Tag Archives: Investment in Indian real estate

Is the number of wealthy Indians and NRIs investing in real estate in India experiencing an unprecedented rise?

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JJL recently released a report estimating that strong demand and high-quality launching will propel India’s residential sector to sales of between 290,000 and 300,000. The premium segment has experienced a 22% increase in sales, while the mid-segment price category has dominated sales. Developers are launching projects to meet the demand trend, and sales in the luxury segment have increased by 83% as well. As a result of changing consumer preferences and technological advancements, there is an increasing demand for luxury real estate in India. 

Furthermore, the COVID-19 pandemic is also blamed for the striking rise in large luxury homes, as well-off individuals seek livable environments with lots of security and convenience. 

The growing affluent class 

Last year, 54% of homebuyers in India were millennials, 36 percent of the country’s population, and have an estimated combined spending power of over US $330 billion. As their disposable income rises, they invest in luxury real estate and look for larger homes; as a result, sales of luxury real estate in India’s top seven cities increased five-fold between 2018 and 2023. 

According to certain studies, in the past few years, Mumbai, India’s financial center, has produced more millionaires than Romw thanks to the efforts of global wealth managers and private equity firms. Eventually, these emerging young millennials will put a lot of demand on the Indian real estate market. 

Similar patterns can be seen in a survey conducted by Sotheby’s International Realty, which indicates that an increasing number of wealthy people– including NRIs — are thinking about buying luxury real estate in India. The growing affluent class’s aspirations for superior amenities, large living areas, unique designs, prestigious addresses, a healthy lifestyle, and a high return on investment are increasing demand for luxury homes amid these developments. 

Furthermore, the increase in NRI involvement is indicative of their growing trust in the Indian real estate sector as well as their attraction to investing in upscale and luxurious real estate, especially in Goa, Mumbai, and Delhi-NCR. 

The Luxury Outlook Survey 2024 unveils a very intriguing fact. The survey’s conclusions show that most people who purchase vacation homes favor Goa as a second home location. 

Let us examine the key characteristics of Goa real estate that both HNIs and NRIs find appealing. 

Goa’s stunning location, pleasant climate, and ideal blend of modern comforts and natural living have made it India’s top destination for luxury and ultra-luxury real estate. Residents now emphasize the importance of smart homes and healthy living since these things reflect their social standing and work-life balance. With their safety features and larger living areas, second homes and amenities are now considered necessities for purchasers.  

With the opening of the MOPA airport, Goa’s already excellent connectivity is predicted to get even better, resulting in more flights and growth in the tourism industry. Modern healthcare facilities are another factor driving the growth of lavish homes. The future of luxury vacation rentals is driven by sustainability, focusing on intangibles like forging deep connections with clients and protecting the environment. 

Many tourists have been drawn to Goa by its undiscovered natural and cultural beauty, and as the work-from-home trend gains traction, more people are looking to relocate permanently to Goa. Prestigious villas, second homes, farmhouse communities, luxury housing, and plotted developments thrive in Sindhudurg and North Goa. This area will remain a popular place to invest because of the strong demand for housing, increasing income stability, and infrastructural improvements. 

The profitable Indian real estate market draws in NRIs. 

From 2023 to 2028, the Indian luxury real estate market is projected to grow at a compound annual growth rate (CAGR) exceeding 5%. Luxury residential properties have cutting-edge amenities and prime locations. Non-resident Indians, or NRIs, have been investing in India’s luxury real estate at an increasing rate; they entered the market with $13.1 billion last year. NRIs, or non-resident Indians, have been making more and more investments in India’s luxury estate; just this year, they brought $13.1 billion into the market. 20% of all real estate investments made in the nation are anticipated to come from NRIs by 2025. 

NRIs should strategically diversify their investment portfolios by purchasing luxury real estate in India, as these assets offer prestige, long-term value appreciation, and a hedge against market volatility. NRIs looking for long-term investment gains and capital appreciation find major destinations like Goa tempting due to their competitive pricing, rising rental yields, and potential for property appreciation. 

Modern security systems, smart home technology, wellness centers, and first-rate concierge services are just a few of the upscale amenities that Indian real estate developers offer NRIs to suit their sophisticated international lifestyle. The partnership between premier developers and NRIs demonstrates how sophisticated and globally desirable luxury real estate in India is becoming. 

In short, the rising wealth class, which makes up 36% of the population, bought homes in 2017 in 54% of cases, with an estimated combined spending power of more than US $330 billion. The Indian economy is attracting investment, which boosts demand for real estate and raises prices in promising locations like Goa. Due to its outstanding performance in the global economy and its political stability, India is expected to maintain its upward trajectory in the coming years. 

Fractional ownership is driving a paradigm shift in real estate investment

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Fractional Ownership is an investment model aimed at retail investors who can gain access to the high-value commercial segment. 

With the real estate sector expanding across key markets, driven by demand sales, investors are increasingly looking for ways to capitalize on the bullish run. The real estate sector has matured due to regulatory changes, which has sparked investor interest. What truly democratized the industry was the introduction of investment concepts such as Fractional ownership, which allows individual or retail investors to invest in high-value properties while earning fixed returns on rent-generating assets. 

While alternative investment options such as AIFs and REITs are gaining popularity in India as profitable and effective investment vehicles, they are primarily geared toward institutional and high-net-worth investors. On the other hand, investment models such as Fractional Ownership are aimed at retail investors, who can access the high-value commercial segment through this model. The good news is that this model provides new avenues for retail investors yet allows developers to consider various funding options.  

According to a report by a leading real estate consultant, the market for fractional ownership in India was USD 5.4 billion in 2020 and is expected to reach USD 8.9 billion by 2025, growing at a 10.5%  CAGR. This is an unambiguous sign of fractional ownership’s rapid growth as a viable investment opportunity. 

Fractional Ownership became more popular among investors after SEBI proposed various Fractional Ownership Platforms (FOPs) to register with SEBI MSM REITs and made it mandatory to follow some specific registration procedures. According to the proposal published by a leading real estate firm, MSM REITs should include separate and distinct entities serving as trustees, sponsors, and investment managers. SEBI also proposes that MSM REIT be established as a Trust under the Indian Trusts Act, with the ability to create separate schemes for owning real estate assets. This would be accomplished through SPVs (Special Purpose Vehicles) established as companies under the Companies Act of 2013. MSM REIT Scheme shall have complete control and 100% equity share capital in all SPVs. 

These regulatory changes benefited investors because they can now leverage benefits such as fair pricing, transparent transactions, and the flexibility and opportunity to exit or liquidate their investment at any point. 

With the digitization and technological advancement of the real estate industry, investors can also benefit from easy tracking via web-based FOPs, making it easier for them to make data-driven decisions. It also provides visibility previously unavailable when proper real estate investment space was not in place. 

Diversification is another important factor that has redirected investors to fractional ownership, particularly since the pandemic, when the stock and commodity markets have become volatile. The uncertainties caused by global economic headwinds necessitated the exploration of more promising avenues and markets. In contrast, India’s real estate market has continued to show promise, with the commercial segment breaking records for leasing and demand. According to a report, the Indian Commercial Real Estate Market is expected to grow at a CAGR of 21.1% between now and 2028, from USD 33.62 billion to USD 87.57 billion. 

As India’s ease of doing business index ranking improves in the coming years, more global corporations will establish their headquarters here. Global occupiers in sectors IT, manufacturing, BFSI, startups, and the booming service industry will require high-quality workspaces for their employees. These will result in more Global Occupier Centers (GCCs) operating from India’s key cities, thus increasing and accelerating demand for Grade-A office assets. In this scenario, fractional ownership will benefit both developers and investors. As the sector grows, fractional ownership will continue to open up new opportunities for investors in the coming years. 

Understanding Property Types and Investment Opportunities in Real Estate

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Despite a spike in home loan interest rates, the residential real estate market performed well, indicating a positive industry sentiment. 

Investing in the stock market is a game-changer for those who can monitor it regularly, as it requires investors’ full attention from 8:30 a.m. to market close. Because of its volatility, equity is no longer the best investment. People are now turning to real estate because it offers long-term benefits. It is regarded as the correct move, particularly when the sector is at its highest level. 

For example, despite the local water crisis, Gurugram has set all-time highs in property prices. Because of the proximity of offices in the surrounding areas, Delhi/NCR has become the preferred destination for IT professionals. As demand in Noida, Greater Noida West, and New Noida grows, many large projects have relocated there. 

Why do prices increase? 

As the government has announced numerous infrastructure projects in Uttar Pradesh, it is clear that NCR will be a new residential and rental income source for many people. At the E&Y Infrastructure Roundtable, Ajit Krishnan, EY India Partner International Tax and Transaction Services, stated, “Investments in renewable energy and roads drive India’s infrastructure growth, paving the way for sustainable development.” 

On February 8, 2024, Uttar Pradesh Chief Minister Yogi Adityanath announced infrastructure projects and public welfare schemes, including plans for 21 new airports in the city. Tourism in Ayodhya had already peaked with the opening of the Ram Mandir, with 1.12 crore visitors arriving before the temple was open to the public.

This is not the only factor influencing the current state of the real estate market. The geopolitical landscape has exerted significant pressure on the sector. According to Anarock Capital’s Flux report for the first nine months of FY24, PE investments declined by approximately 26%. During this time, foreign and domestic investors saw a decline in activity. 

Despite the presence of many bankrupt builders, Noida and Greater Noida West have attracted several large projects. It demonstrates that the real sector has the potential for regular income and significant lump sum gains. Gurugram has become a dream for those earning between Rs 15 lakh and Rs 20 lakh as property prices skyrocket. To match and reduce the huge price gap within Delhi/NCR, Uttar Pradesh has increased infrastructural development with basic amenities in the region to attract more buyers. 

To better understand this investment opportunity, consider Uttar Pradesh. The fluctuations in property values over the last few years demonstrate how dynamic real estate investing can be, with both growth and risk involved. 

Profitable investments. 

Although single-room sets are no longer as affordable as five years ago, they remain a sound investment.

Rental income is also at an all-time high in 2024. In 2020, two three-bedroom flats generated rental incomes ranging from Rs 10,000 to 12,000. However, they have risen to Rs 19,000 -25,000. 

As an adjacent city to Delhi, people are migrating to make a living and require a place to call home.  Purchasing or renting a home in Delhi has become costly, paving the way for the NCR region. 

Consider the following scenario to comprehend the investment and income: Assume someone invests Rs 10-12 lakh to create a one-bedroom kitchen set. In just seven months, this newly built one-bedroom apartment will begin to generate an average monthly rental income of Rs 15,000-16,000. With an initial investment of Rs 10-12 lakh, the average return on investment (ROI) is 15-18%. 

This example demonstrates the potential profit from investing in single-family homes. Even with modest investments, rental income can generate significant returns, making it an appealing option for real estate investors looking for consistent cash flow and long-term appreciation.

Residential Property: 

During unprecedented times, the real estate sector encountered significant challenges. However, the post-COVID scenario revealed a very different landscape. With many businesses returning to in-office work environments and discontinuing work-from-home arrangements, the residential real estate sector experienced a significant resurgence. 

Despite rising home loan interest rates, the residential market performed well. Recent studies have shown that escalating rental values are one of the key drivers of this demand surge.  Investing in ready-to-move projects is becoming increasingly appealing to buyers. 

A ready-to-move property presents a win-win situation based on past experiences. In contrast to new projects with uncertain possession timelines, ready-to-move projects offer immediate gratification and peace of mind. 

Several examples of this point can be found along the Gurugram-Dwarka Expressway and Greater Noida West, which serve as valuable case studies for investors. 

In 2023, 4.77 lakh residencies were sold in new projects. In pre-pandemic 2019, the share of freshly launched supply sales was substantially smaller, accounting for only 26% of the approximately 2.61 lakh dwellings sold that year. 

According to Anarock real estate research, NCR has the lowest absorption of newly launched homes among the top seven cities, with only 27 percent of the 65,625 units sold in 2023 being launched during the year. The remaining units were sold in projects that opened before 2023. Interestingly, Gurugram outpaced other markets in the NCR region, with at least 35% of the 36,970 units sold in Millennium City in 2023 being freshly launched.