Mumbai: The country’s real estate market may get a boost following the central bank’s restrictions on Indians investing in properties abroad.
Rich individuals typically with Rs.10-15 crore set aside for property investments abroad have already begun enquiring about real estate opportunities in India, say property consultants.
To protect the falling value of the rupee, the Reserve Bank of India (RBI) on Wednesday announced measures aimed at moderating capital outflows, following which individuals cannot buy properties abroad under the Liberalised Remittance Scheme (LRS).
Moreover, the limit for remittances by resident individuals under LRS has been lowered from $200,000 to $75,000 in a fiscal year. In February 2004, RBI under LRS allowed Indians to invest abroad with an initial limit of $50,000, which was raised to $200,000 in September 2007.
“Individuals who were planning to buy international real estate at attractive valuations and planning for their kids’ education and housing abroad will now see such plans challenged,” said Om Ahuja, chief executive officer, residential services, at Jones Lang LaSalle India, a real estate consultancy.
“The investors have already started talking about their change in investment plans,” said Anuj Nagpal, managing director, investor services, DTZ India, a real estate consultancy.
“This is likely to give some boost to the real estate demand in the country, especially in the premium and luxury segment as these investors are majorly (for) high net worth individuals,” he said.
In recent times, there has been a surge in Indians buying properties in countries such as Dubai, Singapore, Malaysia and the suburbs of London. Indians occupied 2% of new residential buildings in London in 2012, a growth of 0.9% from 2011, according to real estate consultancy Knight Frank.
“The investment split for all overseas buyers is 65% for investment, 33% for education, 2% for a second home. For Indians, second homes may be closer to 5% and (they) had spent an average £1.5 million per unit in the prime market in 2012,” Liam Bailey, global head of residential research at Knight Frank, said in an interview on 17 March.
Investments in overseas markets typically fetch a rental yield of 5-7%, more than the prevailing 1-3% yield in India, according to industry experts.
“The major impact of this policy change could largely be realized in three main asset classes within real estate—serviced apartments, retail and semi-luxury residential in tier 1 cities. The market for all these segments has been subdued for a while and this could be a positive trigger,” said Samir Jasuja, founder and chief executive of PropEquity, a real estate research firm.
Some investors have already started making alternative plans and there will be more demand for assets in residential and commercial properties across geographies within India, say experts.
“Investors would look for places where they get maximum rental yields. Bangalore, Hyderabad and Chennai markets are reasonably priced and would be preferred to Mumbai and Delhi, where the yields are a meagre 2%. Hyderabad residential properties have a yield of 4%,” said Ahuja.
Anand Moorthy, head of real estate services at RBS Financial Services (India) Pvt. Ltd, believes people with Rs.5 crore or more set aside for investments would prefer high rent yielding commercial assets over residential properties.
“Prime residential markets have not had much capital gains in the recent years. So there will be shift in preference for other asset classes. Demand for pre-leased assets such as IT (information technology) parks, warehouses, etc., with a yield of 7-8% is going to increase,” he said.