Real 'E-state': How NRIs are buying real estate in India through fractional investment

Last Updated: Thu, Dec 07, 2017 17:38 hrs
Mumbai Real Estate (Reuters image)

The real estate sector, which has remained relatively untouched by the digital revolution, is witnessing a massive operational transformation. The 537 million square feet rent-generating commercial real estate inventory is estimated to be worth over $70 billion.

Basically real estate attracts investors since, the returns are far beyond fixed deposits and stock markets. FDs return 6%, while equities offers returns in the range of 15% (plus or minus). In terms of taxes, an investor only pays 21.6% on rent and 10% effective on capital gains compared to 33% in FDs.

Returns in developed countries have usually been below 5%, and this is one reason why NRIs, even those living in the Middle-East flock Indian shores.

Commercial real estate to this regards, offers constant returns through rent-generating properties, tenanted mostly by blue-chip companies, booked for a lease period of 9 to 15 years with a minimum 3 year lock in period.

Besides the returns, a contracted annual appreciation of 5% within lease agreements factors for inflation and keeps profits afloat.

The last quarter alone witnessed $85.79 billion worth of FDI inflow in India – the highest-ever FDI made within a single quarter. These constantly growing trade investments are a reflection on a rapidly booming business landscape within the country and are having a positive impact on the real estate sector. Industry experts estimate that NRI investments in the Indian real estate market will touch $11.5 billion in 2017.

Although investors understand that property provides the best post-tax returns in India, a good proportion of them are hesitant owing to commitment of personal time and effort that is required.

Factors that put off

One of the biggest reasons why a majority of overseas investors usually stay away from putting capital into the real estate sector is that it requires considerable domain knowledge, along with significant investment of personal time. At times, real estate investors need to conduct extensive research to analyse the future potential of a property, take part in successive negotiations, and initiate proceedings to liquidate the asset at a later date.

Being geographically removed from where the asset is located makes investors anxious about how the property gets managed. Most investors, therefore, gravitate towards investing in under-construction or early-stage projects managed by developers, where the risks could be higher.

The constant involvement of administrative authorities and third-party players, such as brokerage firms and independent real estate agents, serves to further complicate an already complex situation. These complications magnify when the perspective is shifted to commercial properties, which often require exhaustive paperwork to model complex lease structures as well as the cash-flow management.

Technology has been playing a pivotal role in bringing about a marked change in this mindset. While end-to-end physical presence was earlier required for making an investment into real estate, digital platforms have come to the fore to counter the prevailing challenges and extend a seamless investment experience to NRI investors of late.

Cutting-edge technologies such as big data, machine learning, data analytics, and pattern recognition come up with in-depth insights on various properties. Thereby acting as an active gateway for NRI investors to make data-driven investments.

Individual investors also have the option of either buying properties listed on digital platforms completely or making fractional investment.

Fractional investment helps in bringing greater diversification in investments, thus increasing returns while minimizing risks. The end-to-end management of the asset is done by the platform. All signatures and paperwork formalities are completed digitally, making it incredibly simple and easy for NRIs to buy and manage properties in India.

Kunal Moktan, Co-Founder,

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