From ET Realty
Non-resident Indians are bullish about investing in luxury real estate in India as the rupee continues to depreciate against the dollar and property prices soften, says Philip White, president and chief executive officer at Sotheby’s International Realty. In an interview with ET Realty’s Ravi Teja Sharma, White also talks about the need for a regulator for the Indian real estate broking business and the real estate regulatory bill to product consumer interest. Edited excerpts:
How is the luxury real estate market performing in India?
Luxury housing is the fastest growing segment among residential housing. It is expected that India would require 1.5 million luxury houses over the next 15 years. This can be attributed to the increasing number of Indian high networth individuals (HNI). According to the Asia-Pacific 2016 Wealth Report, India is home to the fourth largest population of millionaires (after Japan, China and Australia) in the Asia Pacific region, with 2,36,000 HNIs (individuals with net assets of $1 million or more). Mumbai and Delhi got featured in the 12th and 20th rank respectively amongst Asia-Pacific cities.
Moreover, The Top of the Pyramid 2015 report quoted that the number of Ultra HNIs in India grew to 137,100 in 2015 from around 117,000 , a growth rate of 17% over one year and a 22% compounded growth over five years. The number of ultra HNIs is expected to increase to 348,000 by 2020 with a combined net worth of Rs 415 trillion. The new ultra HNIs are emerging from sectors such as e-commerce and new avenues for investments that give higher returns.
India’s luxury residential market is poised to grow rapidly, supported by strong economic growth, and we are in an ideal position to lead this growth by leveraging the Sotheby’s International Realty global platform.
Which are the prime investment locations in India?
Despite the sluggish Indian real estate market, the pockets of these HNIs are still open for premium residential projects. Today’s luxury home buyers do not want to compromise on a good quality life. While a superior address continues to play an important role, branded residences with luxury amenities, hospitality and automation are gaining popularity amongst these buyers.
Apart from the dominated HNI population in metro cities (Delhi, Mumbai, Chennai, Bengaluru and Kolkata), 44% of ultra HNIs in India are based out of non-metros such as Chandigarh, Ahmedabad and Hyderabad. These cities are gradually becoming centres of wealth and prosperity and leading brands are rapidly waking up to their immense potential.
Ranking #1 in the Quality of Life Indices, Chandigarh is known as the ‘Wealthiest Town’ of India with highest per capita income. There has also been an increased demand in tourist places such as Goa, Dehradun, Rishikesh, Mahabaleshwar for their beautiful views, perfect weather and peaceful surroundings.
Is there demand for luxury homes in India as an investment or is it mostly for keeps?
Luxury properties not only prove to be an end-user product but also present the advantage of being an asset that rises in value at every instance. Given the fact that luxury homes are always in demand even on the secondary market, HNIs correctly see them as the perfect investment opportunity that guarantees multiplied returns in the future.
Prices of properties in posh localities including Lutyens Delhi, South Delhi, Gurgaon and Noida have appreciated in the past few years, providing good returns on investment. Many luxury developments have also proved to be good investment opportunities.
What kind of challenges do you see for an organised player in the India market? How much does a foreign branding help in selling properties? How are you different?
There is an absence of a regulatory body in the Indian real estate broking business currently. A brand like Sotheby’s International Realty signifies high standards of quality, transparency and professionalism. We specialize in the luxury residential segment of real estate and generate tremendous interest from the high net worth segment owing to the trust and credibility factor. This sets North India Sotheby’s International Realty apart from the other International Property consultants (IPCs) operating in India as the focus of the existing IPCs is primarily on the commercial segment.
Non-resident Indians have been a big segment for Indian real estate developers over the last many years. What kind of demand are you seeing from NRIs for properties in India today? How one can identify the demand?
Total NRI population globally is over 30 million and is primarily based in the US, Canada, London, Dubai, Hong Kong, South Africa, Australia and Singapore. The NRI community prefers to invest in their place of origin, particularly Delhi-NCR, Punjab, Maharashtra and Tamil Nadu when they are at the verge of retiring and planning to settle back in India or looking for a second home.
With both rupee depreciating against dollar and prices softening, we expect a surge in investment by the NRIs in the India real estate sector as it offers excellent investment opportunity.
The number of NRI’s in UK is over 1.5 million, which proves to be a huge potential market. Thus, we have setup an India Desk in UK to build synergies between the offices and growing business. India Desk has been very helpful in organizing client engagement events with the NRI’s in London. Similarly, we are looking at opportunities with other Sotheby’s International Realty affiliate offices in Dubai, USA and Australia to have an exclusive India desk in these markets.
Are NRIs also concerned about the massive delays in project completion that we have seen in most markets in India in recent years?
NRIs are well aware about the ongoing discrepancies and want to associate themselves with a trusted and a renowned brand. With a strong network all over the globe, Sotheby’s International Realty has gained good recognition. Thus, an international firm like Sotheby’s International Realty would generate tremendous interest from the high net worth segment owing to the high standards of quality, transparency and professionalism. We intend to focus more on quality then numbers and associate ourselves with credible developers after thorough due-diligence process.
What are the major opportunity destinations for Indians looking to invest abroad? Why are Indians buying in these markets today?
A large population of India’s UHNWI & HNI have foreign real estate in their portfolios. London, Dubai, USA, Singapore, Australia, Europe and South Africa continue to be the preferred destinations for international real estate investments.
In 2014, Indian buyers dropped $7.9 billion in the United States and spent over GBP 1 billion in London on luxury homes. Indians have invested more than $2 billion in the Dubai real estate through 3,017 transactions in the first half of 2015.
Indians having business interest, pursuing professional careers abroad or having children studying abroad are majorly looking for a second home. They are attracted by stable currency, cheaper prices, lower taxes, attractive yields and capital gains on their investment. Moreover, the Reserve Bank of India (RBI) doubled the Liberalised Remittance Scheme (LRS) for resident individuals to $250,000 per person, per year, in February 2015. This has definitely boosted the demand for foreign markets.
How has been the journey of Sotheby’s International Realty in India so far? What is the target and expansion plans for the next 12 months?
North India Sotheby’s International Realty began its operations in November 2014 with their first office in New Delhi to cater the needs of Indian HNIs for their domestic as well as global requirements in the luxury residential real estate space. We have focused on marketing premium residential properties in South Delhi, Lutyen’s Delhi, Gurgaon, Chandigarh, Rishikesh, Dehradun through our existing network and worked closely with well-established developers for their upcoming luxury residential projects.
The team comprises ex-bankers, luxury sector veterans and real estate professionals having decades of work experience in large corporations in the Indian market ranging from real estate advisory, wealth management and luxury brands.
We wish to set up more offices in Gurgaon, Noida, Chandigarh and Jaipur and find opportunities with other Sotheby’s International Realty affiliate offices in Dubai, USA and Australia to have an exclusive India desk in these countries.
What are your expectations from the union budget 2016? How important is the real estate (regulation and development) bill for luxury real estate sector in India?
With the real estate sector not performing as expected, there have been many hopes on the union budget 2016 to introduce policies that may help the sector recover. In order to protect home buyers from project delays, the budget should focus on providing financial security to these buyers. The tax exemption benefits should also be revised in favour of these buyers.
The budget should focus on allocating more funds in infrastructure development. This will definitely boost the demand for luxury developments, which are coming up.
Recently, the government approved changes to the Real Estate (Regulation and Development) Bill to regulate the country’s property market, protect the interest of consumers from errant developers and ensure timely execution of projects. This will definitely lead to improvement in the luxury real estate sector as well.
There must be concerns about project delays. Do you foresee a single window approval system anytime soon?
To ensure projects are completed on time, it is extremely important to have a single window mechanism in place as it will facilitate developers to obtain permissions in a simplified, timely and rationalized manner. Such a system would also usher accountability and transparency into the market, which inadvertently would boost consumer sentiment and demand in the market.
Currently, the government is in favour of approving this mechanism but has not fixed a timeline for implementation of the system. The ministry however is hopeful that some states would take the lead and approve this single window clearance system very soon.
Moreover, according to the real estate bill, in order to protect the buyer from project delays, the promoters will have to deposit 50% of the amounts realized from buyers in a separate bank account within 15 days. If the bill is cleared, buyers will be able to claim refund with interest and compensation if promoters fail to deliver projects in time.