By
Ms. Binaifer Jehani, Crisil Research
Moving
beyond the typical items on a home-buyer’s checklist NRIs must review several other factors
Non-resident
Indians (NRIs), looking to invest in the Indian residential real estate market,
have various options under the gamut of newly constructed houses & resale
properties.
Moving
beyond the typical items on a home-buyer’s checklist, like pricing, developer’s
/ promoters track record & quality of construction, NRIs must review
several additional factors.
 |
| Binaifer Jehani, CRISIL Research |
This
includes factors like their investment objectives & horizon, expectations
of future income generation in the form of potential rental accruals &
appreciation in capital values.
Under Construction Apartments Vs Recently Built Flats..
NRIs
could consider investing in new constructions, which include both flats that
are under-construction and those that were built less than five (5) years ago.
A
majority of the newly constructed properties are replete with a complete range
of amenities - a clubhouse, gymnasium, community halls & so on, in addition
to hi-tech home security solutions.
However,
even though an under-construction flat promises higher yields, considering that
NRIs are based in a foreign land, investing in such an asset could turn out to
be a riskier proposition.
NRIs
could encounter hassles like making payments linked to the stages of project
completion, monitoring the progress from a distant land & envisaging any
possible delay in execution and handover of the project.
In
addition, weak demand in the residential real estate market has caused many
developers to postpone their project plans.
In
this context, investing in newly constructed ready-to-move-in flats would be a
better proposition.
This
option offers NRIs the flexibility to make the entire payment at one go, thus
minimizing risks arising from fluctuations in the dollar-rupee exchange rate.
They
could seek a small ticket housing loan to ensure better due diligence on
paperwork at the developers’ / promoters end.
Newly
or / recently constructed flats, with all the modern amenities & security
solutions, also offer significant returns to NRI investors, both in terms of
monthly rentals & appreciation in capital values over the longer run.
Tapping
the Resale market: Redevelopment Holds the key
Within
resale properties, there are 2 categories - one, in which the project carries
scope for additional floor space index (FSI
- in case of Mumbai) and two, in
which there is no scope for FSI enhancement.
Redevelopment
necessitates all the existing residents to temporarily relocate to an alternate
residence for at least 3 to 5 years, at the developers’ cost. Upon completion
of the property, flats are handed over to all residents, with a significant
mark-up in the FSI.
From
an NRI investors’ perspective, relocation is a non-issue considering that
he/she is purely looking at the asset from an investment angle and not for
accommodation purposes.
Upon
completion of the redevelopment process, the NRI investor receives a newly
constructed flat,which is larger in size. In certain cases, she also receives a
monetary compensation in addition to the flat.
On
the other hand, if an NRI invests in a resale property without extra FSI,
he/she does not stand to gain significantly.These properties would not
typically offer the extent & nature of amenities which most of the new
constructions offer, in the form of gated townships and high-tech automation
gadgets.
Succinctly
said, investing in a project that is newly constructed or / built less than 5
years ago, will reap larger returns for NRI investors, by offering a higher
rental income and also appreciation in value terms.
In
comparison, investing in an under-construction project may offer a greater
upside in returns, but timeline issues and staggered payment schedules may
emerge as hindrances.
In
case of resale properties, it would be most advantageous for NRIs to invest in
old properties (having unutilized FSI) which could be taken up for
redevelopment, thus promising a newly built flat with additional FSI in return.
About
the author...
Ms.
Binaifer Jehani is director at Crisil Research.
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