Dubai: With the dirham to rupee exchange rate swinging in their favour and Indian realty prices likely to cool down, expatriate Indians could be staring at the most opportune time to pick up property back home. In recent days, the rupee has been hovering at around 13 to a dirham, a level rated as psychologically significant in getting Non-Resident Indians (NRIs) to loosen their purse strings.
But even within India's property market, several new dynamics are starting to favour higher expatriate investments.
"The residential market in many cities is heading for a semi-stagnation mode, meaning that many overheated central areas will see a considerable drop in demand," said Anuj Puri, chairman and country head at Jones Lang LaSalle India.
"It is a fact that prices have risen beyond affordability in many areas of Mumbai and Delhi. These areas are bound to correct since there is very little demand at current prices."
Except for a brief phase during 2008, Indian property prices did not experience the sort of sharp corrections that many of the established real estate markets did in the aftermath of the global financial downturn. The fact that the Indian economy did not tank plus increased demand from domestic investors ensured that the real estate sector held its own.
Those fundamentals are no longer in place. Latest data shows the economic growth is starting to sputter from the heady levels of last year, and the Indian central bank has also intervened strongly with successive rate hikes to keep inflationary pressures in check.
This was bound to tell on property demand in the country and it is starting to do so now. Mortgage offtake in the second and third quarters has been markedly down and could well continue into the next quarter as well.
"Overall demand has dropped by around 30 to 35 per cent depending on the location and property typologies; there is a definite lack of enthusiasm for premium projects wherein developers have not yielded on their asking rates," said Puri. "Demand will pick up once prices come down sufficiently."
According to Rajnish Oswal, managing director of Dubai based Smart Planners Real Estate, "Prices in Mumbai have been stable now and it seems there won't be a high appreciation in the short term. Demand for residential property can still be high if prices — and interest rates — can become a little affordable. "High net worth and overseas investors are active and getting better deals due to the current scenario of the real estate market."
It's not just property valuations in Delhi or Mumbai that could go through far-reaching changes in the short term. The southern city of Hyderabad has already taken a deep hit, principally as a result of recent political unrest in Andhra Pradesh of which it is the state capital.
"That said, there is still enough demand there to keep the market in maintenance mode until matters improve," said Puri.
Meanwhile, in another perennial investor favourite, Bengaluru, the residential sector is picking up again, while Chennai and "to a certain extent" Kolkata continue to hold steady being predominantly end-user driven. As for another favoured investment destination among NRIs, Pune in western India is starting to see a certain amount of resistance to the current valuations.
But, in general, Tier II cities have managed to hold off any deep erosion in values.
Specifically, those cities with "sufficient IT infrastructure and IT-centric manpower resources are seeing a lot of interest from overseas investors who are still keen to offshore their business needs," said Puri.
But if another round of interest rate hikes is made — and inflationary pressures could still force the central bank to intervene once again — it could further undermine demand among domestic investors.
"Further rate hikes would make it even more difficult for domestic investors to buy homes in the metro cities, which will really affect the residential market," said Oswal.
"It will give a signal to the investor to hold off on buying."
That could be the lot of the domestic investor and not necessarily of expatriate Indians. The currency exchange levels are coming along nicely in the latter's favour.
If this turns out to be the case, expect India's developers to once again start wooing expatriate Indians here in earnest.
The rules of engagement for Indian property are changing.
A year can be a long time in the property business. Last year, the National Capital Region (NCR) in Delhi had the makings of being the pace-setter for the Indian property market.
Now, the prevailing weak sentiment in the property market is starting to hit investor interest in the NCR territory and fray developer nerves. But Anuj Puri of Jones Lang LaSalle India is not about to lose confidence in the cluster.
"NCR is a growth corridor and this will not change," he said. "The long-term fundamentals remain intact, and long-term investors will continue to consider it favourably.
"However, the recent land acquisition issues have put a dampener on the exuberance that existed so far, and the market is holding back in anticipation of greater clarity. That said, Delhi-NCR will grow in line with the logical expansion dynamics made necessary by the need for de-congestion of the more crowded areas."
The Special Economic Zones (SEZ) that were expected to change the face of Indian commercial realty are proving a non-starter.
"A lot of the leading developers who had invested in existing or proposed SEZ projects have decided to pull out of such investments," said Anshuman Magazine, chairman and managing director of CB Richard Ellis South Asia Pvt. Ltd.
"The absence of suitable fiscal and tax incentives have taken the shine off SEZs. The imposition of minimum alternate tax (MAT) and dividend distribution tax (DDT) on SEZs in the federal Budget has dampened the positive sentiments across the industry.
"There have been numerous instances of developers applying for de-notification of SEZs and cancelling their plans. It is still to be seen how the entire situation unfolds over the next few months.
"The government is under pressure for pursuing economic reforms and promoting industrialisation; hence, a middle ground might be reached in the next few months."