Since November of 2016, the Indian realty sector has been witnessing sluggish growth as potential buyers and investors, including non-resident Indians (NRI), stay away from the market.
For years, NRIs especially from the Gulf countries were a key component helping drive real estate prices to meteoric heights in many Indian cities. However, following recent economic slowdown in the Gulf region, job insecurities arising from nationalization drives, higher living costs and lower disposable income, many Indians living there are having second thoughts on investing in real estate ventures back home.
In states such as Kerala, where NRI remittances have an overwhelming influence on property purchases and investments, this reluctance to spend on property has significantly impacted the real-estate market. Industry analysts say that in recent months Kerala has witnessed a nearly 50 percent drop in real estate sales to NRIs. A similar downtrend is visible in other cities such as, Ahmedabad, Surat, Vadodara, Bengaluru, Mumbai, Pune, Hyderabad, Gurgaon and Noida, where the drop in demand has been around 20 percent annually in the past two years.
According to a senior vice-president of marketing at a leading Kerala realty firm, as much as 70 percent of property buyers in Kerala used to be NRIs in the Gulf. Sales to that category have now nearly halved, he said. "Investors are not taking big risks any more. We had sold 30 units a month, now it is down to 11," he lamented. Builders who used to make houses costing Rs10 million or more, are now increasingly focusing on homes for the middle income group to attract local buyers, he added.
In addition, the relatively weak rupee makes the actual return on investment from real estate lower for NRIs. “As the property market matures, the upside or investment returns tend to become lower than they were five years ago,” said Ramnik Chopra, managing director of Coldwell Banker India, a leading real-estate consultant. "This, added to the currency fluctuations, has increased the risk of actual returns for buyers," he said.
Quality of client servicing and construction is also contributing to the lower interest among NRIs for properties here, say sector experts. It is not that the developers are deliberately trying to mislead or cheat clients, though no doubt there are a few who do that; it is just that many property developers are not equipped to help clients manage their property.
Many property developers focus only on the sale, without any thought to after-sales or customer-service. Poor maintenance, higher fees, opaque tax legalities and lengthy paperwork are only some of the other limitations that have dampened enthusiasm for real estate purchases among many NRIs
Moreover, the resale or transfer of property that had been bought as an investment is also not as easy or as lucrative as before. The government’s recent demonetization drive and the tax department’s warnings that stern action would be taken against ‘benami’ property transactions, has also cut much of the illegal funding for many real estate projects in India.
The tax department recently spelled out some salient features of the new Benami Property Transaction Act that has ‘come into action’ from 1 November, 2016 and is designed to regulate ‘benami transfers’ — the transfer of property to one person for a consideration paid by another person. The new Act states: "Benamidar (in whose name benami property is standing), beneficiary (who actually paid consideration) and persons who abet and induce benami transactions are prosecutable and may get rigorous imprisonment up to 7 years besides being liable to pay fines of up to 25 percent of fair market value of benami property.’
Though NRIs are a key constituent in Indian realty, property developers are fully aware that there is much more potential from this segment. Indians working and living abroad are estimated to have sent home over $60 billion in 2015, and yet, the amount attributed to property spending by NRIs has been only to the tune of $3 billion to $5 billion annually. With such a lucrative potential it is no wonder that Indian property developers continue their regular pilgrimage in the form of real-estate road shows and exhibitions to NRI-rich markets in the Gulf and elsewhere.