Hot Indian property destinations for NRIs in 2012
The Non Resident Indian
(NRI) might as well remember 2011 as the year of the 'lazy investor'.
For NRIs have gained 18% since August 2011, simply by remitting money to
India; no effort at all. But as we approach 2012, NRIs must take stock
of how best to use their remittances. The traditional favorite has
always been real estate. But in this volatile market,
how great an investment is it? Is this a good time to buy property in
India? What kind of property is a good bet? Let's try to find answers.
Commercial property
Is it a good time to invest in commercial property in India?
"Yes," says Sanjay Dutt, CEO - Business, Jones Lang LaSalle India.
"There are a number of reasons that come to mind. Firstly, India's
growth story remains intact with just some relatively minor turbulence
in the short term. Secondly, for NRIs, right now there is the straight
advantage of exchange rate. The rate will eventually stabilize with
Government intervention. Thirdly, property valuations, especially in the
commercial space, have come down and are currently undervalued by
15-30%. Fourth, some of the developers are significantly leveraged
(paying 13% interest rate for construction and 15% to 21% for land from
NBFCs and private lenders). As a result they now want to take some cash
out and invest in mid or low market fast moving residential. In short,
there is pressure on developers.
Lastly, vacancy rates in the
office space are expected to be high. For instance, out of the 60
million square feet of supply that is expected to come in by the end of
2011, 25% is expected to be vacant. This will force developers to either
lease cheap and/or sell cheap," he explains. "If you want sustainable
yields and capital appreciation, this is the best time," Dutt concludes.
Having said that, Berinder Sahni Associate Director, Investment Services,
India - Colliers International, advices that investors must stay
invested in a property for at least the next 5 years to see a good
return.
Which are the top cities for commercial real estate investment?
Sahni and Dutt, both list the following cities: Mumbai and Pune in the West, Delhi and NCR in the North and Bangalore, Chennai, and Hyderabad in the South.
What kind of commercial property should NRIs opt for? What are the potential yields?
There are 3 broad options in commercial property: front office space
(like banks, MNCs), IT office space and high street retail space.
The kind of property that you choose would depend on your budget and
risk profile. "In the case of office space, a good quality unit in Delhi
and Mumbai would come at a budget of at least Rs 15-20 crore. In other
cities like NCR, Pune, Bangalore, Chennai and to an extent in Hyderabad,
you would have to put in at least Rs 10-15 crore. These properties
would generate a rental yield of 10.5-11%," says Dutt.
Sahni
adds, "The minimum size for a good commercial office space will be 2500
square feet. IT office space may come at a lower purchase price but the
risk in IT spaces is higher right now. We believe that commercial office
space can give you rental yield of 8-9% pre tax while IT spaces can
generate slightly higher yields of 10-11% because of the inherent risk.
Also, as you go closer to prime locations like Central Business District
(CBD) areas, yields for all kinds of properties will drop to around 7%.
Retail properties are slightly easier to handle because it's easier to
find a tenant. Therefore, yields also tend to be lower at 6-7%. Moreover
you can buy smaller spaces, as small as 500-600 square feet, in retail
properties."
You can also choose the property based on your
risk profile. For instance, you can buy a space in an under construction
or new unit where you will be able to buy for cheap but you will also
have to put in efforts to find a tenant and lease out the property. "We
usually recommend our NRI
clients to invest in 'pre-leased' properties, that is, those properties
that already have a lease agreement in operation. You might have to pay
a little more as compared to under construction or fresh properties but
you are assured of lease rentals. Pre leased properties usually have a
3-5 year lock-in with a lease term of 9 years. Even smaller office
spaces will have a 3 year lease term," explains Sahni.
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