For individuals looking to maintain their wealth while developing their portfolios, commercial real estate has historically been a powerful and reasonably reliable investment vehicle. The possibility to distribute cash on a deal-by-deal basis is growing as the number of investors seeking direct co-investments in real estate grows. When you combine this with a consistently increasing economy, historically low-interest rates, and commercial lenders ready to go to any length to gain borrowers’ business, there is no better time to invest in commercial real estate than NOW.
Is it possible for NRIs to invest directly in commercial real estate? Yes, to put it succinctly. NRIs can buy commercial real estate properties as long as they follow the Foreign Exchange Management Act’s legal standards (FEMA). PIOs (people of Indian origin) and NRIs (non-resident Indians) have the same real estate investment guidelines (non-resident Indians). The Reserve Bank of India (RBI) allows NRIs to invest in commercial real estate in India. They should only buy such assets if they follow the Foreign Exchange Management Act’s (FEMA) rules.
Why invest in commercial real estate opportunities in India?
After the residential property market began to produce weaker profits, NRI investments in real estate in commercial buildings have increased dramatically in recent years. Also affecting residential property investments were demonetization and the adoption of the Real Estate (Regulation and Development) Act (RERA). As a result, commercial real estate has become a popular investment option for NRIs.
Investing in commercial real estate buildings may also be approached from a more practical standpoint. For NRIs, purchasing a business property makes sense. In bigger cities, for example, residential buildings have a rental yield of 1.5-2 percent. Commercial real estate properties, on the other hand, give rental returns of 6-8 percent of the property value in the best-case scenario. This indicates that in the case of commercial real estate property, the payback period is substantially shorter for NRIs since the internal rate of return (IRR) is larger.
NRIs investing in commercial real estate benefit from greater rental returns as well as capital appreciation, which has been stronger for commercial real estate properties than residential properties in recent years. Furthermore, the complexities of RERA have encouraged more NRIs to participate in commercial real estate.
Apart from these causes, there has been a surge in demand for commercial real estate buildings, with a slew of businesses in IT, logistics, e-commerce, banking, non-banking financial companies, and venture capital firms all looking for space. In the case of commercial real estate property, the onus of maintenance falls on the party renting the property, making it more convenient for NRIs living abroad.
NRIs, like native Indians, can take out loans to buy property in India and claim advantages under Section 24 and Section 80C of the Income Tax Act. In reality, having bank funding is a clever strategy to have the bank analyze your property title papers and connect documentation.
Key tips for investing in commercial real estate in India
Here are some of the key tips for you to start investing in commercial real estate in India-
i. Aspects of diversification-
NRIs invest directly in commercial real estate properties that demand a large initial investment. It’s possible that they won’t be able to eliminate dangers. However, by investing with platforms such as Assetmonk, you can keep your investments secured and also earn higher returns.
ii. Aspects of rental yield
NRIs should keep an eye on their expected rental yields. It refers to the annual rent expressed as a percentage of the market value of the property. In India, rents for commercial real estate buildings range from 6 to 12 percent per year, while residential properties rent for 2-4 percent per year. In addition to tenant quality, location and quality are important criteria. Grade A flats have more facilities and are of higher quality, whereas Grade B and other properties have lower rental returns. Tenants from well-known enterprises and multinational corporations (MNCs) are more likely to pay higher rents than their counterparts. Assetmonk is also a recommended platform for all those planning to invest in rental income as they offer some of the top quality investment options in India with an IRR of 14-21%.
iii. Finer Aspects
NRIs should not be misled by developers who list higher rental prices. In most commercial real estate deals, tenants are given bare-shell office premises. As a result, they must complete flooring, wiring, and electrical fit-outs at their own expense. Builders have been known to do this for renters, resulting in a rise in rental rates. As a result, yields appear to be more tempting. However, the rent for these fit-outs is only for a short time, i.e. 3-5 years. As a result, NRIs should consider this factor while investing in commercial real estate in India.
iv. Exit pricing
Profits from commercial real estate property sales are not only based on current market prices. They are also based on the rates agreed upon by the tenants in the lease agreement. As a result, bear this in mind while making investments.
v. Longer lease durations
Commercial real estate property leases are often 3+3+3 or 5+5+5 years in length. As part of the agreement, there may be a rent rise of 10-15% after three years. Longer periods, on the other hand, have occasionally hampered investor interest, particularly in situations where market rates have shot up quickly. Long leases provide income security, but they may become a barrier if market rates begin to rise significantly.
vi. Legal aspects
NRIs with valid Indian passports are eligible to invest in residential and commercial real estate properties in India. NRIs do not need special approval from the RBI for these transactions. They are also exempt from notifying the RBI about their transaction. They may also invest in several properties. They can also provide people with legal power of attorney to carry out transactions on their behalf in India. NRIs, on the other hand, cannot invest in agricultural land or farm houses without first obtaining authorization from the RBI. In such circumstances, there is no certainty that the RBI will agree.
India has been a hub for real estate investment for NRIs. Many factors such as their sentiments towards their hometown, potential returns, etc. are some of the main reasons for the increasing real estate investments among the NRIs. Commercial real estate investments have been the priority among investors due to their long-term lease agreements and also their higher rental returns. If you’re an NRI planning to acquire a commercial real estate property in India, you’ll need to think about a lot of things, including location, regulatory act, maintenance costs, documentation necessary for NRIs to buy property in India, financial transactions, and funding, POA, No-due certificate, and so on. It will assist NRI purchasers in obtaining a decent return on investment. NRIs planning their investment in India should do proper due diligence and look into environmental dynamics and neighborhood, its earning power, and its cost of investing (including the cost of maintenance).