Israel-Hamas war may attract NRI property investors to India, say experts

Experts said the buoyancy in the Indian market offers better capital protection than the conflict-torn West Asian region and the US and European markets.

Salman Qureshi, a non-resident Indian based in Dubai, sold his property a month ago for Rs 13.5 crore after having bought it for Rs 11 crore in 2017.

"The way property prices are rising in Dubai, I should have waited for some more years to get at least 40 percent return," Qureshi said. He is now looking out to invest in a home in Bengaluru, given the current market conditions and instability in the West Asia region.

With the onset of the Israel-Hamas war, the major regional equity gauges fell in the first week of October, led by a 7 percent drop in Israel’s benchmark TA-35 stock index, its biggest loss in more than three years, according to Bloomberg.

Experts said volatile market conditions, along with rising real estate prices, will boost NRI investments from Dubai in Indian markets such as Bengaluru, Pune and Hyderabad. However, even amid a surge in demand from NRI investors, the conversion rate has fallen in view of the upcoming general elections in 2024 and rising real estate prices.

War impact

Related stories

Souptik Datta

Sub Editor|Moneycontrol

• 
  If illegal floors can't be razed, demolish the building, says Karnataka High Court
• 
  Karnataka RERA asks Ozone Group to repay homebuyer's home loan, clears all liabilities on buyer
• 
  India turns 2nd fastest-growing data center market in Asia-Pacific with 28% growth in capacity

According to Ashish Sharma, city head for Bengaluru at the ANAROCK Group, NRI investments in Bengaluru primarily come from the United Arab Emirates, including Dubai, and from western countries such as the US and the UK.

Data from Knight Frank India shows that investments from Dubai into India from 2018 to 2022 touched $2.7 billion, with $565 million coming in last year.

“Almost 90 percent of our clients who are NRIs are currently looking for capital protection. Regions like Dubai and Bahrain rose as NRI investment destinations post-Russia-Ukraine war,” said Balaji Badrinath, managing partner at the local office of US-based real estate consultant Coldwell Banker. “However, now, with increased conflict in the region, more people are looking to shift investments to India, at least 15 percent, from the recent queries we have.”

Experts said the buoyancy in the Indian market offers better capital protection than the conflict-torn West Asian region and the US and European markets.

Ritesh Mehta, a senior director at Jones Lang LaSalle, said the Indian micro-markets offer positive indicators for long-term investment.
"NRIs who are looking to switch will invest Rs 80 lakh to Rs 1 crore in Bengaluru, but in Dubai, they would invest Rs 2-4 crore,” he said. “Rental yields in Dubai (8 percent YoY) would be higher than say in Bengaluru (3-3.5 percent YoY) but… in Bengaluru, the capital appreciation would be 8-12 percent (YoY) whereas Dubai would see about 12-15 percent YoY."

Real estate in Dubai continues to rise

Vijay Sawlani, a consultant at Dubai-based Property Junction, said prices in Dubai have jumped by 15-18 percent over the past six months, and in some prime properties in the downtown area, by 30 percent.

According to experts, prices continue to increase as Dubai attracts more investors globally.

Sawlani added that for a typical one-bedroom apartment, the investment would be Rs 1.5-1.8 crore. A two-bedroom apartment would require an investment of Rs 2.5 crore to as much as Rs 10 crore.

"For the same person investing for a 2BHK in a good location in Bengaluru would have to invest a minimum of Rs 80 lakh to Rs 1 crore and can go up accordingly," he added.

NRIs cautious

According to data from the ANAROCK Group, there has been a 10-15 percent jump in demand from NRIs in Bengaluru in the first nine months of 2023 as compared to the corresponding period in 2022. However, local brokers said that though the queries have increased, the conversion rates have slowed.

Amit Goenka, managing director of Nisus Finance, said the conversion of NRI investments in Bengaluru has dropped to 5-6 percent from 8-9 percent last year.

"The capital prices in Bengaluru, say across the prime locations, have jumped by at least 20-30 percent since last year. Thus, it may further grow by only 10-15 percent over the next 3-5 years. This, coupled with the upcoming Indian general elections in 2024, has put several NRIs in wait-and-watch mode," Kiran Kumar, Vice President of Bengaluru-based Hanu Reddy Realty said.

Even with sustained demand, NRI investments in Bengaluru remain soft.

"Job layoffs continue in cities like Bengaluru after a major IT slowdown at the beginning of the year. Altogether, the conversion rates of NRI investments compared to demand have dropped over the last few quarters. However, it won't taper down further despite global headwinds," Goenka added.