NRIs Offer Hope For India’s Troubled Real Estate Market, For Now

India’s diaspora offers hope to the nation’s beleaguered real estate market in a pandemic-marred year.

Home sales struggled to overcome multiple setbacks of demonetisation, a stricter housing law and a credit crunch in the last three years, stalling projects and leaving developers with a bloated inventory. The pandemic that has triggered jobs losses and salary cuts has only made it worse. Housing sales in India’s top eight cities, according to Knight Frank India, fell to its lowest in a decade in the first half of 2020.

While not many Indians are buying, developers have seen a spike in enquiries and demand from non-resident Indians in the ongoing financial year. Developers say a weaker rupee, return of several Indians from Middle East and lower interest rates for housing loans are some of the triggers.

As many as 40,000 NRIs could be looking to purchase assets in India, according to Amit Goenka, managing director and chief executive officer of Nisus Finance Services Co. Pvt. Ltd., which specializes in real estate services. If this demand gets converted into sales once travel curbs ease, this could be a “historical high”, he said.

“NRIs from Africa, Europe, and Asia, including the Middle East, are the most active in enquiries since there’s high level of economic uncertainty,” he told BloombergQuint. “Asset prices have fallen in these regions and investment opportunities to earn returns have turned negative.”

Hiranandani Group is among the premium developers that caters to NRI buyers. Numbers have grown in the post-lockdown era, Niranjan Hiranandani, managing director and co-founder of the Mumbai-based firm, told BloombergQuint over the phone. While the number of queries has risen, he said, the status of most of these transactions is “work in progress”.

“We have closed a few NRI deals, and they prefer larger homes in integrated townships, which offer lifestyle features similar to what they have experienced while being expatriates in a foreign country,” he said. The demand is mainly from the diaspora returning from the U.S., the U.K. and the Gulf Cooperation Council countries, he said, which is expected to grow in the rest of the year and beyond.

Developers benefited from a transition to online—largely necessitated after a national lockdown to contain the pandemic halted marketing activities to site visits. That helped them woo NRI buyers.

For Godrej Properties Ltd., nearly half of its of sales came from this segment in the first quarter, it said during an investor call after the first-quarter earnings. The developer witnessed a total booking value of Rs 1,531 crore and overall booking volume of 2.51 million square feet in the three months ended June 2020. That compares with the total booking value of Rs 897 crore and total booking volume of 1.35 million sq. ft. in the year-ago period.

“Digital tools like virtual tours and walkthroughs allow potential customers to experience the property, understand the details of the complete project and book it online,” said Chintan Sheth, director of Ashwin Sheth Group, a Mumbai-based developer. The developer, he said, is near closing deals with potential NRI customers from Asia Pacific and GCC for their projects in Mumbai’s suburbs of Thane and Mulund—Sheth Zuri and Sheth Montana.

According to Anarock Property Consultants, the demand from NRIs is skewed towards end use at around 65%, with the remainder purchasing property for investment purposes.

“One needs to understand that NRIs aren’t a homogeneous demographic—indeed, there are those whose jobs were affected and who aren’t on the market for anything but rental homes,” Anuj Puri, chairman of Anarock Property Consultants, told BloombergQuint over phone. “However, many more are either returning to India with sizeable savings and continued good job prospects, or have retained their jobs abroad and are buying property now while the going is good.”

"They’re either investing in ready-to-move homes or properties which will be completed within the next 6-12 months, Puri said. “They are also scouting for flexible payment plans such as the 10-90 and 20-80 schemes, which reduce the construction risk,” Puri said. “Their primary focus on quality projects by reputed developers.” Under such schemes, 10% or 20% of the property value is paid upfront and the remainder is paid at the time of possession.

Bengaluru-headquartered Sobha Ltd. said it’s seeing increased interest and enquiries from NRIs even as conversion rates remain low. “There are several travel restrictions even now that makes it difficult for parents or any other family members of NRIs to come and visit project sites,” JC Sharma, the company’s vice chairman and managing director, told BloombergQuint over the phone.

“We do believe that probably from now on we’ll see conversions and this year will be a good one as far as NRI buyer market is concerned,” Sharma said. “There are several reasons for increase in NRI interest like rupee depreciation, low interest cost and feeling of uncertainty that they might have to return to India.”

Goenka estimates NRIs will contribute 15-20% of annual demand in 2020. NRIs and overseas citizens of India are likely to throng the real estate market due to prices bottoming out and growth outlook for the Indian economy, he said.

Not everyone agrees with this assessment though.

The first quarter of 2020-21 was muted across the country, with sales dropping by 30-40% on an average, Subhankar Mitra, managing director of Advisory Services at Colliers International India, said. A large number of NRIs returning to India in an unplanned manner may have created ripples in select micro markets, he said.

“The pandemic has caused large-scale migration of Indians across the U.S., South East Asia and Middle East. Some of these migrations are permanent in nature,” Mitra said. “There are situations where some wealthy NRI families have returned for good and are on the lookout for a good house in certain geographies. However, such requirements are limited in number and the preference is clearly for ready to move-in setups.”

Even developers acknowledge that the rise in NRI demand may not last for long and revival in domestic demand is essential.

“We don't want the NRI sales to be at 50% forever. That's probably not the healthiest dynamic,” Pirojsha Godrej, executive chairman of Godrej Properties, said during an investor call following first-quarter earnings. “We actually want our sales from locals to go up significantly.”

Pirojsha, however, said the NRI demand helped fill an obvious gap in the first quarter. “We have seen a continued sustained demand in at least July from NRIs,” he said. “We aren’t suggesting we expect for the full year to see 50% of sales from NRIs, nor would we consider that desirable.”