Written by: Pushpamitra Das, Founder & Director JUSTO
HNIs, UHNIs, and NRIs are increasingly diversifying their portfolios across a variety of asset classes in India, tapping into both traditional and emerging investment opportunities. According to industry reports, the HNIs and UHNIs in India grew by 11% in 2023, with their combined wealth reaching over $12 trillion. Key sectors of interest among them include equities and stocks, real estate, private equity (PE) and venture capital (VC) in growth industries, Alternative Investment Funds (AIFs), and digital assets like cryptocurrency. This shift marks a strategic evolution as these investors seek higher returns, asset protection, and long-term stability.
Real estate continues to be a key asset class, making up nearly 25 – 30% of their total investment portfolios. Historically, the real estate investment strategy of NRIs and HNIs in India has been centered around luxury residential properties. High-end apartments and villas were prized not only as symbols of prestige and emotional ties to India but also as a safeguard against economic volatility. However, there has been a noticeable shift towards commercial properties recently.
Traditional Preference: Luxury Residential Properties
Traditionally, NRIs and HNIs have favoured luxury residential properties in major cities like Mumbai, Delhi, Bengaluru, and Pune. This preference was driven by the allure of owning prime real estate in India, the potential for capital appreciation, and a connection to their homeland. From 2015 to 2019, the luxury segment thrived, buoyed by targeted marketing campaigns in the Middle East, North America, and Europe.
However, luxury homes often come with high maintenance costs and low rental yields (2 – 3%). The pandemic further highlighted the vulnerabilities of this market, with declining demand and unstable rental income. These challenges have led many NRIs and HNIs to reconsider their strategies, shifting towards commercial assets that offer better returns and greater stability.
The New Age of Real Estate Investments
NRIs and HNIs are gravitating towards commercial real estate assets, including office spaces, warehouses, and retail outlets. A recent survey by Knight Frank indicates that 45% of NRIs now prefer commercial real estate over residential. This shift signals a broader trend towards diversification and a strategic pivot to higher-yield, less volatile assets. Commercial real estate investments offer a compelling proposition, driven by the strong fundamentals of India’s economic growth, increased corporate demand, and the rapid expansion of e-commerce. In 2023-2024, this trend has become even more pronounced, with NRIs and HNIs increasingly favouring commercial assets due to their potential for higher rental yields, stable cash flow, and long-term growth prospects. Unlike residential properties, which typically offer rental yields of about 2-3%, commercial real estate can generate yields as high as 8-10%, making it a more attractive investment option.
Additionally, REITs provide NRIs and HNIs with a hassle-free, liquid avenue to invest in premium office and retail spaces, eliminating the complexities of property management. By investing in REITs, they gain exposure to a diversified portfolio of income-generating assets while benefiting from consistent dividend payouts. Popular options include the Embassy Office Parks REIT and Mindspace Business Parks REIT, which have demonstrated strong performance and reliable returns, making them an attractive alternative to direct property ownership.
Factors Driving this Shift
The shift from luxury residential properties to commercial real estate among NRIs and HNIs is driven by several key factors:
- Higher Rental Yields: Commercial properties provide significantly higher rental income and steady cash flow, especially from reputable corporate tenants.
- Economic Growth and Demand: India’s robust economic growth, urbanization, and rise of e-commerce have spurred demand for office spaces, logistics hubs, and warehouses, presenting new investment opportunities.
- Regulatory Reforms: Policies like RERA and GST have increased market transparency and reduced risks, boosting investor confidence in commercial real estate.
- Diversification and Stability: To mitigate risk and enhance portfolio resilience, investors are shifting focus towards commercial assets, which offer better returns and are less vulnerable during economic downturns.
Nevertheless, HNIs and NRIs looking to optimize their real estate investments should focus on four key emerging trends:
- Suburban Growth: Increased urbanization, better infrastructure, remote work trends, and supportive government initiatives are driving demand for suburban properties. Buyers are prioritizing space, greenery, and quality of life, making suburban areas more attractive.
- Sustainable Properties: Eco-friendly investments are gaining popularity due to market demand for efficient water and waste management, green building practices, and community engagement.
- Opportunities in India: High-yield investments are shifting towards commercial and industrial real estate, sustainable developments, and smart city projects. Technology integration and NRI-friendly regulations are boosting market interest.
- International Opportunities: Global investment avenues include luxury real estate, joint ventures, logistics, and warehousing, supported by strong FDI and the boom in e-commerce.
A keen eye for these emerging trends and strategic factors can help investors diversify their portfolios and capitalize on shifting market dynamics. The paradigm shift from luxury residential properties to commercial real estate marks a key evolution in the investment strategies of NRIs and HNIs. This pivot towards high-yield commercial assets is expected to gain momentum in the years ahead as India’s commercial property market continues to grow and geopolitical influences, such as U.S. policy changes under Trump, impact NRIs and HNIs alike.
