NRI investments in realty to go up by 35% this year: ASSOCHAM

Indian property developers are anticipating a 35% increase in enquiries from NRI-based purchasers as compared to last year with Bengaluru emerging as a top destination for NRIs to park their money in real estate, reveals the Associated Chamber of Commerce and Industry of India (ASSOCHAM) latest study.

The ASSOCHAM conducted a random survey of nearly 850 real estate developers in Delhi-NCR, Chandigarh, Mumbai, Kolkata, Bangalore, Hyderabad, Ahemdabad, Pune, Dehradun, Chennai etc. The survey reveals that interest for buying property by NRIs have increased by over 30-35% over the last year. “NRIs feel confident about the new government of India and waiting for an investment-friendly market in various fields”, adds the paper. 

D S Rawat

As per the ASSOCHAM recent findings, Bangalore is the most favourite property investment destination for NRIs followed by Ahemdabad (2nd), Pune (3rd), Chennai (4th), Goa (5th), Delhi (6th) and Dehradun (7th).

The majority of real estate developers said the NRI traffic is coming primarily from the UAE, U.S., Singapore, Australia, UK, Canada and South Africa. This year, the demand is more for the high-end property and commercial buildings.

Releasing the paper, D S Rawat, Secretary General ASSOCHAM said, “With the revival in global economy especially in the United States and Europe people are more optimistic and looking for property to invest in. The both small and big developers are focusing the NRI base in the US, UK and Asia Pacific Region this year.

As per the findings, the share of NRI sales are currently at approximately 18% and are likely to increase by 30-35% in the coming year, adds the ASSOCHAM paper.

To tap a large section of the cash-rich NRIs living overseas, developers are not just conducting 

property shows, exhibitions and opening overseas representative offices. They are also expanding their existing distribution chains and entering into strategic partnerships to encourage investors from this cash-rich segment also, adds the ASSOCHAM paper.

ASSOCHAM findings:

According to ASSOCHAM survey, Bangalore tops in terms of investment from Non Resident Indians (NRIs) who are considering settling down in India in coming years. The major factors that drive NRIs to invest in Bangalore’s property market is the booming IT sector. It has the largest concentration of leading IT and ITeS companies. According to an estimate, there are 2,200 IT companies, over 664 MNCs, 183 biotechnology companies, and 248 BPOs operating in Bangalore.

Growing number of IT/ITES companies in Bangalore provide lucrative job opportunities to NRIs who are considering settling in India. Moreover, exponential growth in infrastructure and real estate sector also contributes positively towards influencing NRIs to invest in the property market. 

The demand has also shifted from mid-segment housing to luxury housing in Bangalore, adds the paper.

Ahemdabad (32%) has continued to be the most stable market in terms of demand and absorption of both residential and commercial spaces.  NRI’s consider Ahemdabad as a safe place to invest in, with lenient government regulations regarding property investments by Non Resident Indians.

Pune takes the 3rd place with 30.5%, whereas Chennai at 28% per cent assumes 4th position and Goa is at 5th position with 23% and Delhi with only 21% NRIs interested in investing in the capital city for property purchase, reveals the survey.

In Delhi, there has been a 21% rise in enquiries this year as opposed to last year from this segment and the majority of the queries have been for the residential segment. Catering to the growing demand among high-end segment, Delhi has also emerged the promising markets for real estate.

No more mala-mall for India

Over 55% of the malls in Delhi-NCR region are vacant partly due to economic slowdown, poor designing, lack of robust revenue generation model and located in unattracted location, reveals the Associated Chamber of Commerce and Industry of India (ASSOCHAM) recent survey.

As per ASSOCHAM estimates, the total rate of vacancy in malls in Delhi-NCR is 55%, while in Mumbai it is 52% followed by Ahmedabad (51%), Chennai (50%), Hyderabad (48%), Bangalore (45%) etc. The position in the nearby town of these locations is much disturbing. 

ASSOCHAM conducted a random survey of all the shopping malls in Delhi-NCR, Mumbai, Kolkata, Bangalore, Hyderabad, Ahmedabad, Pune, Dehradun, Chennai etc between October and December 2012. The survey found that many upcoming malls have significantly been delayed and withdrawn due to lukewarm response from retailers. They will also face manifold hike in construction cost.

Commenting on the malls scenario, ASSOHAM Secretary General D S Rawat said that vacancy levels are due to poor location, poor design and poor parking facilities while some are operating at 60% occupancy others are struggling at less than 20% occupancy. The occupiers are finding difficult to manage economically.

The survey also highlighted some of the challenges the industry is facing, which include inadequate infrastructure, unavailability of retail space, multiple taxes, lack of clarity in policies and shortage of experts in areas such as supply chain and store management. Now, they are shifting from lease/rentals models to revenue sharing models and this is encouraging large number of branding showrooms to open shops in malls.

“Biggest shopping mall can feel like a pretty lonely place, majority of retailers said that they are holding back on new store openings and focusing on existing stores,” adds the survey. 

The sharpest decline in mall rental values are also recorded high in Delhi-NCR by 60%, while Mumbai also dropped by 58% in rentals followed by Ahmedabad (55%), Chennai (54%), Hyderabad (52%), Bangalore (49%), Kolkata (45%), Pune (42%) and Dehradun (40%), points the ASSOCHAM survey.

Nearly 82% of the retailers said that they are shutting down some of stores in areas where rentals are too high, and with the slowdown in consumption complicating things further, point out the survey.

Nationally, the vacant rates of shopping malls are 55% and will likely rise to 70% by 2015, according to the ASSOCHM analysis. More than 90 percent of shopping in India is still done at unorganised one-off shops, adds the survey.

Sunil Kumar Dhaiya, Co-Chairperson of ASSOCHAM Real Estate committee also specialising in malls said that the real estate prices and construction costs are rising but the retail business is not growing enough to absorb this. There are just not enough footfalls.

Retail rents are down 60-65% from peaks in 2010 and that's especially painful for developers, when servicing loans is expensive at 12-13 percent interest," said Rawat.

Nearly 76% of the shop owner’s said that increasing rents will not work because at the end of the day it has to be affordable for retailers to do business and the fate of the retail realty segment is intertwined with the retail industry.

The retail sector is forecast to grow rapidly, but mall rentals and valuations are not rising in of most markets, added Rawat.

According to the ASSOCHAM estimates, rental values of malls remained stagnant across Delhi-NCR, Ahemdabad, Mumbai, Pune, Chennai and Kolkata in the October-December 2012 quarter. However, certain micro markets in Ludhiana, Indore witnessed a growth over the quarter in the range of 10-15%.

There are approximately 1,200 shopping malls in India, the growth in the retail sector has driven a mall building boom across the country, with the total number of malls expected to increase to 1,500 by 2015 from 1,200 in 2012," added the ASSOCHAM report.

The malaise of high vacant malls can be seen in micro markets, such as Ghaziabad, Noida and Gurgaon, where retail has not picked up. Clubbing this with the fact that spending was really low, the demand for malls is likely to remain dull for the coming next 2013, commented Rawat.

The survey adds demand for mall space across most micro markets remained slow because of lack of fresh supply, conservative approaches from retailers and overall slowdown in consumer demand. Slowdown in retail demand in many micro markets has led to rental values either remaining stable or correcting marginally in the range of 10 to 15% over the previous quarter.