Why Affordable Homes Are Lucrative Investments For NRIs
Out of the 30 million NRIs in 130 countries, a substantial number, particularly in the Association of Gulf Cooperation Council (AGCC) countries, are remitting their hard-earned savings back home.
In the Far East also there are countries such as Malaysia and Singapore where migrants from India are looking at investing in affordable homes in India. Owning a home while working away from home is in their priority as is evident from the encouraging response to several projects that are on display during property shows held abroad.
A favourable exchange rate, propensity to save and easing of remittance norms enable them to look at investments in property. A majority of NRIs in the Gulf are looking at affordable homes in the price range of around Rs 25 lakhs.
Even those in the higher income category are looking at affordable homes either as an investment option or in order to gift it to their relatives back home. A number of single bedroom apartments are clubbed together by serviced apartment operators due to demand for such units from corporates for executives on an extended stay in cities.
A survey by Cushman & Wakefield has estimated the housing demand to be over 2.3 million units across major cities in the next five years - between 2011 and 2015. While the supply level is estimated at one million units, the shortfall will be 1.3 million units. The report analysed demand for the top seven cities - Bangalore, NCR, Mumbai, Chennai, Hyderabad, Pune and Kolkata.
Of the total demand in the top seven cities, the mid-ranged housing segment is expected to drive the maximum demand (45 percent). A majority of the developers in the top seven cities are concentrating on this segment which would help reduce the supply-demand gap.
According to the report, the anticipated demand is likely to exert an upward pressure on property prices, especially in markets such as Bangalore, NCR and Mumbai where the demand-supply gap is high. For instance, in Bangalore, while the supply level is estimated at 1.11 lakh units, demand is anticipated at 2.87 lakh units.
On the other hand, the Tier II cities such as Pune, Hyderabad etc are likely to see appreciation of capital values at a slower pace compared to the Tier I cities during this time period. This is because of the relatively low demand-supply gap anticipated between 2011 and 2015 in Tier II cities.
Investments in affordable homes have several inherent advantages for NRIs as well with the extension of fiscal sops, developers' inclination to boost the supply level and the need for serviced apartments in cities where rental housing demand is growing with the migration of people on project assignments.
The budget for 2011 has given an interest subsidy of one percent on housing loans of up to Rs 15 lakhs which will boost the demand for low-cost housing. The subsidy is for homes worth not more than Rs 25 lakhs.
For developers of affordable housing projects, there are fiscal sops announced where profits from housing projects approved between April 1, 2007 and March 31, 2008 will be made tax-free if they are completed by March 31, 2012. There are NRIs who are looking at affordable homes as an investment option too.
This is because demand for rental housing is growing and NRIs are in an advantageous position to get better yield as well as capital appreciation over a period of time. The need for rental housing particularly in city's suburbs is going up due to shifting of corporates and MNCs as a result of expansions of their existing operations. A few serviced apartment operators are hiring blocks of apartments to convert them into serviced apartments for business visitors.
With the governments in the West keen to prop up the local economy with zero percent interest loans, NRIs in the West are in for a bonanza as they can borrow money and deploy in India to get better yields on investments in property. They can gift, sell and repatriate units up to two residential properties after a lock-in period of three years.
While the initial cash outflow is minimal, competitive rental yields will compensate for the EMI component of home loans. Moreover, fiscal sops enable them to minimise their tax liability. Investments in housing leased for a minimum period of 300 days in a calendar year is also exempt from wealth tax.