The Booming Indian Real Estate Market
Indian real estate is witnessing unprecedented growth, making it a highly attractive investment avenue for Non-Resident Indians (NRIs). With the real estate sector projected to contribute $4.8 trillion to India's GDP by 2047, this inflation-hedging asset class offers stability and long-term value. Moreover, the significant difference between the dollar and rupee value allows NRIs to acquire premium assets in India at relatively lower costs compared to their home countries.
This guide explores three primary ways NRI investments in India can be done in real estate sector: Full Ownership, REITs (Real Estate Investment Trusts), and Fractional Ownership.
Full ownership involves NRIs purchasing a property outright, granting complete control over its usage and management.
Pros:
Complete Control: You own the entire property and can decide how to use it, whether to rent it out, furnish it, or use it as a vacation home.
Flexibility: You can customise and manage the property according to your preferences.
Cons:
Due Diligence: You may need to travel to India to inspect the property, liaise with developers, handle broker payments, and register the property under your name.
Reliance on Advisors: If you can’t travel, you must depend on trusted advisors for accurate data and decision-making.
Power of Attorney: You will likely need to grant a Power of Attorney to someone in India for property registration.
Maintenance: Managing tenants, rentals, and maintenance can be cumbersome, especially from abroad.
2. REITs (Real Estate Investment Trusts)
REITs are publicly traded units on the stock market that allow investors to gain exposure to real estate assets without owning physical property. These trusts typically comprise pre-leased commercial properties in India that generate rental income.
Pros:
Accessibility: NRIs can invest in REITs through online stockbroker platforms without travelling to India.
Due Diligence: Professional merchant bankers and trustees ensure thorough vetting of the underlying assets.
Income Distribution: Rental income from the assets is distributed to investors as dividends.
Cons:
Diversified Exposure: Funds are allocated across multiple assets, reducing focus on specific markets or properties.
Market Volatility: REIT performance is subject to stock market fluctuations, which may not align directly with real estate value.
Inflation Hedging: As publicly traded units, REIT prices are influenced by buyer-seller dynamics rather than pure property appreciation.
Fractional ownership allows NRIs to invest in a portion of a property alongside other investors. Specialised platforms identify the best places to invest in real estate in India by analysing government policies, infrastructure updates, Foreign Direct Investments and job creation. These platforms conduct due diligence and manage the asset on behalf of investors. Check out our earlier blog to do a deep dive on Fractional Ownership.
How It Works:
Property Vetting: Platforms select properties with high rental yields and appreciation potential.
Pooling Funds: Investor funds are pooled through a Special Purpose Vehicle (SPV), and the property is registered under the SPV.
Hassle-Free Management: The platform manages rentals and facilitates resale after the investment period (typically 5-7 years).
Returns: NRIs earn rental income during the holding period and share in the property appreciation upon sale.
Pros:
Convenience: Entirely digital, with no need to travel to India.
Focused Investment: Choose specific locations like Bangalore, Goa, or Hyderabad.
Hassle-Free: The platform handles rental generation, maintenance, and resale. Investors receive periodic payouts and annual reports.
Cons:
NRO Accounts: NRIs must invest through their NRO accounts in India.
Regulatory Oversight: Fractional ownership platforms are not SEBI-regulated, making it crucial to research the company and its founders before investing.
Which Option Is Right for You?
The choice between Full Ownership, REITs, and Fractional Ownership depends on your risk appetite, budget, and investment goals:
Full Ownership: Ideal for those seeking complete control and long-term investment.
REITs: Suitable for investors looking for passive exposure to real estate without operational hassles.
Fractional Ownership: Perfect for NRIs seeking hassle-free, high-potential investments in specific markets.
By exploring these options, NRIs can make informed decisions to capitalize on the booming Indian real estate market while enjoying the benefits of one of the most inflation-hedging asset classes available.
Claravest is a platform that allows NRIs to do fractional property investment in India. It is a fractional ownership platform that focuses on high-growth tier-2 cities that have great potential for property appreciation and rental yield.