Is it really the right time to buy property in India?

(MENAFN- Khaleej Times) India's property sector will sustain positive trends to see good times ahead due to positive measures taken by the government of Prime Minister Narendra Modi to introduce land reforms and open up the market for foreign investment, experts and developers say.

Speaking to Khaleej Times on the sidelines of a property exhibition in Dubai, developers said a high gross domestic product of more than seven per cent, strong fundamentals and government initiatives for the sector indicate robust market growth this year.

JLL also expects that housing sales to rise to 192,000 units in seven major Indian cities this year as compared to a drop of 175,000 in 2014. In its latest report, the consultancy said the sector - including housing, commercial, retail and hospitality - is expected to grow at 30 per cent over the next decade and the market size may hit $180 billion by 2020.

Some participants at the property expo say that prices for housing units are expected to rise on the back of stable interest rates, growing demand for housing units and the government's spending worth billions of dollars on infrastructure to build roads, ports, power and other developments projects. They said it is right time for non-resident Indians, or NRIs, who account for around 10 per cent of the growing market, to invest in the real estate sector due to weakening rupee, giving an advantage to buy a property in their motherland at a price which prevailed in 2008.

"Most of the builders have not launched the properties at higher price and the rupees is continuing to be weak. It can't be a better time than this for the NRIs to pick up their dream home or investment properties back in India," Sunil Jaiswal, president of Sumansa Exhibitions, the organiser of the Indian Property Show, told Khaleej Times.

Referring to a recent survey conducted by Sumansa Exhibitions in the UAE, he said majority of NRIs will be looking to invest in property sector during the next three to six months.

The survey, with a sample size of 15,000, showed that around 49 per cent of NRIs having budget from Rs2.5 million Rs7.5 million are keen to invest in reputable housing schemes in Mumbai, Bangalore, Pune, Delhi, Chennai, Goa and Chennai, among others. Around 55 per cent of NRIs will be buying their dream homes for their own use while 23 per cent will be pouring money in the sector as an additional investment.

"For NRIs, this is an appropriate time to invest in Indian real estate as the dollar appreciation against the rupee is at the peak. With this dollar appreciation, an NRI would be buying a property in India at a price which prevailed on 2008," said Ranjeeth Rathod, managing director for Chennai operations at DRA Estates.

Mahebub Usman Darvesh, managing director of Darvesh Group, expressed the similar views and said this is the right time for NRIs to invest in property due to slow market activity and chances to have a deal of their choice through bargains.

"NRIs in Dubai already witnessed approximately 20 per cent decrease in the rupee's value as they are getting approximately Rs18 for a dirham compared to Rs14/15 last year. So, this is the right time to invest and earn good returns," he said.

Ashwin Balasubramanian, director of Buildmann Group in Bangalore, said the Reserve Bank of India's stand on controlling inflation as a primary objective has been consistent since the last two years, and it appears that the government policy is also aligned with it. "The recent devaluation in the rupee has more to do with fears of monetary tightening by the US Federal Reserve. Short-term devaluation of the Indian rupee, if it happens, will be a great opportunity for NRI investors to put money into Indian real estate."

"I advise NRIs to invest in residential projects that have good potential for capital appreciation and not be too concerned about immediate rental value. This is because rental yields in residential areas are low, but capital appreciation in the right locations and projects can more than compensate for any devaluation that may occur in the rupee. Moreover, residential assets are less risky and much more liquid assets than commercial assets," Balasubramanian told Khaleej Times.

More reforms required

Referring to initiatives such as Housing for All by 2022, a plan to set up 100 smart cities, presenting the real estate regulatory bill to boost consumer confidence and introducing real estate investment trusts, or Reits, in India, developers expressed confidence over steps taken by the Modi government in the past year to revitalise the sector, contributing around 11 per cent to the country's GDP.

They were of the view that real estate industry will be one of the major beneficiaries of a GDP growth of over seven per cent in the coming years; corrective measures, however, should be adopted at the earliest to fix bottlenecks and issues being faced by the sector.

Elaborating, they said billions of rupees allocated for building 100 smart cities is a welcome step, but the figures look unrealistic considering ground realities. Moreover, providing a home to approximately 23 million homeless people requires a huge investment and it may prove an uphill task for the government.

"Real estate in India needs to be given an industry status immediately and the central government should also take necessary steps to regulate the operations of the industry at the state level. While we appreciate the government's initiative of bringing a regulatory bill for builders, it should also think of bringing in a single-window system for quick project approvals and sanctions," said Rathod.

Dr Naresh Bharde, chairman and managing director of Excellence Shelters, said the government has taken several favourable steps for the real estate sector.

"The Modi government is encouraging the development of smart cities. The relaxation and friendly policies gave impetus to increase investors by NRI investors as well. Not only this, the open FDI [foreign direct investment] policy brought the promise of opportunities for cheaper capital for smaller projects as well, improving quality and delivery of low cost and affordable housing projects. Schemes like Reits has in fact, already been introduced in India. All in all, the Modi government has brought with it a rather positive sentiment in the industry."

Balasubramanian said the government's actions to control inflation and attract foreign investment have been positive. "This creates the foundation for long-term economic growth in India, in turn creating a conducive environment for real estate investment in India. Few reforms in Reit regulations have been made, but we need to do more to make investment in Indian Reits as attractive as other markets such as Singapore," he said.

Paresh Hardwani, chief executive of Delpha Realtors in Pune, said real estate companies looking to list their commercial assets haven't had their task made any easier. Elaborating, he said developers listing their commercial assets as Reits will get a one-time exemption on capital gains when the trust lists. So far, the preferred route for developers has been private equity players.

"The industry has, for some time now, been asking for dividend payouts for Reits to be granted pass through status. What this means is that the rental income from such assets will not have any tax liability when returned to the investors or unit holders. Usually, countries do not do tax payouts by Reits as long as 90 per cent of the profits are returned."

In a country where the fascination for real estate (and gold) runs deep, he said it had been hoped that Reits would provide retail investors with another avenue of investing in real estate. Unfortunately, that is still some time away.

"Foreign investors could still bite though. Rental yields in India are among the highest in the world. The supply of Grade A office spaces in metropolitan clusters has increased considerably in the last five years. And with stability having returned to the rupee, investors can forecast their returns much more easily," Hardwani said.