Should
NRI’s invest in real estate despite the rupee fall?
The
Indian property sector has fallen under scrutiny over the last few months, with
the economy slowly taking a turn for the worse. With the present slide, the
Indian Rupee reached an unprecedented low of Rs 63 against the dollar in
October
·
This
slide found the Planning Commission, the Finance Ministry and the Reserve Bank
of India frantically churning out contingency plans to save the battered
currency. There has been concern all around. There can be no doubt about the
fact that this abysmal state of affairs needs attention.
·
Although
the plummet in the rupee does not bode well for realty in general, there is a
silver lining. All of a sudden, Non-Residential Indians (NRIs) are taking
showing keen interest in buying property in India.
·
At
present, they are the best placed to invest in premium projects (Rs 1 crore and
above), and with the exchange rate tilted in their favour they will be able to
pay a sizeable amount of upfront money.
·
The total
remittances to India from foreign sources has reached a record 12 billion US
dollars (USD) in 2013, almost double that of 2012 (7 billion USD). It is
estimated that close to 40% of this amount has been directed into the property
sector. That is only as far as NRIs are concerned. A closer scrutiny of the
Indian rupee fiasco presents a number of problems. Developers are finding that
overall costs have increased.
·
Raw
materials such as steel, cement and mortar have become more expensive. Besides,
the cost for labour has also gone up, in keeping with the inflation and overall
price rise. This means that developers are having a hard time finding the right
combination of labour and material for their projects.
·
So
although NRIs may have a good run when it comes to investment in Indian
property, the project may take a while to reach completion, and this delay will
lead to a price loss which will ultimately affect the end user.
·
This
impasse has resulted not only in upcoming projects being shelved, but has also
brought about the suspension of ongoing projects. This means a loss of several
crores of rupees for developers, not to mention an intangible (but substantial)
loss of face value in the eyes of customers.
·
The
problem with a weak rupee is that the fiscal deficit will take a worse hit than
it already is, and financiers and developers alike will have to pay more for
material in rupee terms. Overall economic disarray is inevitable, and property
will be affected in no uncertain terms.
·
The boom
for realty in India began in the early 2000s. People would buy houses and sell
them at a profit of 15% to 20% in a matter of a couple of years. After the
downturn began in America; however, there was a worldwide slowdown in the
property sector.
·
There was
a panic throughout the country, and a number of people began to sell their
assets and land. This led to developers having to sell themselves short, and
settling for rates that were almost Rs 1500 per square foot lower than the real
worth of the land.
