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Tips for NRIs investing in commercial property in India

Posted on Sep 20, 2013

For Non Resident Indians (NRIs) looking at investing in Indian property today, the task is challenging. On one hand, with the rupee touching all time lows against the dollar, it appears to be a great time to remit funds to India for investment. However, on the other hand, with India's growth story looking bleak, the prospect for high returns seems an uphill task. For Non Resident Indians with big budgets and who have the appetite for some serious real estate investing, here's an option you might want to consider.

If you are keenly looking at investing in property in India, consider commercial spaces. "Today, NRI's are buying commercial properties for investment. Of course, HNIs also continue to plough huge amounts of money into high-ticket commercial properties in the quest for yield. Private bankers and wealth management firms confirm that their clients have actively started investing in commercial properties after staying away in 2009 and 2010. These investors have bought into commercial properties because they seek assets that can protect their portfolios from inflation and stock market volatility. The possibility of diversifying your portfolio, the sheer pride of ownership and the benefits of the longer leases that typify commercial tenants are the other reasons why an investor should look at commercial real estate investing" says Ramesh Nair, COO - Operations, Jones Lang La Salle.

So if you are looking at commercial property, here are some tips that might help you.

Location
"Investors need to establish the soundness of the location and its demand/supply dynamics. If they do not engage in sufficient research, they may end up buying into micro markets which have or will have high vacancies," Nair says. NRIs must ensure that the economy, job market and population growth in the market is healthy.

"Today Bangalore and Mumbai offer the best investment opportunities for commercial," he adds.

Type of property
There are different kinds of commercial properties that are available. The popular ones are retail and office spaces. "Till a few years ago, only large units were available in both, making it difficult for a small investor to invest. However, there has been a change and smaller spaces are becoming available," says Pankaj Kapoor, Founder and Managing Director at Liases Foras Real Estate Rating & Research Pvt Ltd.

"Many developers, especially in cities such as Mumbai, are today offering smaller units of space (as small as 500-1,500 square feet) in Grade A buildings. Investors looking at retail space can now consider a multitude of affordable options in free-standing high street outlets or shops in malls," Nair says.

In fact, if you are looking at buying retail space, Nair says it is advisable to look at high street rather than a mall as a strata sold mall is a recipe for disaster. In a strata sale model, shops in a mall are pre-sold to individual investors. The developer thus restricts himself to selling a store as a unit and investor can hunt for a tenant. The problem arises because the model has no control over trade and tenant mix and there is no cohesiveness to the mall to attract customers.

Out lay and expected returns
Experts suggest that the minimum budget you should have in mind for a commercial investment is Rs 3-4 crore.

Kapoor pegs the rental yield from commercial properties at 12%. Rental yield is nothing but the annual rent divided by the property value. "Often, buyers tend to ignore rental yield and instead focus only on capital appreciation. However, rental yield is a very important parameter as it represents productivity of the price. When you buy a commercial property, make sure that you can get a rental yield of at least 11-12%. An yield of less than that means the property is overvalued," Kapoor explains.

According to Nair you can expect returns of 10-11% per annum from commercial investment. "Remember, you do not only make a profit on the sale of appreciated commercial property - the rental cash flows of a well-located office or shop space are considerable. Unlike with a residential property, the income that can be generated from commercial property is what determines its value. In other words, the capitalisation rate is actually the measure of the demand for the property. For those who do their homework well, investing in commercial property is a high-adrenaline and high-returns game," he says.

Due diligence
Like any other property purchase, commercial real estate investing too calls for a fair share of due diligence.

Check the developer credentials, potential for infrastructure development, access to public transport and quality of property management in the project. If you are investing in a retail store, consider the frontage, foot-fall and the dynamics of the adjoining catchment

"If you are an investor looking at an income producing office asset, look at the break-up of cash flows, the vacancy factor, expenses such as maintenance, property tax and building insurance, lease term, lock-in period and expiry dates, long-term capital appreciation potential, and refurbishment, refinancing and repositioning potential," Nair adds.

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Realtors Eye NRIs for Housing Projects

Posted on Jul 15, 2013
Presenting India as one of the few high-return real estate markets in the world, over three dozen property developers from the country have come here to attract UK-based NRIs to invest in housing projects back home.These developers, which include real estate units of large conglomerates like Mahindras, L&T, Godrej and Adani group, would partici ...
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NRI interest in Gurgaon realty up as touches historical low

Posted on Jul 15, 2013
GURGAON: The fall of Rupee has raised speculations of increased NRI investments in the reality sector. Builders and analysts say that Gurgaon continues to be a popular destination for NRIs buying property mainly for the purpose of investment. The Indian Rupee (INR) has seen 12.0% depreciation against the US dollar since the start of May till June, ...
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Bangalore seeing NRI investors in real estate

Posted on May 30, 2013
A growing number of NRIs across the US now prefer to invest in real estate back home due to a multiple factors. The capital appreciation in India, completive local lending rates in the US, easing investments norms by the government, repatriation facilities and availability of Property Management services are primarily instrumental in driving them t ...
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Property purchase for NRIs: A look at provisions

Posted on May 07, 2013
Non-resident Indians (NRIs) are usually very apprehensive while purchasing immoveable property in India, their home country. This is a remnant from the old days when purchase of property by NRIs was covered under the foreign exchange laws.With the enactment of the Foreign Exchange Management Act (FEMA), the foreign exchange laws have been modified ...
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MCHI Credai exhibition from April 11 to 14 in BKC, Mumbai

Posted on Apr 11, 2013
The MCHI CREDAI Property 2013 the 21st Real Estate & Housing Finance Exhibition would be open for buyers from April 11 to 14 2013at the MMRDA grounds. The day has become more auspicious as the exhibition is starting on ‘Gudi Padwa and make a good decision on home buying.Like every time the exhibition will be a huge one displaying 12000 plus ...
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NRIs can take home loans but conditions apply

Posted on Mar 05, 2013
EligibilityIncome and educational qualifications play an important role in deciding the maximum amount of loan available to an NRI. You need at least a graduate degree to apply for a home loan.For instance, to get an NRI home loan from ICICI Bank Ltd, you need to have at least a diploma or a graduate degree with minimum three years of employment ab ...
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Things NRIs should do if they inherit property in India

Posted on Feb 27, 2013
Issue a specific PoA authorizing your relative or friend to do certain specified and incidental acts.As a non-resident Indian (NRI) or person of India origin (PIO, formerly Indian citizen but now holding a foreign citizenship), you can inherit any type of property in India—residential, commercial, agricultural, plantation or farm land.Transferring ...
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Investment Opportunities for NRIs in India

Posted on Feb 25, 2013
The Government has taken various steps to promote investments by Indians living abroad, in India. The Government plays a pivotal role in investment promotion, through dissemination of information on the investment climate and opportunities in India and by advising prospective investors including the Non-Resident Indians (NRIs) about the investment ...
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Should an NRI opt for home loan to buy house in India?

Posted on Dec 28, 2012
Buying a home in India remains high on the ‘to do list of many non-resident individuals (NRI). With rupee depreciating NRIs can make the most of the increased purchasing power.For those who intend to buy a house, opting for a home loan is one of the diligent ways of securing a house. For many, a home loan is just a funding option. But it goes beyo ...
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Spurt in demand for housing in Bangalore from NRIs

Posted on Nov 05, 2012
BangaloreAmong the southern cities, Bangalore continues to remain a preferred investment destination among NRIs looking at investing in real estate. This is particularly so among the IT sector employees as over 2,000 Software Technology Parks of India (STPI) registered IT/ITeS companies are operating in the city. Reemployment opportunities, scope f ...
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Ease in real estate norms for NRIs

Posted on Oct 29, 2012
Due to the periodical returns on the investment and rate of appreciation real estate is playing an important and dominant role among the various options of investment that are available for Non -resident Indians (NRIs). NRIs are eligible to invest in commercial and residential property in India through their representatives who can act on behalf on ...
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Dubai to host Indian property show

Posted on Oct 29, 2012
A three day exhibition has been scheduled from 21st June to 23rd June in which Indian real estate developers are expecting to generate business worth $54 million. After a sharp slide of rupee against US dollar and dirham, higher investments from expatriates is being expected by the realty developers. This is the tenth edition of the show and over 3 ...
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NRI money keeping realty prices artificially high: experts

Posted on Sep 24, 2012
Housing prices are not likely to fall anytime soon, experts say. There is no pressure on developers to slash prices, as they have the backing of investors and do not have to think about the ordinary homebuyer.“What we will see is a lowering of prices in individual projects,depending on the level of stress the developers involved are going through,” ...
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Industrial sector drives residential demand in West Chennai

Posted on Sep 11, 2012
The residential market in Chennai has largely remained stable in the last one year. No sharp fluctuations have been recorded in property prices, unlike in Delhi, Mumbai and Bangalore, as per market sources. The absence of overt speculations has also ensured that developers have moved pricing of homes in a stable and gradual manner thus keeping any ...
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Delhi NCR sees high housing demand from NRIs

Posted on Aug 29, 2012
Indian real estate sector has become a popular avenue of investment for the large base of NRI population, settled in various countries across the globe. Among the various investment options available in India, real estate offers a safe bet to enhance ones investment portfolio due to high rate of appreciation and periodical returns on investment. A ...
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High demand for luxury housing in Gurgaon, Bangalore & Pune

Posted on Aug 28, 2012
India has the fastest growing number of high net worth individuals in the world and real estate comprises approximately 40 per cent of their investment portfolio. Spurred by new product offerings, greater influx of end-user demand and an increasing upwardly-mobile segment, luxury and ultra luxury housing projects, with prices ranging between Rs 1 – ...
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Huge market for luxury homes in Bangalore

Posted on Aug 27, 2012
Luxury homes are a growing trend in Bangalore that generates high interest from buyers, both from India as well as abroad. Addressing the queries of customers regarding luxury housing segment in Bangalore, Mr Omar Sheriff, Director, Skylark Mansions Pvt Ltd. took up questions related to the topic-‘Prospects of Luxury Living in Bangalore Market on ...
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Second home: buyers nod for inordinate desire!

Posted on Aug 27, 2012
After investing in the first home of choice Indian property buyer are now gearing for the second home. It is a belief that having two house is more beneficial rather than having one, what one house cannot provide the other can.In the choice of first factors like ambience, comfort, greenery, luxury, exoctic is all sacrified as far as daily living is ...
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Dwarka Expressway is an ideal destination to invest: Rakesh Kaul

Posted on Aug 18, 2012
Where to invest in Delhi NCR is a major concern for home seekers while making property buying decisions. To aid home buyers, Rakesh Kaul, CEO, Experion Developers Pvt Ltd took up questions related to the topic-‘Investment Prospects of Delhi NCR Market on Times Property Virtual Expo ‘Ask the Experts session. Kaul addressed real estate concerns fro ...
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