NRI Real Estate and Property Investment in India
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Realty Market Ripe for NRIs
Monday, December 22, 2008

For the Gulf NRIs weighing his options diligently and with foresight, some attractive opportunities are on offer in the real estate sector. Consider these facts: Lenders are slashing home loan rates; Prices of real estate have slipped in tandem with the stock indices; Recession in the United States and Europe has forced many NRIs to rethink their property investment plans in India leaving thousands of plush homes in ‘NRI colonies’ without buyers. There has been a drop of 50-60 per cent bookings by the NRIs over the last three months owing to tight liquidity conditions in the international markets. If 100 bookings were being made earlier, today that’s not more than 30. There have been atleast 15-20 percent cancellations over the last few months. Developers expect the situation to continue till the liquidity situation improves in foreign markets.

This one time at least, NRIs in the Gulf have an advantage over those in the West as the GCC economies have been much less affected by the meltdown. Apart from some layoffs, there has not been much adverse action such as slashing of earnings. Unlike those in the West, it is unavoidable for the Gulf NRIs to have a home of their own – not necessarily their ancestral home which they left behind, but a more modern and better-equipped place like the homes available in the many housing complexes developed exclusively for NRIs across the country.

NRIs, even those in the Gulf, get accustomed to certain amenities which they wouldn’t mind having back home as well. They need to have malls, multinational restaurants, high-end entertainment areas, good hospitals and schools and maybe even a golf course when they return to settle here permanently. And, that may be sooner than one had planned. At this point, with the US and UK biggies pulling out, such homes may be available at heavy discounts. Then, the second bit of good news. Home loan rates have begun their southward journey, following a fresh initiative from the Reserve Bank of India (RBI). HDFC (Housing Development Finance Coporation), India’s biggest home loan provider, has taken the lead and lowered the rate it charges for all loans and deposits by 50 basis points.

The Mumbai-based finance company will charge 10.25 percent for loans of up to Rs 2 m effective Dec. 22. The rate on loans of more than Rs 2 m was reduced to 11.25 percent. The lending rates have been cut as a result of a reduction in funding costs. State Bank of India and other banks have cut rates after the central bank lowered a key interest rate three times since October to 6.5 percent. Interest rates are headed down and the cost of borrowing bulk deposits has fallen by 200 basis points over the past two weeks.

India’s public sector banks said earlier this week that they plan to offer home loans of up to Rs500,000 at 8.5 percent. The rate will be limited to 9.25 percent for borrowers seeking loans of Rs500,000 to Rs2m for a five-year term. NRI home loans are loans available to Non-Resident Indians for the purposes buying houses that are under construction or for sale. They can also be availed to buy a plot of land or to renovate/improve an existing property. The home loan rate charged by an NRI does not differ much by the interest rate charged by an Indian for his home loan but the tenure for such loans differs to a great extend. NRI home loans are extended for much shorter period as compared to the normal home loan. The loans tenure for NRIs extends from 7years up to a maximum tenure of 15years where as the maximum tenure for a resident is from 25 to 30 years. Also an NRI cannot opt for a loan tenure that exceeds beyond his retirement age or 60years, which ever is earlier.

Besides an NRI can only get 85 per cent of the loan amount and the remaining 15 percent has to be brought himself by the borrower. The loan amount depends on the individual’s gross monthly earnings. This amount is normally up to 36 times of the gross monthly income but there is also a maximum limit on this amount.

The real estate market in India might be facing one of its worst slowdowns, but its position relative to markets in the rest of the Asia Pacific region remains promising. In terms of investment, Bangalore, Mumbai and New Delhi are all new entrants to the top 10 markets in the Asia Pacific at fourth, seventh and ninth place respectively by PricewaterhouseCoopers.

Yes, prices are low. So, it is wise to start planning a real estate investment now or wait for the market to bottom out. Quite obviously, the latter would seem logical. However, how can one tell where’s the bottom? “The problem is that everyone is trying to catch the bottom, and that is what needs to change,” says Anshuman Magazine, Managing Director of CB Richard Ellis in India, a global real estate consultant. Prices may or may not drop further. Unlike the United States or the United Kingdom, there is no 30 years old data that is available here for prediction purposes. Also, whatever data is available; it is difficult to verify its authenticity. Therefore, the consumer should not go by the expectation that prices will fall further, because there is no way to know for certain.



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