Indian Real Estate Attracting NRIs With Falling Rupee Value

Indian Real Estate Market Attracting NRIs With Fall In Rupee Value

Indian real estate properties have become cheaper for non-resident Indians (NRIs) as the rupee depreciated against the US dollar and other currencies.
The rupee has become cheaper by around 33% in the last two years when the Indian currency was quoting at around Rs 45 per dollar.
This means, if an NRI had to spend around $2.2 lakh to buy a house of Rs 1 crore earlier, he will now have to spend only $1.65 lakh to buy the same house.
Even if the prices of real estate have gone up by 20% in the last two years, he will need to pay lesser amount in dollar terms today than what he would have paid two years ago.
Analysing the effect of rupee depreciation on real estate valuation in dollar terms, Shveta Jain, executive director (Residential) of Cushman and Wakefield, said the depreciation of the rupee provides a psychological boost to NRIs and developers. It is commonly felt that with each depreciation cycle, NRIs will find it cheaper to invest in real estate in India as they will have more money in the local currency to invest in the local markets.
This is also evident from the fact that the number of inquiries from abroad has gone up and developers concentrate their marketing efforts to attract more NRIs.
But, this does not mean that sales also went up. This does not happen immediately.
The primary reason, Jain says, is that there are logistical constraints like identifying the right property, negotiating a deal, being able to repatriate large sums of money in outright purchases, completing all the necessary documentation and formalities, etc, during the transaction lifecycle.
A typical transaction may take an NRI buyer a period of a month to up to three months. During this period, the rupee may strengthen and the notional advantages that could accrue due to the rupee’s depreciation could be lost. The problem could get further compounded, if the purchase is not outright and the NRI buyer needs to either pay in instalments or he is booking a property under construction, against completed properties.
There is no guarantee that he will continue to enjoy the benefits of a depreciated rupee during the payment lifecycle. In the short term, the depreciation of the rupee may mainly benefit those buyers who are already in the process of finalizing an existing transaction where they have still not converted their foreign exchange into rupees to pay for their purchase.
However, if the rupee maintains its current levels, developers could see more interest from NRI buyers, as long as the price levels are also maintained and do not see a big raise during the period. At current rupee levels, and the sluggish conditions in many markets that are expected over the next few months, NRIs could possibly benefit substantially from some attractive options in the markets, Jain said.
Lalit Kumar Jain, Credai president, also felt that the sharp depreciation of rupee has given the NRIs a good opportunity to buy real estate in India. He said that though there are possibilities that the
rupee may regain some of its lost ground, the NRI buyers have great advantage during the period that the rupee continues to hover at just below ‘Rs 60 per dollar’ level. Not only this, as the horizon to invest in real estate is long, the investors will have enough opportunities to repatriate the profits, if they want, without losing on foreign exchange conversion account. In the past 22 years, since the economic reform was launched, the rupee has continued to depreciate.
Many of the NCR-based developers like Supertech, ATS, Antriksh, Homestead, and Wave Infratech, among others, are marketing their projects in foreign countries. Wave Infratech, in a statement, said that as a matter of fact, the real estate industry is expecting a boom in the sector, which would be partly driven by the NRI investments in India.
Due to the depreciation of the rupee, enquiries from nonresident Indians have jumped 20% in the last a month. Many developers have seen a sudden demand from NRIs than from the local people.
But, the demand is affected by the slowdown in the developed economies. A senior official of a real estate firm, who is involved in marketing projects abroad, said that uncertainty in job security in the developed countries is discouraging NRIs from purchasing real estate assets here.
As the ticket size is very large, he said that unless one is sure of his job, he would not go for a product in the real estate market.
At the same time, the depreciation of rupee, it is feared, might affect the Indian economy, which would affect domestic demand. Standard Chartered Bank says in a report: “Sustained depreciation of rupee poses significant downside risks to India’s fundamentals and may feed back into further portfolio outflows and rupee weakness in the next couple of months.”
Besides, it might trigger inflation which would squeeze the profitability of a developer. Therefore, on the whole, depreciation of Indian currency is not a very good story for India. But, still, there is a silver lining that it might provide a boost to the demand for the real estate from the NRIs.
This would provide enough cash flow to developers to continue the implementation of their projects.

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