The global capital and currency markets have been volatile for last the few months, also triggering serious turbulence in the rupee. The current account deficit and the fact that foreign institutional investors are selling heavily on the Indian bond market have been the key triggers for the rupee’s repeated depreciation. Factors such as negative export and industrial growth have triggered even more uncertainty, specifically in the currency trend pattern.
The key question is will the rupee see a further depreciation? Parliament has passed the Food Security Bill, which effectively increases subsidy burden for the government.
The fact that the Lok Sabha elections will be held in in 2014 may be cause for more of such populist measures — nevertheless, the country’s overall financial status does not look very exciting right now. We may continue to see volatility over the mid-term.
NRIs and the real estate market
When it comes to Indian real estate, the non-resident Indians (NRIs) take centre-stage when the rupee depreciates. The foreign exchange that they tend to funnel into the sector increases significantly when the rupee slides. In times of rupee volatility, banks institutions and developers tend to announce various schemes aimed at attracting NRIs.
At the same time, they are also attracted to the higher interest rates on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) deposits, as the standalone rupee returns look quite lucrative to them.
Paradoxically, data covering the last two decades indicates that NRIs have, in fact, been losing out when they funnelled their foreign exchange into such accounts during such volatile times. They have erroneously assumed that they are capitalising the rupee’s volatility by locking into high yielding deposits. However, this route has caused them to miss out on overall capital returns, because the perceived benefits of high interest rates are actually eroded by the depreciating rupee.
It is therefore wrong for NRIs to assume that they can earn good returns by locking their foreign exchange into high-yielding deposits. The reason why more and more NRIs are choosing to invest in Indian real estate instead is because they are now aware that this is the only route that assures them of optimal benefits.
As long as they maintain a broad investment horizon and have chosen their properties well, the capital appreciation on real estate translates into multi-fold that put all other asset classes in the shade.
Traps on the path
NRIs have always been soft targets for hyped-up real estate marketing by developers. The objective of such marketing is to make them believe that the projects being offered have been specially created for them — that are not standard offerings on the market. Projects being marketed directly to NRIs are trumped up as the best options that money can buy in India.
The fact is that most of these projects are not professionally managed, which has extremely negative implications for someone who is not physically present in India. Lack of proper project and facilities management results in accelerated dilapidation of neglected units, and security also becomes an issue. There are often no provisions for paying society dues from abroad.
Likewise, NRIs who have made a sentiment-driven property purchase in their home towns in India, often overlook that paying dues such as property tax online may not be an option in these locations. The end result is that the property turns out to be a depreciating and legally compromised money trap.
For these and many other reasons, NRIs should not give in to sentiments or manipulative marketing while making a decision on buying property in India. Such decisions need to be based on sound advice from professionals, with the objective of reaping good returns on investment.
For NRIs, the Indian real estate market definitely holds the highest possible investment potential. However, no such investment should be done on impulse, and it is at all times advisable to maintain a healthy long-term investment horizon of between 7-10 years.
NEW DELHI: State-owned Canara Bank today launched two new housing schemes for Non-Resident Indians (NRIs) and High Networth Individuals (HNIs), in a bid to cash in on the festive fervour.
The demand from NRIs for houses has increased considerably and enquiries with regard to housing loans from NRIs with builders have grown by 20 per cent at present, Canara Bank Chairman and Managing Director R K Dubey said here.
Home loan of up to Rs 30 lakh would be available to an NRI at the base rate of 9.95 per cent, while loans in the bracket of Rs 30-75 lakh will be available at a rate of 10 per cent. Loans of above Rs 75 lakh would attract Rs 10.20 per cent.
Further, the demand from HNIs for housing loans of above Rs 1 crore has also increased, Dubey said, adding, the premium housing loan scheme is exclusively for HNIs having gross annual income of Rs 25 lakh and above.
The minimum loan amount under the scheme is Rs 1 crore and the rate of interest charged would be 10.05 per cent.
Processing charges for both the schemes have been waived till October 31, he added.
LONDON: As a sequel to recent depreciation in the rupee, Non-Resident Indians from around the globe have evinced interest to invest in real estate in India, a Mumbai-based real estate developer has said.
“With the dollar appreciating against the rupee, there is a lot of interest among rich NRIs in the UK and elsewhere to invest in India,” Gaurav Gupta, Director of Mumbai-based Omkar Realtors & Developers told reporters here.
Gupta who was speaking after unveiling their ambitious 800 million (Rs 8,000 Crore) Sky Villas project – Omkar 1973 Worli – said, “NRIs want to have a house in India and they see a great investment opportunity now. We have received positive response from NRIs not only from the UK but also from Hong Kong, Singapore, Dubai and the US.”
Omkar 1973 Worli, encompassing 3 towers scaling beyond a combined height of 800 metres, is a flagship development of the group spread over 4.5 acres.
The name Omkar 1973 derives from the latitude and longitudinal coordinates of Mumbai city and is designed by world’s leading architecture design firm Fosters plus Partners.
Gupta said in all 400 plus ‘Ultra-Luxury Apartments’ would be built under the free sale portion and 40 per cent of the apartments have already been booked. The minimum cost of a flat would be Rs 18 crore (4,000 sq.ft) and maximum would be about Rs 80-90 crore (18,200 sq ft), he said.
On completion of the project by mid-2017, it will be one of the best projects in the world, he claimed. “This will change the standard of real estate in India.”
Elaborating on their debut in India’s residential space through the partnership with Omkar Realtors, Nigel Dancey, Senior Partner, Fosters Plus Partners said: “We have tried to give a holistic approach to the design that can be witnessed in the details of the lobby and in the individual villas. This project has a unique indoor-outdoor living design, giving home owners an opportunity to fully enjoy every space.”
The project is located very close to Bandra-Worli sea link; with Mumbai s landmark Siddhivinayak shrine also located nearby.
The project attracted an initial Rs.200 crore funding from the Ajay Piramal Group and Rs.1,200 crore debt funding from Yes Bank, Gupta said.
MUMBAI/BANGALORE: The depreciating rupee may have helped improve property sales to NRI buyers, but it isn’t helping the saviour of real estate developers — private equity firms — which are not only stuck with their earlier investments, but can’t raise fresh funds either.
Indian currency’s record depreciation against the greenback and weak property market have restricted realty private equity offshore funds’ fresh fund raising efforts as well as trapped their earlier investments since FDI gates were opened in 2005. The rupee has depreciated nearly 27 per cent since April 1 to touch a record low of Rs 68.63 against the dollar on August 28. Over the past two years, when most of these exits were being planned, the currency has slipped 46 per cent to touch this level.
It has almost wiped out foreign private equity funds’ meager returns from real estate, and any exit now will lead to at least 25-30 per cent loss in dollar terms. “The environment for raising fund from overseas investors is not very conducive. Offshore funds that have invested during the last few years when the US dollar was quoting at Rs 42-52 will find it challenging to offer good returns now because of the fall of the rupee and weak underlying market,” says S Srinivasan, CEO at Kotak Realty Fund.
Investments made in Indian real estate sector are cumulatively estimated to be around $15 billion since foreign direct investments were allowed in the sector. Around 20 per cent of this was expected to get an exit in the past two years, but seems a distinct possibility now. Private equity firms with offshore funds are in a state of flux not only because of their stuck investments and delay in project completions, but are also concerned about not being able to raise fresh funds in the current scenario.
“Most capital in Indian real estate was invested at the exchange rate of around Rs 40 to a dollar with the expectation of 25 per cent returns. The current phase of currency depreciation would impact the real estate sector adversely as foreign investors would wait for the full cycle to play out and exchange rate to settle down before taking any fresh investment calls,” says Rajeev Bairathi, executive director, capital transaction group and north India, Knight Frank India.
Most real estate funds that have invested at dollar rate of around Rs 40-45 are likely to get an exit after these seven years at more than Rs 60, which is a loss of around 30 per cent in the currency itself. Moreover, most assets, given the weak property market, have not seen any major appreciation.
“Although rupee has depreciated a lot since these funds invested in projects and is showing no signs of returning to 2006-07 levels. As funds are coming to an expiry and savvy investors are likely to press for exit even at a loss as they are aware that most currencies globally are also following a similar trend,” says Ramesh Jogani, Managing Partner of private equity realty firm Indian Property Advisors. According to him, several funds that have already tried to exit their investments in the past two years and have had little success, may not be able to hold on to their assets for long in anticipation of the dollar-rupee parity reverting to its Rs 45 level.
Private equity investment in Indian real estate nose-dived in the first half of 2013. For the first six months this year, real estate private equity investments were recorded at $276 million (Rs 1,638 crore), 46 per cent lower than a year ago. Private equity funds invested $514 million (Rs 3,050 crore) in the first half of 2012, says a recent report of Cushman & Wakefield, an international property consulting firm.
Bhairathi of Knight Frank does not expect significant foreign capital to flow into the country until the macro environment stabilizes. “This in our view would take at least another two to three quarters and the next general election might offer major triggers for the capital flow to resume. Till such time, it would be extremely difficult to raise fresh offshore funds. Further, the disbursement of capital on the already announced deals might be put on hold till stability returns,” Bhairathi says.
While many experts are concerned about the probable exits at losses and their impact on further fund raising activity, there are some who differ. “In rupee terms, returns are still good. A fund or fund manager cannot be held responsible for currency risk and most seasoned investors usually hedge their position on their own. As an after effect, the sharp depreciation in rupee is likely to result in increasing these hedging costs incurred by investors at their end,” says Shobhit Agarwal, MD, capital markets, Jones Lang LaSalle. Agarwal accepts that the rupee depreciation will impact the fund raising efforts as investors’ investment allocations will change hereon. But, he is also hopeful that it will not stop the capital flow completely.
Private equity deals, given their structure and longer tenure, are not covered through any hedges and this leaves room for sharp impact of currency risk on exits. “In the past five years, currency has depreciated by 3-4 per cent compounded annually depending on tenure of the fund. There will be cases where funds will put exits on hold and wait for rupee to appreciate for better returns,” says Amit Bhagat, CEO and MD, ASK Property Investment Advisors. The 2013 fall is not a sustainable phenomenon and is a matter of concern, but it is not a long term event, he says.
DUBAI: Indians are top foreign investors in Dubai’s real estate market, with transactions of over Rs 132.6 billion made by them during the first half of 2013, according to an official report.
Dubai’s Land Department announced the statistics based on its semi-annual report that revealed a significant increase in funds invested in the market, reaching Rs 877.5 billion.
In the first six months of 2013, Indians bought properties worth over Rs 132 billion, compared to Rs 149 billion they invested in the entire 2012, the report said.
Total investment of UAE nationals in the realty sector was Rs 199 billion, which equalled the entire amount they spent last year.
“Dubai’s real estate market is a lucrative one for its stability, diversity and promise of high return on investment. These factors continue to inspire confidence in local, regional and international investors alike, whose transactions in turn contribute to sustained momentum of the market’s growth – signifying complete recovery from the global financial crisis,” Sultan Butti Bin Mejren, Director General of the land department, said.
A break-down in investments shows that Arab investors contributed to approximately Rs 82.7 billion- a 111 per cent increase in spending, Gulf nationals to over Rs 264.8 billion – a 57 per cent increase in spending, and other foreign investors registering a 73 per cent increase.
Pakistani investors investors spent over Rs 49.7 billion while British investors spent Rs 66.3 billion in spending, the statistics showed.
“An increase in the volume of investors from diverse backgrounds, reflects the success of various policies and initiatives introduced by the government of Dubai throughout the year, which have had an invaluable impact on attracting investment from all over the globe who look for a safe and rewarding place to spend,” Bin Mejren said.
Citizens of the UAE ranked first among Gulf investors with a total of 2,765 investors. Citizens of Saudi Arabia ranked second with 605 investors. Kuwait came in third with 141, followed by Qatar, Oman and Bahrain.
Bin Mejren said that strategies launched by the land department aimed primarily at recovery are aimed at attracting more investment to the market, by offering support to the development of mega projects and advertising lucrative investment opportunities.
LONDON: Presenting India as one of the few high-return real estate markets in the world, over three dozen property developers from the country have come here to attract UK-based NRIs to invest in housing projects back home.
These developers, which include real estate units of large conglomerates like Mahindras, L&T, Godrej and Adani group, would participate in a two-day home fair organised by housing finance major HDFC.
The other realty players participating in this fair, which would start here tomorrow, include Sobha Developers, Purvankara Projects, Ansal Properties, Unitech Ltd, 3C Company, Emmar MGF, Lodha Group and Hiranandani Constructions.
“There is nothing like owning a home – in your homeland,” HDFC Managing Director Renu Sud Karnard said.
“Demand for residential housing has witnessed rapid growth through corporate expansion out of the major cities. Amenities such as shopping and recreational centres, and even the infrastructure in these towns can surpass even the major cities. It’s an opportune time for NRIs to invest in property in India,” she added.
Nearly 40 developers participating in HDFC Indian Homes Fair here would showcase thousands of properties.
NRIs have been known to have a natural affinity towards their homeland and the depreciation of Indian rupee against the dollar makes has made it a win-win deal, experts said, while adding that the benefits from rupee fall is however only for a short period of time.
The developers are also trying to project Indian real estate market as an attractive destination in the backdrop of sinking property prices across the world.
Realty developers from India plan to hold similar fairs in other major global centres in the US and Europe as well.
But some NRIs stay away from investing in Indian real estate properties owing to lack of clarity on regulations and legal issues, as also due to insufficient information on projects and prices.
Karnad said that HDFC would look to work towards removing the misconception that “it is very complicated for NRIs to take out India property applications from the UK.
“HDFC has a base in London, and we can facilitate the process right here. It’s safe and secure,” she added.
MUMBAI: The depreciation in rupee provides a psychological boost to both non-resident Indians as well as developers, real estate consultancy firm Cushman & Wakefield said.
On Wednesday, rupee depreciated to an all time low of 60.72 against dollar. Today, it recovered at bit to 59.36 level.
“If the rupee maintains its current levels, developers could see more interest from NRI buyers as long as the capital value levels are also maintained and do not see a big hike during the period,” company’s Executive Director (residential) Shveta Jain said in a statement.
At current rupee levels and sluggish market conditions in many markets that are expected to remain that way for the next few months, NRIs could possibly benefit substantially from some attractive options available in the markets, she said.
However, she felt investments in the sector may not happen immediately.
“Though it is commonly felt that with each depreciation cycle, NRIs will find it cheaper to invest in the sector, this does not happen immediately,” Jain said.
The primary reason is that there are logistical constraints such as identifying the right property, negotiating a deal, being able to repatriate large sums of money in outright purchases and completing all the necessary documentation and formalities during the transaction life-cycle, she said.
“A typical purchase transaction may take a NRI buyer a period of a month to 3 months. During this period, the rupee may strengthen and the notional advantages that could accrue due to the rupee’s depreciation could be lost,” she said.
Besides, in such a situation, if the purchase is not outright and the NRI buyer needs to either pay in instalments or he is booking an under construction property, there may not be a guarantee that he will continue to enjoy the benefits of a depreciated rupee during the payment life-cycle.
“In the short term, the depreciation of the rupee may mainly benefit those buyers who are already in the process of finalising an existing transaction where they have still not converted their foreign exchange into rupee to pay for their purchase,” she added.
DUBAI: A property show here featuring over 100 developers from India is expected to garner business worth Rs 300 crores in the three-day extravaganza, organisers have claimed.
Around 17,000 visitors are expected to witness properties ranging from Rs 1 million-230 million.
Organisers said they expect business worth Rs 3 billion over the three days beginning from today on the back of steep fall in rupee value against dirham.
This is the 12th edition of the Dubai show. Free seminars designed to offer insights and analysis for the attending visitors and are also being organised by industry gurus, fund managers and legal advisers.
For the first time, the organisers of the show are holding exclusive ‘Know Your City’ seminars along with the regular ones on legalities, vaastu and property investments.
“NRIs can take advantage of the rate of exchange which today is at 15.78 for 1 dirham and was at only 11.8 just a few years back which clearly means NRIs can get 33.72 per cent more for their money,” Sunil Jaiswal, CEO, Sumansa Exhibitions-Organisers of Indian Property Show said.
“Apart from all time devaluated rupee, the recent approval of the long pending Real Estate bill by Govt of India has paved way for much transparent Real Estate sector in India. This will be implemented in the due course and will boost more confidence within the Indian Expats providing more transparent regulation and deals,” he said.
“The depreciating rupee is not the finest news for the domestic market but for NRIs the weakening rupee in conversion provides a good opportunity to park their spare funds in India now,” Alok Anchan, Manager Sales , Rajesh LifeSpaces, Mumbai’s Leading developer, said.
“We expect that the NRI market shall contribute around 35-40 per cent of the total investments in real estate in India this year,” he said.
DUBAI: Over 50 top developers from across India will be participating in a property fair here exclusively for the Non Resident Indians(NRIs).
The tenth edition of India homes fair will be held here from May 16-18.
Customers can choose properties from several projects that will be on display with varying options ranging from flats, apartments, row houses, plots and villas ranging from two million rupees to premium properties of up to Rs 15 crores and sizes ranging between 700 sq ft to over 10000 sq ft.
India’s housing finance company HDFC Ltd is also showcasing over 60,000 flats from across India at the exhibition.
“This is an interesting time for the NRI community to invest in the Indian real estate marketplace. Property buyers overseas normally have to address two key questions one is when to buy and the track record of the developer,” Ajay Sachdewa, Regional Head, Dubai & Gulf Cooperation Council (GCC), said.
The Gulf Cooperation Council includes six countries- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE.
“The interest rates are expected to be reduced this year and since over 80 per cent of the people opt for floating rates, they will stand to benefit from the falling interest rates. NRIs can avail a maximum loan of 80 per cent of the cost of the property and opt from amongst a full suite of flexible repayment options,” said Sachdeva.
Indian expatriates are among the top investors in Dubai’s property market, which is expected to grow 10-12 percent this year, company officials and analysts say.
“Expatriates, mainly from India, Russia and Saudi Arabia, are leading the growth.
Indians are among the top five investors in Dubai’s property market,” Ziad El Chaar, Managing Director of Dubai-based Damac Properties, told IANS in New Delhi.
He said Dubai’s real estate sector witnessed around 10 percent growth in 2012 and this was likely to further accelerate this year.
Dubai’s property market crashed in 2008-09 due to liquidity problems arising out of the global financial and economic crisis. The market witnessed negative or zero growth between 2008 and 2011.
“The liquidity situation has improved and the perception is also changing. People are now bullish on the real estate market. The good thing is that we are witnessing organic growth. Real investors are coming into the market,” Chaar said in a telephonic interview from Dubai.
According to data compiled by Saudi Arabia-based Samba Financial Group, prices of mid-range villas and apartments in Dubai increased by 20-30 percent in January year-on-year.
“Increasing evidence is emerging that the property market in the UAE, and Dubai in particular, has bottomed out and that a strong recovery is apparent in certain segments,” the Samba Financial Group said in its monthly bulletin.
Strong demand for recently launched projects indicate the recovery in the sector.
The first phase of Damac Properties’ $1 billion Damac Towers by Paramount project was sold out on launch day itself. The project, located close to Burj Khalifa, the world’s tallest building, is expected to be ready by the end of 2015.
“This is the biggest real estate project in Dubai since the 2008 crisis. The response indicates a strong demand in the sector,” the Damac Properties MD said.
He said Indian expatriates, as well as residents, have booked a large number of properties in Damac projects. “Indians are among the top five investors in Damac as well as in other projects,” he said.
Chaar said Indian investors were buying properties in Dubai because of tax benefits, attractive prices and geographical proximity.
Dubai’s largest real estate developer, Emaar, recently claimed that its luxury project – The Address The BLVD – located in the downtown area, was sold out 24 hours.