Why are NRIs investing in luxury real estate in India?

Non-resident Indians (NRIs) have been increasingly investing in luxury real estate in India. In 2022, NRIs invested US$ 13.1 billion in the Indian real estate market and this number is expected to increase by 12% in 2023. NRIs now play a bigger role in the Indian property market, with their contributions doubling. Around 20% of sales for many real estate companies comes from international buyers, as opposed to less than 10% before the pandemic.

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Luxury real estate is becoming popular among non-resident Indians. But why is this happening? We take a closer look at some of the main reasons driving this trend.

Matching international standards

Indian developers have been a key factor in India’s luxury real estate boom. They have stayed ahead of the curve and kept up with global trends, incorporating luxury elements into their offerings. With the real estate market following global standards, luxury homes have become popular among NRI buyers.

Appeal of elevated rental yields

Luxury properties provide a distinct advantage to NRIs investing in Indian real estate, such as higher rental yields than standard properties. In recent times, there has been a surge in rental demand, particularly in Tier 1 cities, due to affluent individuals seeking luxurious accommodations. This provides NRIs with a lucrative opportunity to invest in luxury properties for a consistent and substantial stream of rental revenue.

Greater transparency and confidence boost

India’s real estate market has seen a huge increase in transparency, thanks to government reforms like the Real Estate Regulatory Authority Act (RERA). This act has made NRIs and HNIs more confident about investing in the real estate market. All the information regarding a property, such as approvals, permits and finances, is available on one portal. Therefore, there is no room for hidden costs or fake deals, which means better prices and more sales.

Second home or vacation home

Vacation homes were primarily seen as aspirational properties. However, there is a noticeable change in the way vacation homes are perceived by NRIs. Today, they are viable investment options that can generate a steady stream of income. After the COVID-19 pandemic, more NRIs are choosing to stay close to their families. The majority of NRIs prefer to own a second home in India, especially in the cities where their families live. The residential real estate market in India has witnessed a 35% year-on-year increase in NRI investments over the past year, with the average ticket size falling between Rs 90 lakh to Rs 1.5 crore.

High liquidity value

Since luxury homes are rare and exclusive, they are always in high demand. This exclusivity makes them more liquid for NRIs, so if they decide to sell their home, they can do it quickly. Luxury homes only go up in value, therefore, they sell at higher prices than mass-market properties. This liquidity provides NRIs with financial flexibility.

As India makes its rapid ascent to become the third-largest economy by 2030, NRIs are increasingly investing in residential real estate to become a part of this dynamic growth. With NRI investments on the rise, this sector will continue to flourish. Considering the significant structural changes and the demographic advantage of India, real estate remains a robust and promising investment opportunity for all. The future of India’s real estate market appears bright, offering potential benefits for both NRIs and domestic investors alike.

(The author is CEO – Mantra Properties)

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