Having invested in real estate for more than 15 years, US-based Dr Renuka Divakaruni is currently looking forward to exiting her investments in Bengaluru.
"For non-resident Indians like us, it is a constant challenge to deal with a lack of transparent and lengthy paperwork, and local policies to sell or buy an asset in places like Bengaluru. Having invested in multiple properties in east and north Bengaluru, I am finally considering exiting the assets," she added.
Like Divakaruni, other NRIs Moneycontrol spoke to said maintaining the property is another challenge, especially with rental residential assets.
Kiran Kumar, Vice President at Hanu Reddy Realty who is brokering the second property of Divakaruni said, "Most of the NRIs today have already invested about 6-7 years back when the rupee was much stronger against the dollar. Today, exiting the same assets gives them lower returns after the 20 percent TDS taxation. And with high capital prices in prime locations of the city and the upcoming general elections next year, NRIs are not willing to reinvest as of now."
More NRIs face problems in managing assets
Around 24 percent of NRIs face challenges in managing rental properties in India, according to a survey by NRI-focused fintech company SBNRI Technologies Private Ltd.
The survey included more than 4000 NRIs primarily based out of countries like the US, UK, UAE, Singapore, and Canada.
On the other hand, 6 percent of NRIs from Canada, the US and other countries have to face the similar issue of dealing with tenants directly. While 7 percent of NRIs from Canada, followed by other countries, transfer the burden of dealing with tenants via power of attorney to family and friends.
The SBNRI survey report also disclosed that 4 percent of Singapore, US and Canada-based NRIs conducted the inspection and maintenance of rental properties themselves during their visits to India.
"About 5 percent, 3 percent, and 1 percent of NRIs from the US, Canada, and Singapore, respectively, relay inspection and maintenance duties on property managers. Lastly, 4 percent of Canada and Singapore-based NRIs and 5 percent of US shift maintenance responsibilities on tenants," the report said.
Local brokers in Bengaluru say this is one of the major reasons why NRIs are looking for property management companies before investing in the city's real estate. "However, given the large ticket-size investments, trust issues continue to remain even with property management companies," Shubham Banerjee, one of the founding members of SBNRI, told Moneycontrol.
NRIs eye commercial real estate for higher returns
Balaji Badrinath, managing partner at the local office of US-based real estate consultant Coldwell Banker, said that for Bengaluru, the return on residential real estate is about 2 percent while commercial real estate (CRE) is about 6 percent.
"However, for commercial real estate, the capital required is huge—more than Rs 15 crore on average—thus it often poses several challenges for the NRIs," he added.
The survey by SBNRI added that about 52 percent of NRIs consider investing in CRE to diversify their portfolio in the Indian real estate segment. This exhibits CRE as one of the most preferred asset classes for NRIs over others, like the residential segment, it said.
Banerjee added that fractional ownership has played a major role in shifting NRI interests to the CRE segment.
Fractional ownership is when the investor splits the costs of an asset —usually a sizeable one, like a property—with others while retaining a portion of ownership and usage rights to the asset.
In this way, NRIs no longer have to inject Rs 5-10 crore to purchase commercial property. Instead, a set of investors can pool their funds as minimum as Rs 25 lakh to purchase a Grade A commercial property.
The SBNRI report reveals that NRIs from top countries investing in CRE, including Singapore (9 percent) and UK-based NRIs (8 percent), outperform the investments made in the residential sector, with 6 percent of NRI investments. On the contrary, for UAE-based NRIs, about 7 percent make investments in CRE, while 9 percent prefer the residential property segment.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
