in India. So it would make more sense for an NRI to take a second mortgage on their properties overseas asan equity line of credit which would still be cheaper by several percentage points than borrowing from Indian banks.
On a personal note as a member of the Indian real estate fraternity as well as being an Indian American holding an OCI card I have seen the interaction between the Developers community and their agents with the NRI ‘s. The sales consultants overseas have to go through a long and tedious process of apprentice training and certification before they can interact one to one with the consumers. This last chain of communication is most important in the entire process but unfortunately attracts least attention by the developers. Until the developers and the Nri’s are completely in sync, Indian real estate market would continue to be sluggish.
Authored by Dheeraj Dogra MRICS- Global Retail &Realty Analyst