Non-resident Gujaratis drift from banks to realty

Non-resident Gujaratis (NRGs) are turning smart investors. Not comfortable with bank deposits that give them returns in the range of just 8%-9%, they are diverting their money to real estate.

Data shows NRG deposits in banks have fallen in one year between September 2009 and September 2010, indicating that money is being slowly diverted to realty.

Of the total 26 districts in Gujarat, banks have witnessed fall in NRG deposits in 15 districts, particularly in central and south Gujarat.

Experts and bankers believe that this is because NRGs are diverting their money to real estate where appreciation is much faster than bank deposits.

In past one year, the NRG deposits have fallen in the districts of Ahmedabad, Amreli, Anand, Vadodara, Bharuch, Valsad, Gandhinagar, Jamnagar, Junagadh, Kheda, Mehsana, Narmada, Navsari, Sabarkantha and Tapi. Except for Dangs and Surat, all
other districts in south Gujarat have witnessed a fall in NRG deposits.

In districts like Ahmedabad, Kheda, Anand, Gandhinagar, Vadodara and Mehsana, the NRG deposits have fallen by up to 6%. The land prices, on the other hand, have shot up phenomenally in this region in last one year. Land brokers and realtors believe that ‘invisible money’, coming particularly from abroad, has been diverted to real estate, thereby pushing the realty prices.

According to Jaxay Shah, president of Credai Gujarat, real estate in Ahmedabad and the surrounding region is appreciating as much as the dollar.  “The real estate sector in Ahmedabad, where investment varies from 2BHK to 3BHK to plots is attracting NRGs.

And compared to other investment avenues, the real estate market has given higher and safer returns. At the same time, the real estate industry of Gujarat is becoming more transparent which is helping NRGs in putting their savings into realty,” said Shah.

Bankers say NRG remittance has gone done in the past two years.

According to Mukesh Kumar Jain, general manager of Dena Bank, post recession the trend in remittance has not remained the same. Dena Bank is convener of State Level Bankers’ Committee (SLBC).

“It depends on the situation. For example, when the Swaminarayan Temple was built in Bhuj in May, the NRG deposit amount came down by up to Rs150 crore. In any case, we have realised that the flow of money from NRGs has slightly fallen,” said Jain.

Forex expert and president of Vadilal Forex, Aspy Bharucha, believes that NRG remittances are being diverted to real estate.

“The banks are giving returns at a rate of 8%, stock market is highly volatile, and one cannot invest the whole amount in gold. So for NRGs, plots or weekend houses are becoming better options in Gujarat,” he said, adding that “real estate in India, particularly in Gujarat, is appreciating at a fast pace.”    

Another banker said there are many factors that affect the status of NRG deposits in banks. "Investment in real estate is one of the major reasons behind fall in NRG deposits,'' said CGM of State Bank of India, P Nanda Kumaran.

He, however, said the diversion of NRG money to realty is not making much impact as the same money is once again deposited back in banks by realtors. "With lots of IPO coming, the NRGs are also investing in equity markets," said Nanda Kumaran.