Why NRIs are Eyeing Commercial Real Estate in India

With the decline in Covid-19 cases and roll out of vaccination programs, real estate has started showing signs of revival in India. Residential sales have started rising again, and the commercial real estate market is also picking up momentum in the top cities of the country, driven by the IT/ ITeS sectors. Gross office absorption stood at 4.39 million sq. ft in the 2nd quarter, showing 32% YoY growth in major cities in India as per a recent JLL report. Bulk hiring by IT/ ITeS sectors is the prime driver of the growing demand for office spaces in major cities. Offices have also started to re-open across cities and developers are bullish on the growth prospects of the commercial real estate market in 2023. This is the reason why NRIs are eyeing commercial real estate in India.

Also Read: Can an NRI buy or own property in India?

Cogent reasons why NRIs are eyeing commercial real estate in India

Investing in the Indian real estate sector has always been a desirable proposition for Non-Resident Indians (NRIs). Here are some reasons why NRIs are investing in real estate in India. 

• Along with the exponential growth in the real estate sector in India, the commercial real estate market, including retail and hospitality, is also growing rapidly. Commercial realty in India is predicted to be boosted by large scale investments by institutional investors in the upcoming years.

• The government reforms in the commercial real estate sector such as the implementation of the Real Estate Regulatory Authority (RERA) and GST (Goods and Services Tax) have significantly boosted the industry and attracted an increasing amount of foreign direct investments (FDI) in the commercial estate. 

• Government initiatives, urban development policies, and programs including Smart City, AMRUT, etc. are contributing to the demand for real estate infrastructure. Housing and Urban Affairs Secretary Durga S. Mishra said the size of the real estate sector is projected to cross $1 trillion in India by 2030. 

• IT and ITeS, retail, consulting, and e-commerce sectors are the key drivers of high demand for office space in recent times. The net office absorption in major Indian cities is expected to grow significantly in the upcoming years. Because of better pricing and growth opportunities, REITs are expected to increase the demand in sectors like manufacturing and IT-related institutions. This will fuel further growth and development in India’s commercial real estate market.   

• The demand for co-working spaces has also been increasing rapidly in India. Budding entrepreneurs and large IT players are finding this an attractive model. Considering the trend of this type of workplace, demand for shared spaces is also expected to gather further momentum in the upcoming years. 

What are the benefits of commercial real estate for NRI investors?

High rental yields and outperforming returns: India’s commercial office property asset class offers a profitable alternative for NRIs who want to maximize returns and generate a fixed income, with a low risk investment profile. The prospects of good capital appreciation and rental yield have increased NRI investment in Grade A offices, logistics centres, IT parks, and REITs. Commercial property can offer an average rental yield of 8-11%, which is much higher than the current rental yield from residential property (1.5-3.5%). This is also applicable to capital appreciation. 

Pre-leasing at all-time high: NRIs can lease their commercial real estate property for a long tenure. Liberalised FDI policy, especially for expatriate participation in the Indian economy as domestic investors, has made the major cities in the country hot destinations for NRIs who want to invest in the commercial realty sector. NRIs can also get loans for commercial properties in the same manner as residents. However, there might be differences between features of commercial and residential property loans such as interest rates, loan processing fee, tenure of loan, etc.

Commercial Rental Yield in India

The average commercial rental yield in India is 8-11% which is much higher than what residential property offers that is 1.5-3.5% rental yield.

Process of Buying Commercial Property in India?

NRIs can invest in commercial real estate in India using the following methods:

Direct Investment

They can make direct investments by purchasing properties in India using inward remittances from abroad or funds held in NRE/FCNR(B) accounts.

REITs

Another avenue is through investing in Real Estate Investment Trusts (REITs) in India. REITs are investment vehicles regulated by the Securities and Exchange Board of India (SEBI), offering the opportunity to invest in income-generating properties without full property ownership. NRIs can take advantage of REITs for lower risks and increased liquidity when investing in commercial real estate.

Fractional Ownership

Through fractional ownership, individual investors can obtain partial ownership in Grade-A commercial properties by investing as low as Rs. 10 lakh. This method allows NRIs to gain exposure to commercial real estate with a smaller investment amount.

Commercial Real Estate India: How to Get Started In CRE Investing?

While investing in Commercial Real Estate presents attractive opportunities, it is important to be aware of common challenges, mistakes, and risks involved, particularly for first-time investors. To ensure a successful venture, it is crucial to understand how to get started and what factors to consider before investing in CRE:

1. Financial Awareness: It is advisable to keep track of your capital and expenses to determine the amount of cash you can invest.
2. Realistic Goal Setting: Investors should establish realistic goals considering all relevant factors and set achievable deadlines.
3. Risk Assessment: Develop a sound strategy that aligns with your risk tolerance and reflects your willingness to bear potential risks.
4. Due Diligence: Prospective buyers should conduct thorough research on the CRE property, including evaluating investment opportunities, availability of financing, property inspections, examining relevant documents, analyzing tax returns, profit and loss statements from the previous owner, survey reports, and feasibility studies.
5. Stay Updated on Market Cycles and Trends: Acquiring knowledge of real estate market cycles and staying informed about the latest trends in the sector is vital for successful CRE investment.
6. Proper Valuation: Each investment depends on factors such as supply and demand, yield potential, and overall profitability within the respective sector, necessitating a comprehensive valuation process.

By adhering to these guidelines, investors can enhance their chances of making informed and profitable decisions when entering the world of CRE investing.

Commercial Property in India: Gurgaon

Gurgaon, being a corporate hub, has seen an exponential increase in the demand for commercial spaces. Here is the list of top commercial properties in Gurgaon:

• Emaar Digital Greens
• Vatika Triangle
• AIPL Joy Street
• AIPL Joy Square
• ABW Tower
• MGF Metropolis Mall

Commercial property in India: Bangalore

Bangalore is emerging as a big market for commercial real estate. Here are top commercial properties for investment in Bangalore:

• Embassy Tech Square
• Whitefield Tech Park
• The Pavilion II
• The Pavilion I
• The Pavilion III
• IBC Knowledge Park II
• IBC Knowledge Park

Also Read: NRI Home Loan Interest Rate 2021: Top 10 Lenders

Whether it is high-rental yield, greater returns or growing demand for office spaces, there are many reasons why NRI real estate buyers are heavily investing in commercial real estate in India.

As NRI real estate buyers, if you are looking to invest in a commercial property, you need to consider many factors, such as location, regulatory act, maintenance cost, documents required for NRI to buy property in India, financial transactions and funding, POA, No-due certificate, etc. It will help NRI buyers get good ROI

We at SBNRI are here to help you out with everything related to residential/ commercial property transactions in India and other financial and legal services as required by NRIs. We help NRIs find a commercial property in India that will offer them outperforming returns.

You can download SBNRI App to connect with our experts and get end-to-end assistance related to an NRI investment in India.

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