TIMESOFINDIA.COMFrom physical assets to modern financial products, including Real Estate Investment Trusts (REITs), the evolution of investments in real estate for Non-Resident Indians (NRIs) has been significant—with regulatory clarity making these avenues more accessible and attractive—observed Sharad Mittal, Founder and CEO of Arnya Real Estate Fund Advisors at the recently concluded AIF & PMS Conclave 2.0.
Mittal was speaking on the topic, ‘How to participate in Indian real estate through AIFs as an NRI?’ at the conclave. The AIF & PMS Conclave—powered by ET Markets—is India’s largest summit on alternative investing funds (AIFs) and portfolio management services (PMS).
This second edition of the conclave spanned two days and had 26 thought-provoking sessions, with some of the finest financial minds in India—including CXOs, VPs, founders, MDs, and other experts—coming together to offer expert analysis of this emerging investment space. The experts demystified this space through the investors’ lens keeping in view the sentiment, market volatility, economic challenges, and political climate.
In this particular session, moderated by the CEO of AIF & PMS Express India Vikas Agrawal, Mittal spoke at length about the changing dynamics of NRI investment in Indian real estate, taking the audience on a tour through the corridors of history and the present scenario, and a roadmap for the future.
Real estate investment in hindsight
Mittal said that till a decade and a half ago real estate investing was driven through investing in physical real estate.
“And it was the same for both the domestic investor as well as NRIs,” Mittal said, adding, “If they had to take a real estate exposure, their go-to investing thesis would be to go and buy some property in their neighbourhood, or the city they were living in.”
He said the rental returns varied from two to two-and-a-half per cent, while the capital appreciation would be between eight to ten per cent. “Some of the more informed investors, with a far larger capital, would end up investing into physical land, and make returns through capital appreciation,” Mittal added.
He said that this was the way real estate investments were done, for as long as he remembers.
Today’s financial real estate is yesterday’s mutual funds
Mittal asserted that the way investments are being made in the real estate sector has changed in the last 12 to 15 years, signalling a significant shift towards financial real estate. Mittal positions the shift parallel to the evolution of mutual funds in India.
“What made people accept mutual funds? The reasons vary from a robust regulatory framework, to awareness among the masses and also to good returns on these asset classes,” Mittal said. “And the same is now happening with financial real estate. It is in the same nascent stage as the mutual funds were years back.”
He categorised financial real estate into two broad options.
He called this new cycle of the real estate market a “unique opportunity” for investors to benefit from both physical and financial real estate markets, especially as financial products like REITs gain traction.
The “GIFT” for NRIs
NRIs have always wanted regulatory clarity, in particular, related to taxation and repatriation. Mittal maintained that the ruling dispensation at the centre has done an excellent job in ensuring much-desired clarity, through the creation of GIFT City in Gujarat.
GIFT City—a world-class business district in Gandhinagar, Gujarat—envisages catering to global and domestic business enterprises. This unprecedented ecosystem enabling crucial economic activities with globally benchmarked regulations on taxation and more is supported by the Government of India and the Gujarat government.
As a simplification of the investment process, NRIs can invest through Private Equity Funds or REITs established in the GIFT City.
“As fund managers, we used to struggle earlier trying to raise capital outside. With this clarity on taxation and regulations, the government has done an excellent job,” Mittal said, adding that the fund managers no longer need to venture out, and the money can be pooled into the GIFT City without a glitch.
For NRIs, Mittal said, there are no longer any ambiguities. Besides, some benefits are pulling in the investors.
“The real estate funds, in India, offer primarily debt-focused strategies, which are generally preferred due to their stability. The investors can expect a 12 to 15% return (in dollar terms) depending on debt or equity,” Mittal said.
He said that the returns in India are stacking up well against the global counterparts. Besides, Mittal said, the markets rebounding over the next three to five years are seen as highly promising for the real estate funds.
Watch this space as we decode the further sessions at the conclave.
To know more about the AIF & PMS Conclave 2.0, visit the website.
Disclaimer: The above content is non-editorial, and TIL (Times Internet Limited) hereby disclaims any and all warranties, express or implied, relating to the same.
Mittal was speaking on the topic, ‘How to participate in Indian real estate through AIFs as an NRI?’ at the conclave. The AIF & PMS Conclave—powered by ET Markets—is India’s largest summit on alternative investing funds (AIFs) and portfolio management services (PMS).
This second edition of the conclave spanned two days and had 26 thought-provoking sessions, with some of the finest financial minds in India—including CXOs, VPs, founders, MDs, and other experts—coming together to offer expert analysis of this emerging investment space. The experts demystified this space through the investors’ lens keeping in view the sentiment, market volatility, economic challenges, and political climate.
In this particular session, moderated by the CEO of AIF & PMS Express India Vikas Agrawal, Mittal spoke at length about the changing dynamics of NRI investment in Indian real estate, taking the audience on a tour through the corridors of history and the present scenario, and a roadmap for the future.
Real estate investment in hindsight
Mittal said that till a decade and a half ago real estate investing was driven through investing in physical real estate.
“And it was the same for both the domestic investor as well as NRIs,” Mittal said, adding, “If they had to take a real estate exposure, their go-to investing thesis would be to go and buy some property in their neighbourhood, or the city they were living in.”
He said the rental returns varied from two to two-and-a-half per cent, while the capital appreciation would be between eight to ten per cent. “Some of the more informed investors, with a far larger capital, would end up investing into physical land, and make returns through capital appreciation,” Mittal added.
He said that this was the way real estate investments were done, for as long as he remembers.
Today’s financial real estate is yesterday’s mutual funds
Mittal asserted that the way investments are being made in the real estate sector has changed in the last 12 to 15 years, signalling a significant shift towards financial real estate. Mittal positions the shift parallel to the evolution of mutual funds in India.
“What made people accept mutual funds? The reasons vary from a robust regulatory framework, to awareness among the masses and also to good returns on these asset classes,” Mittal said. “And the same is now happening with financial real estate. It is in the same nascent stage as the mutual funds were years back.”
He categorised financial real estate into two broad options.
- Alternative Investment Funds (AIFs): With quite a large ticket size, managers pool money in this space. The money is invested into residential or commercial properties–which could be split as debt, equity, or a balanced fund, which is a mix of debt and equity. The minimum ticket size is one crore rupees.
- Real Estate Investment Trusts (REITs): The core objective is to ensure appreciation with rental income from a property being met through REITs with investments in various funds. Here, the entry point starts at a meagre 50,000 rupees, making it more accessible to investors in comparison to AIFs. The first REIT came about in 2018 and presently India has four of them.
He called this new cycle of the real estate market a “unique opportunity” for investors to benefit from both physical and financial real estate markets, especially as financial products like REITs gain traction.
The “GIFT” for NRIs
NRIs have always wanted regulatory clarity, in particular, related to taxation and repatriation. Mittal maintained that the ruling dispensation at the centre has done an excellent job in ensuring much-desired clarity, through the creation of GIFT City in Gujarat.
GIFT City—a world-class business district in Gandhinagar, Gujarat—envisages catering to global and domestic business enterprises. This unprecedented ecosystem enabling crucial economic activities with globally benchmarked regulations on taxation and more is supported by the Government of India and the Gujarat government.
As a simplification of the investment process, NRIs can invest through Private Equity Funds or REITs established in the GIFT City.
“As fund managers, we used to struggle earlier trying to raise capital outside. With this clarity on taxation and regulations, the government has done an excellent job,” Mittal said, adding that the fund managers no longer need to venture out, and the money can be pooled into the GIFT City without a glitch.
For NRIs, Mittal said, there are no longer any ambiguities. Besides, some benefits are pulling in the investors.
- No Goods & Services Tax (GST): While investing in the GIFT City through private equity funds or REITs, the NRIs will not be paying any GST at all, even as domestic investors end up paying 18% in this tax.
- Repatriation: Not getting locked in has always been a prime concern with NRI investors. How quickly the NRIs can take their reparatory money to their home country has been explicitly addressed within the regulations of the GIFT City.
- Customised funds: Some of the funds in the GIFT City have been customised in a way that the investors do not pay any taxes on capital gain, while a minimal tax on interest income will be payable. These funds have been customised as per the geographies the investors come from.
- Administrative ease: The investors do not need to file taxes in India or provide Tax Residency Certificates (TRCs), making the investment process smoother.
- Global investment opportunities: The framework of the GIFT City has been designed to attract capital from global markets, including the Middle East, Singapore, the UK, and the US, among others.
“The real estate funds, in India, offer primarily debt-focused strategies, which are generally preferred due to their stability. The investors can expect a 12 to 15% return (in dollar terms) depending on debt or equity,” Mittal said.
He said that the returns in India are stacking up well against the global counterparts. Besides, Mittal said, the markets rebounding over the next three to five years are seen as highly promising for the real estate funds.
Watch this space as we decode the further sessions at the conclave.
To know more about the AIF & PMS Conclave 2.0, visit the website.
Disclaimer: The above content is non-editorial, and TIL (Times Internet Limited) hereby disclaims any and all warranties, express or implied, relating to the same.
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( Originally published on Oct 24, 2024 )
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