The top-performing India’s property hotspots

December 16, 2016 GN Property By   Syed Ameen Kader

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Selecting the right property in India is always a difficult task for non-resident Indians (NRIs). In order to make your buying decision easier, we take a look at the top performing cities in India that attract most NRI investors.

Major metro cities such as Mumbai, Bengaluru, Delhi-NCR, Chennai, Hyderabad and Pune continue to lead the chart as they have traditionally been the most lucrative investment hotspots for non-resident-Indians (NRIs). However, there are some other emerging cities such as Ahmedabad, Coimbatore, Cochin, Jaipur, Lucknow, and Mangalore that are also seeing a lot of traction due to increased industry activities and infrastructure development.

While Hyderabad, Bengaluru and Chennai are the IT hotspots, Mumbai is seeing Navi Mumbai’s advancement as a growth corridor due to the increasing saturation of the mainland. ”These cities are seeing a constant growth in employment opportunities, attracting people from all over the country. This has naturally led to a lot of new residential projects being launched, especially in the high-demand affordable segment,” says Ashwinder Raj Singh, CEO – Residential Services, JLL India. As a result, he adds, NRIs looking for lucrative returns in new developments in these cities can expect handsome growth in capital values over the mid-to-long term, and steady rental income in the meantime. ”Also, with the regulatory environment turning pro-consumer on the back of the imminent deployment of Rera, investing in residential property is all set to become even more attractive for NRIs,” says Singh.

The top five property investment hotspots in India:

Mumbai

Although property prices are highest in Mumbai, the financial capital continues to be the most attractive investment hotspot in India. The city is undergoing a transformation with many infrastructure projects completed and planned. ”The North-South and East-West connectivity has improved by leaps and bounds with the completion of new flyovers, Freeways, Metro projects, Monorail etc. This has made traveling quicker and more comfortable,” says Manju Yagnik, vice chairperson, Nahar Group, who is developing its flagship project Amrit Shakti in Chandivali, Andheri in Mumbai. It has over 40 high-rises that extend across 125 acres with lush green landscape.

According to Knight Frank global cities report 2016, Mumbai ranks 11th in prime rental forecast with 11.1 per cent growth ahead of London, which is projected to grow at 7.1 per cent between 2015 and 2019. The commercial city comes on 6th position in the skyscrapers rentals as per the Skyscrapers Index. Mumbai and Moscow had the highest rental yield of 10 per cent each during Q2 2016 among the top 30 Global Cities. The Mumbai Metropolitan Region (MMR) market has showed a healthy growth with new launches registering 29 per cent year on-year growth in H1 2016 compared to the same period last year.

Maharashtra is also among the few states that have taken the initiative of implementing the new Real Estate (Regulation and Development) Act, and are about to bring an interim Rera into practice. ”Some states such as Maharashtra have formed secondary rules such as Mofa (police case can be registered against errant developers) that will work alongside Rera to ensure greater transparency and accountability in the market,” says Shveta Jain, managing director, Residential Services, India, Cushman & Wakefield. Hence, she adds, states that have additional laws, as well as clear and precise Rera rules would see higher interest from investors.

Bengaluru

Bengaluru is another hotspot that has the best prices and the most conducive environment for investment. It is an end-user market driven by demand from corporates and the IT Sector. ”Bengaluru has consistently emerged as one of the top five investment hotspots on account of the expansion of its IT corridors, capital inflow by foreign investments due to IT and industrial developments, cosmopolitan hubs, improvement in connectivity across the city through extended transport services and Namma Metro,” says Visweswara H A, COO, Assetz Property Group. The real estate firm that has over 4,500 homes in various stages of construction is presently developing 63°East, Clover Greens and Marq projects in the city.

Despite the rising demand for homes in Bengaluru, Bijay Agarwal, MD and chairman of Salarpuria Sattva, says there has been no artificial escalation of prices and ”it has remained least effected (compared to other cities) by the real estate downturn”. ”Even demonetisation has not hit hard because it is a ‘white money’ market and buyers are mostly from IT and corporates who rely on bank loans for purchase of homes,” he adds.

According to Cushman & Wakefield, Hennur Road – Thanisandra Road in Bengaluru is one of the most attractive locations for investment. Located in North Bengaluru with good connectivity to the international airport and commercial hubs of Hebbal, the cluster has nearly 5 million square feet Grade A office space and 12,000 apartments at various stages of construction.

Sanjeev Birari, head of International – Sales, Mantri Developers Pvt. Ltd, says, ”Majority of the NRIs prefer Bengaluru due to quality education facilities, pleasant climate, cosmopolitan crowd and realistic property prices, besides massive growing IT industry providing scope for good rentals and capital appreciation of the property.” Mantri Developers has a number of projects including Mantri Manyata Energia, Mantri Manyata Lithos and Mantri Webcity in North Bengaluru; and Mantri Serenity and Mantri Courtyard in South Bengaluru.

Delhi-NCR

Delhi-NCR also continues to be among the top five for obvious reasons, being superior infrastructure, better connectivity and consistent employment opportunities. In Gurgaon, the most sought-after destinations are Golf Course Road, New Gurgaon and Sohna Road.

According to Cushman & Wakefield, commercial activity is expected to gain traction in Gold Course Extension, Sohna Road, Gold Course Road and NH-8. This cluster currently has nearly 9.6 million square feet of Grade A office space under construction. More than 35,000 apartments launched in the past few years are at various stages of construction. ”This cluster primarily offers mid to high-end dwelling options from several local, regional and national level developers. This market offers both plotted developments and high-rise group housing projects,” says Jain.

The capital values in this cluster are in the range of Rs3,800 to Rs9,500 per square feet and some of the prominent developers who are active in this region include Chintels, Mahindra, Sobha, Indiabulls, Cosmos, Vatika, Ramprastha, etc. Social infrastructure like schools, multiplexes, hospitals and hotels are also being developed in this cluster.

Hyderabad and Pune

Investors’ interest in cities such as Pune and Hyderabad continues to be substantial as these two cities continue to have good potential due to their relatively strong office markets, which are slated to gain further traction over the next few years. ”The strength in their office markets would likely trickle down to the residential sector, which would see greater demand over the next few years,” says Jain of Cushman & Wakefield. Also, she adds, the state governments in both these cities are committed to developing infrastructure, which would definitely improve their real estate markets.

”In my opinion the tier 2 cities like Pune and Hyderabad are now evolving as destinations for investors. Hyderabad, which had witnessed a lull for some time before the formation of the new state is now seeing an upsurge as the city has excellent infrastructure with wide roads and regulated traffic besides being another hot destination for IT companies,” says Kamal Sagar, founder & chairman, Total Environment Building Systems Pvt Ltd.

Experts say Hyderabad recently showed a great inclination towards the luxury segment, mainly on account of political stability and infrastructure development.

Pune offers benefits in abundance like massive education facilities, affordable price brackets of properties across every segment of housing, development in infrastructure, engineering and automobile firms contributing to overall employment generation, and overall good standard of living.

”Pune is among Top 10 investment destinations in India according to Knight Frank 2017 report. Hinjewadi as an IT destination [with upcoming Rajiv Gandhi Infotech Park attracting IT giants] and Talegaon, Pimpri & Pimpri Chinchwad as one of the largest auto and auto ancillary hubs in India make Pune an attractive investment destination for NRIs,” says Prashant Bindal, chief sales officer, Lodha Group.

In Hyderabad, he says sustained growth of the IT/ITeS and other services sectors will ensure these sectors will be the largest consumers of office space and the biggest drivers of the Hyderabad residential real estate market during the investment horizon of next five years.

India removes roadblocks to realty FDI

The Indian government is taking big steps to tap into non-resident Indians (NRIs), who are also among the largest property investors in India. In addition to recent measures such as the passing of the Real Estate Regulatory Act (Rera) in the parliament and the demonetisation of banknotes, the government has also been streamlining existing polices or introducing new ones to make real estate investment easier and attractive. Recent developments include foreign direct investment (FDI), goods and service tax (GST), Benami Act, and real estate investment trusts (Reits).

Although FDI in real estate has been allowed since 2005, the recent simplifying of FDI norms is expected to provide an alternative route of funding for construction and real estate projects. ”The government removed two major conditions related to minimum built-up area as well as capital requirement,” says Rajeev Ajmera, managing director, Prime Lifespaces. ”A foreign investor will be permitted to exit and repatriate foreign investment before the completion of a project under automatic route, [but there is] a lock-in-period of three years.”

Moreover, the transfer of stake from one non-resident to another without repatriation of investment will not be subject to any lock-in period, nor does it require government approval. Nonetheless, an investor may exit at any time if the project or trunk infrastructure is completed before the lock-in period lapses.

”Furthermore, liberalising norms for FDI in real estate, the repatriation benefits of up to two residential units and increasing the annual repatriation limit up to $1 million [Dh3.67 million] out of NRO account arising out of income from sale and rentals, have made investing in real estate a lucrative opportunity for the NRIs,” says Kamal Sagar, founder and chairman of Total Environment Building Systems.

At present the real estate sector is subject to various taxes. However, soon the goods and service tax (GST) shall be applicable all over India. It will result in uniform taxation, while all input costs will also be similar. There are also various elements of noncreditable tax costs such as excise duty, CST and entry tax, paid by the developer on procurement of goods. This cost is built into the pricing of the units.

”All these tax costs add up to anywhere between 22-25 per cent of the price of the units. The proposed GST is to replace these multiple taxes with a single tax and also to ensure smooth flow of credits through the chain,” says legal expert AR Gupta, senior partner at AR Gupta and Associates. He says GST should reduce the construction cost and thereby aid in reducing or at least maintaining the current prices of real estate. Stamp duty is not proposed to be included under GST.

The implementation of Reits has also given a much-needed fillip to the otherwise sluggish sector in the past few years. ”Reits [help] developers raise capital and pave the way for exiting investments, thereby encouraging growth like in other countries,” says Visweswara H. A., COO of Assetz Property Group.

Incentives in the form of tax savings were also recently introduced by easing tax on home loans. The government, in its fight against black money, has implemented the Benami Transactions (Prohibition) Amendment Act, 2016, which came into effect in October. The amended act gives the government powers to confiscate benami property, which refers to property transactions that aim to circumvent tax regulations, besides imprisonment of up to seven years and a fine of up to 25 per cent of the fair value of the asset.

Source: Syed Ameen Kader, Special to Property Weekly