January 31, 2007

High net worth NRIs go long on realty

What could a mall in Ahmedabad, an office complex in Hyderabad and a residential township in Baroda have in common? Answer: All three are being built courtesy funds put together by rich NRIs. Real estate sector analysts said that given the returns offered by Indian real estate, investments through informal funds floated by such NRIs are on the rise. Around $600 million may have come in through such investments in the last calendar year, analysts said. Investments through the formal channels will easily be many times more, though exact estimates are not available, they said. Said Akhil Hirani, managing partner at Majmudar and Co, a Mumbai law firm, "We get around five or six such enquiries every week, mostly from NRIs who want to put together a fund to build a property, stay through the stipulated lock-in period and then sell and exit." The investment is usually $10-25 million, with most of the funds being sourced from the extended NRI clan and friends, Hirani said. Most of the investors, he said, were interested in projects in their native cities where family or close friends could oversee the investment. Several such investments have taken place in smaller cities like Jaipur, Hyderabad, Vijayawada, Ahmedabad, Baroda and Surat where there are large NRI communities. Most of the investments are routed through Mauritius, to leverage double tax treaties. Typical investments take place in projects in which the costs are low. Both developer and investor gain, the former by easy access to capital, the latter from an attractive return on investment. Investment in Indian real estate has grown rapidly over the past three years, with annual average returns in the smaller cities going up to 50 per cent. A recent study by Jones Lang Lasalle, global real estate consultants, estimated that $ 8 billion of private equity could flow into the Indian real estate over the next 18 to 30 months. An Associated Chamber of Commerce study estimated that around 25 million NRIs in 125 countries were investing in immovable property in India. NRIs have been keen to invest in residential properties rather than commercial properties, the study said Source: business-standard.com