There has been a sharp decline in investment by non-resident Indians (NRIs) into India's real estate sector amid a broader slowdown in the market and factors including demonetisation, according to a property consultancy.
NRI investments into residential property in India are expected to decline to US$5.25 billion in 2017 compared to about $7.5bn in 2012, according to Anarock Property Consultants.
Investment into India's real estate market is driven by NRIs from the UAE, the US, and Saudi Arabia, it adds.
“When the residential market began to slow down in 2015, the NRI investment fervour into this asset class began to cool off a bit,” says Anuj Puri, the chairman of Anarock.
In addition, reforms and policy changes have further impacted demand from NRIs. These include demonetisation, real estate regulation act (Rera) and GST (goods and services tax), with “the combined effect of these being a decrease in NRIs’ investment in the sector”, says Mr Puri
The stagnation in the residential market means that wealthy NRI investors have turned their focus to commercial real estate, according to Anarock.
“There has been a fairly consistent rise in demand for commercial spaces like grade A offices and IT parks and this is likely to continue until the Indian residential sector gets firmly into revival mode,” says Mr Puri.
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“Stagnant property price movement is not the best incentive for return on investment-oriented NRI investors, whose focus will remain on commercial properties for about six to eight quarters.”
Affordable housing, meanwhile, has become “poster boy” for India's property industry, as the government targets achieving housing for all by 2022, and this has impacted the interest of NRIs in this segment of the market.
“Not surprisingly, investment inquiries from the NRI community about the best projects in this category of housing are beginning to pour in,” says Mr Puri.
“It is only a matter of time before the residential asset class catches up with commercial properties on the NRI property investment radar. And from here onward, the resurgence will be policy-driven and very sustainable, as opposed to the knee-jerk spurts of speculative activity seen in previous years.”