NRIs and The Indian Real Estate Industry
India’s real estate market can be regarded as the second-highest employment generator in the country after agriculture. Of late, the industry has been sluggish with more than a dozen measures needed to help real estate developers stay afloat. The overall despair cast over the real estate industry on the pretext of the COVID-19 pandemic has brought to light several unconventional methods to keep the dreams of homebuyers alive as developers tiptoe their way towards recovery.
Real estate had been lamented in recent years in India. The startling demonetization followed by the introduction of the GST regime, the RERA Act, and followed by the NBFC crisis collectively propelled real estate players to their lowest ebb.
Adding fuel to fire was the COVID-19 pandemic where real estate giants faced massive unavailability of workers due to the migrant exodus, and disruption in the supply chain of materials, thus resulting in numerous deferred projects and delayed delivery dates. The income contraction among the masses muted the demand, whereas a massive liquidity and labor crunch impacted the supply side of the industry.
However, the government introduced a series of measures including the moratorium on equated monthly installments, restructuring of loans of real estate companies at the project level, and setting up of Swamih fund – rescue capital for affordable and mid-income housing projects, etc. While these relaxations may not have addressed issues at the grassroots level, this backdrop turned out to be favorable for the Non-Resident Indians (NRI).
During the pandemic, NRI’s turned towards India in large numbers on the look for real estate for the purpose of working from home and also for investment/s. The ‘Work from Home’ culture strongly contributed to this phenomenon and with home offices gaining traction, the ‘Work from anywhere’ phenomenon was leveraged by thousands of NRIs.
Despite the sluggish economy, the confidence in the real estate facilitation and recovery mechanisms such as RERA, Insolvency and Bankruptcy Code, etc. has played a major role in enticing NRIs to the distressed yet well-regulated industry. In fact, real estate transactions falling under the purview of the Foreign Exchange Management Act (FEMA) have been further simplified to attract foreign investment.
Further, in absence of a cap on the number of properties an NRI can purchase, they can easily cash in on their investment in property by renting, leasing, selling, etc. As a result, NRIs are investing in multiple properties and getting high returns on investment through rental income, leasing income, and short-term and long-term capital gains.
However, despite the potential downside NRIs traditionally preferred investing in the residential real estate segment owing to a good return on investment, reasonable capital appreciation, and low rupee value. They are one of the crucial growth drivers and the overall community accounts for a sizeable part of Indian real estate demand.
Therefore, it goes without saying that NRI money helps increase the purchasing power of people in India, which in turn stimulates the market and pushes demand and supply upward.
This development is likely to have a two-fold effect wherein both NRIs and real estate players may benefit from the trend and eventually become a part of the growth story of their own country, however, a pressing question is whether the Indian market will be leveled to the extent that the NRI’s will be able to resale their properties?
Irrespective of what the future holds, real estate cannot solely rely upon NRIs to pull them out of the COVID-induced doldrums but can definitely be treated as one of the first steps towards growth and revival.
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