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.

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