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Why NRIs are rushing to sell properties at a discount

NRIs have been selling upscale properties in Delhi as the uncertainty because of the pandemic, low rentals and rupee depreciation makes them less attractive, compared with the option of high-return NRE deposits, but this is not a uniform trend as those who own properties in Mumbai and Pune have a different approach.

The resurging COVID-19 pandemic has posed many questions for NRIs who own properties in India or plan to buy one: Has it increased the their emotional connect with their home country and prompted them to spend precious dollars in Indian properties? Are they shopping for real estate for investment or to live in? Also, are NRI selling homes because of uncertainties posed by the pandemic? Here’s a look at what’s happening on ground.

Sanjay Sobti (name changed), an NRI, has not visited India for almost 18 months. Unsure about how the situation may evolve after the pandemic and the costs involved in managing the property, especially now that rents have fallen almost 10-15 percent during COVID-19, he gave the mandate to sell his ancestral property to a well-known property consultant. The property, located in a posh area in Delhi, was sold a few weeks ago for Rs 50 crore.

If one takes into account recent property deals in Delhi’s posh locations, as many as 30-40 percent of high-end properties that have been sold in areas such as Sunder Nagar, Golf Links, Jor Bagh involved NRI owners, real estate experts told Moneycontrol.

From September 2020 until March 2021, several properties worth Rs 20 crore to Rs 70 crore in posh areas of Delhi had NRI sellers. A handful of deals that were sealed in Vasant Vihar in the range of Rs 10 crore to Rs 80 crore also involved NRIs.

“These properties – both floors and buildings -- have been typically sold to either lawyers or industrialists whose places of work are located close by,” said Amit Goyal, CEO, India Sotheby's International Realty.

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As for the price, these properties have been sold for prices that are almost 25% lower than pre-demonetisation levels.

“Price reduction has occurred on account of multiple factors such as demonetisation, added GST outgo on under-construction properties, economic slowdown, circle rate issues and COVID-19,” he said.

The main reason for most NRIs selling their properties in these markets is to do with logistics, lower rental yield and rupee depreciation.

“Logistical issues that include managing properties, titles etc pose a major challenge to NRIs. Besides, rental yield is just about 1.5 percent per annum. This barely takes care of inflation levels and depreciation of the Indian rupee. Since the last eight-nine years, both the property prices and currency have depreciated. This is prompting NRIs to consolidate real estate assets in India,” Goyal said.

Another reason is that NRIs receive tax free income on NRE fixed deposits for which the interest rates are in the range of 5.5 to 6 percent. “While there is a 1.5% yield on rental income, the amount kept in NRE fixed deposit after selling these properties gives them tax free interest at the rate of 5.5%,” he added.

The scenario in Maharashtra, however, is different. Most NRIs own high-end residential properties located close to commercial districts in areas such as Signature Island near BKC, Nariman Point or Golden Triangle in South Mumbai. In Pune too, they have portfolios spread across Koregaon Park, Bundgarden Road and Viman Nagar where the rents range from Rs 2 lakh to Rs 6 lakh per month.

Local brokers told Moneycontrol that they have been receiving calls from NRIs asking them whether they should hold on or sell their assets in India considering that the situation is evolving on account of the second wave of COVID-19 setting in.

“Most NRIs who own these high-end properties in Mumbai and Pune have decided not to divest right now and are adopting a wait and watch approach. They are also willing to take a haircut of 10 to 15 percent on rentals,” says Ritesh Mehta, Senior Director & Head – West India, Residential Services, JLL India.

But if the situation persists, there may be a few NRIs who may decide to sell and invest in markets where the pandemic is under control or has been managed better. Besides, the yield on rentals in those countries is around 3-9 percent, he said.

Are NRIs buying properties in India?

A recent consumer survey conducted by ANAROCK showed that at least 73 percent of NRIs preferred properties priced between Rs 90 lakh to Rs 2.5 crore. In the pre-COVID survey, just 41 percent preferred properties within this price bracket – the most favoured were affordable and mid-segment homes. Moreover, 3 and 4 BHK options currently top their wish-list. Among the cities, the IT hubs of Bengaluru was favoured by 24% NRI respondents, followed by Pune with 19%.

Until the first wave of the pandemic, 63% of the polled NRIs had stated that they were being driven by the uncertainties posed by COVID-19. Luxury properties have emerged as a hot favourite with NRIs because of the depreciating rupee value translating into greater buying power, coupled with ongoing developer discounts and offers. The majority of NRIs is buying for end-use, not as investments.

According to the survey, at least 67 percent of the polled NRIs were looking for ready-to-move-in homes. If we consider the overall survey trends (including NRIs and resident Indians) just 29 percent preferred to buy RTM homes, with another 27 percent respondents preferring under-construction properties that will be delivered within a year.

NRIs have always been keen on investing in India. It was only during 2013-2017, when there was a slowdown in demand by the NRIs due to the overall sentiments. However, in an interesting twist to the post-COVID-19 real estate story, NRIs are once again scouting for homes in India with most eyeing luxury properties.

“Now with the second wave coming in and the subsequent lockdowns being announced across different cities and states we may see some slowdown in demand. That said there is also no denying that the real estate sector is much better prepared today than we were back in 2020. Hence, in that respect the impact of the rising Covid-19 cases across the country may not be as significant on the overall housing sales as witnessed last year,” said Shajai Jacob, CEO - GCC, ANAROCK Property Consultants.

Another report by 360 Realtors’ has said that $13.3 billion have been pumped into real estate in FY 21. The investment volume has increased by 6.4% compared to the previous fiscal despite the overall market sentiment taking a beating on account of the pandemic. The reduction of stamp duty in states like Maharashtra and Karnataka also contributed to the trend.

GCC continued to be the major source of NRI investments in India. Collectively, GCC accounted for around 41% of the total investments. Investment inflows from the expat community in the US comprised 17% of the total house purchases, followed by Singapore (12%). Other major markets included Canada, UK, Germany, Kenya and South Africa.
Vandana Ramnani
first published: Apr 15, 2021 05:40 pm

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