NRI’s Guide to Investing in Commercial Real Estate

• A desirable asset class for high yield investments has always been commercial real estate. Purchasing or investing commercial real estate (CRE) offers several advantages over other yield products, such as debt funds, and fixed deposits, particularly for non-resident individuals (NRIs).
• Tech-enabled platforms like Assetmonk for investing in commercial real estate assist non-resident Indians (NRIs) in diversifying their holdings by purchasing income-producing commercial real estate in Tier 1 cities throughout India. Investors that make up NRIs come from a variety of industries, including manufacturing, technology, financial services, oil and gas, and others.

Reasons behind Growing NRI Investments in Commercial Real Estate

• NRI investments in the Indian real estate market are rising dramatically; in the first half of 2023, they increased by a significant 15% over the same period in 2022. 
• This increase not only shows how resilient the industry is, but also underscores the unwavering trust that Non-Resident Indian (NRI) investors place in India’s real estate market.

Better Returns

In India, the average rental income received by owners of commercial properties is 4–8% higher than that of owners of residential properties. In fact, except for a few pockets, isolated areas and following the implementation of COVID-19 restrictions, commercial property rental income automatically rises by 5% to 10% per year.

Capital Appreciation

Commercial real estate (CRE) is like a dividend-paying growth stock – a hybrid investment that provides both monthly rental income and capital appreciation. A 5-10 percent capital appreciation increases the total returns or IRR to 15-20 percent per year.

With such a low degree of risk, no other instrument offers such a high return.

Growing Organized Commercial Sector

Investment in prime commercial properties is gaining traction with the growth of organized and corporatized businesses and the demand for office space is also growing. In India, warehouses, training facilities, IT back offices, data farms, fulfillment centers, industrial buildings, and office spaces are the main sources of demand for NRI commercial real estate.

The Emergence of Fractional Ownership

• Traditionally, the residential sector was the only real estate alternative preferred for investment.  However, since fractional ownership became popular in India, NRIs are no longer required to invest between Rs 5 and Rs 10 crore in order to buy a commercial property, making CRE investments extremely popular.
• Alternatively, according to SBNRI, a group of investors can pool their money as little as Rs 25 lakh to buy a Grade A commercial property and benefit from bigger returns.
• The demand for investing in CRE is largely driven by acquiring better returns, as indicated by the fact that 34% of NRIs consider this to be a key benefit of doing so.
• Furthermore, when it comes to investing in real estate, approximately 48% of non-resident Indians (NRIs) value high convenience, which includes a smooth process of finding the right properties.

Different Investment Avenues in Commercial Real Estate in India

• Commercial property is not all about swanky office spaces and Grade A buildings with world-class amenities. Without a doubt, Grade A properties have impressive tenants, better visibility, and higher occupancy rates.
• However, they also frequently draw in more investors, which drives up their costs and lowers yields.
• However, investments in Tier II or Tier III cities outside of metro areas, or in Grade B and C properties, can provide better returns at lower prices.
• In the same way, a warehouse outside of the suburbs would not draw as many tenants as a CRE located in the city center. But as we all know, all these properties will continue to co-exist and there will be a growing demand for all of them.

Things to NRIs Consider Before You Invest in Commercial Real Estate

Before making an investment in a CRE, there are a number of factors to take into account, whether you are an NRI or a RI. The larger investment ticket size, the difficulty of quickly and easily liquidating the investments, and the at best hazy market research make the considerations far more important.

• Location: The CRE’s rental yields, occupancy, foot traffic, accessibility, and price would all be greatly impacted by its location. Loans for commercial properties in areas with low prospects may not be available from many banks.

• Amenities and Safety: Some of the basic amenities you should search for are parking, common areas, cafeteria, lobby, networking, and lighting. Fire and water safety are becoming a must for every CRE and so are drainage and physical security.

• Consider Rental Income Potential: Purchasing real estate with the ability to generate rental income can increase overall return on investment and offer a consistent cash flow. Examine the location’s rental demand and possible profits. Rental demand is influenced by various factors, including the proximity to business centres, transportation hubs, and educational institutions.

• Legal Due Diligence: It is crucial to carry out extensive due diligence on the entire property. This comprises the property’s ownership records, the authorised building plan, the environmental clearance, the height and aviation clearance, etc.  

 In addition, a no-dues certificate for any outstanding property taxes, water bills, or power bills needs to be obtained. There shouldn’t be any outstanding debts on the property that could put you in danger; everything should be paid off in full.

 Always check the legal status independently through a legal counselor.

• Understand tax implications: NRIs need to understand the tax implications of investing in real estate in India. On their investment, they might have to pay capital gains tax, property tax, and income tax. It’s critical to speak with a tax expert to comprehend your tax obligations and eligible deductions.

Assetmonk offers a promising opportunity in the form of real estate structured debt where investors can get tax benefits up to Rs. 50,000.

• Exit Strategy: Any investment must have a well-defined exit strategy. Establish your investment horizon and take future market trends, rental income, and property appreciation into account. If you plan to sell the property in the future, understand the process, associated costs, and potential capital gains tax implications.

Types of Commercial Properties NRIs Invest In

NRIs are interested in investing in these kinds of commercial properties-

• Office spaces: The retail, IT, and industrial sectors have all seen significant growth. Entrepreneurs are searching for office spaces as they launch their companies. One of the best ways for non-resident Indians (NRIs) to invest in the commercial real estate market and make a healthy profit is to own a property and rent it out as office space.

• Commercial Real Estate: Commercial real estate includes office spaces, retail shops, and industrial properties. Investing in commercial real estate can provide higher rental income and capital appreciation compared to residential properties.

One of the safe investments options with high returns in India is Real Estate Structured Debt, providing fixed-income prospects backed by secured real estate assets with guaranteed exits. Returns are predetermined and typically range from 12% to 20% annually, making it an attractive option for those seeking higher fixed returns. 

• Industrial: Due to the growing e-commerce sector, investment in industrial properties like warehouses and logistics has increased

• Vacation Homes: NRIs can also invest in vacation homes in India for personal use or rental purposes. Investing in vacation homes can provide a source of rental income while also providing a vacation home for personal use.

• Co-working spaces: As mentioned earlier, startups and businesses have accelerated rapidly after the pandemic! As a result, there is a greater need for office space. NRIs seize the chance to rent these spaces at such times and make attractive rental income.

Top Cities and Sectors for NRI Investment

• Recently, the cities of Mumbai, Chennai, Hyderabad, Bangalore, and Pune have been the ones radiating the most brilliantly the allure of Indian real estate. NRI Investments in Indian Real Estate Set to Exceed $50 Billion by 2030.
• These cities have become the most popular places for non-resident Indian (NRI) investors to invest, offering NRIs who are looking for opportunity and growth a fertile environment.
• NRIs’ selection of these cities is not random; rather, it is a reflection of their astute understanding of the market’s potential. Mumbai, sometimes referred to as India’s financial hub, provides a variety of real estate choices. Chennai makes for a desirable investment destination thanks to its steady market and high-quality real estate. 
• While Bangalore, India’s tech hub, remains a favourite for both residential and commercial investments, Hyderabad, known for its thriving tech industry, is attracting NRIs interested in commercial properties. NRI investments are drawn to Pune because of its dynamic culture and consistent growth.
• Not only are NRIs diversifying their investment destinations, but their portfolios are as well. They are looking more and more at luxury real estate options in addition to traditional residential properties, as investments in this market saw a 30% increase in the first half of 2023. 
• Moreover, the interest in senior living real estate projects is surging, catering to the growing number of elderly NRIs who seek comfort and support in their homeland.

Projections for the Future

• Non-Resident Indian (NRI) investment in the Indian real estate market has followed an absolutely amazing trajectory.
• We have seen a notable increase as of 2023; estimates indicate that $12 billion will be invested, a significant increase from the $9 billion that was anticipated in 2022.

• These figures paint a vivid picture of the ever-growing interest and confidence that NRIs have in India’s real estate market.
• The outlook for the upcoming years is also very positive. According to reports, NRI real estate investments in India are anticipated to rise by 20–25% by 2024. In addition, it is predicted that NRI investment will soar to a staggering $15 billion by 2025, demonstrating an unparalleled degree of expansion.
• These projections speak volumes about the resilience and strength of the Indian real estate market.  This rising trend is being fueled by a number of factors, including India’s strong economic growth, a stable real estate market, and an increasing number of NRIs wishing to make investments in their native nation.
• These forecasts point to a consistent upward trend for NRI real estate investments going forward, indicating a bright and prosperous future for all industry participants.

Bottom Line

The surge in NRI investment in the Indian real estate sector is a powerful testament to the growing confidence and interest in the Indian market. Recent reports and projections provide data points that illustrate an incredible journey of growth and transformation.

Investing in real estate in India can be a rewarding venture for NRIs. NRIs can maximise their investment returns by making well-informed decisions, carrying out due diligence, working with reputable professionals, and abiding by legal and regulatory requirements. 

Assetmonk is a dedicated alternative investment platform that provides investors with exceptional alternative investment choices backed by real estate. These investment products include asset-backed security and an easy exit strategy in addition to our impressive 17% IRR guarantee.

Carefully curated from India’s thriving private markets, these investment opportunities are overseen by a trustee registered with SEBI, you can enjoy the advantages of stress-free investing and attractive high returns.

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FAQ’s

Q1. ​Can NRIs invest in commercial properties for rental income in India?

A. Yes, NRIs can invest in commercial properties in India and earn rental income.

Q2. What are the benefits an NRI gets when buying a property in India?

A. For NRIs who want to invest in real estate in India, the RBI has issued a number of relaxations. As per these, an NRI can benefit in various ways while investing in a property in the country.Listed below are a handful of them: tax benefit under the Income Tax Act of 1961, Section 80 C. If an NRI purchases real estate for their own use, they are eligible for tax exemption. High rental income returns: as cities expand quickly, so does the demand for housing. In the upcoming years, India’s steady real estate market is expected to expand rapidly. Naturally, a real estate investment will probably multiply, providing high returns on investment for NRIs.

Q3. ​Are there any restrictions on the number of properties NRIs can own in India? 

A. No, there are no specific restrictions on the number of properties NRIs can own in India.