Indian realty awaits bounce from rupee slide

Dubai: Gold’s run up the pricing charts is losing steam, Indian stock markets mirror the volatility apparent in emerging markets elsewhere and the rupee seems to have lost its gravitational pull as it slips past 60 to a dollar. In such a scenario, where can expatriate Indians, especially the affluent ones seeking better than average yields on investments, look?

Should they limit their options to Indian realty and, particularly, on investible properties — residential and commercial — that can fetch rental returns? However, Indian developers believe the market is not yet ripe for realty investments from a rental perspective. In fact, they state emphatically, that expatriate Indian interest in property is skewed towards end-use needs.

“We feel the trend on investments or on the end-use front continues to be strong,” said Santosh Tandel, regional head at Indiabulls, which has a sizable development pipeline in western and southern Indian cities. “With rupee’s depreciation, remittances to India are at an all-time high [and] among the various investment opportunities available, real estate seems to be the most promising one.

“Rental on properties in the Indian market has not been significant in the short term, i.e., a return on investment if only rental income is taken into account has not been too exciting [to date].”

“Price appreciation is not the sole determinant of long-term attractiveness for investment — potential for demand growth, price stability, quality of infrastructure, and state governments’ focus on development are the other key determinants.

“Customers need to be selective in choosing Tier II cities for investments. Investing in Tier I city is like an investment in blue-chip shares. These investments may experience short-term corrections but in the long term would continue to be strong investments.”

As a developer, Tandel has every reason to state the fact. But in the absence of clear options in other asset classes, property could well be the default position for expatriate Indians. As to which way these sentiments are blowing will be in evidence at the Indian Property Show — organised by Sumansa Exhibitions — which opened in Dubai yesterday.

Developers contend that India’s realty has been a bulwark against the malaise in the wider economy. “Demand for housing in the mid-income category continues to be more than supply and the likes of Gurgaon, Noida and Bengaluru have generated returns of more than 30 per cent in the last year and despite the slowdown,” said Nishant Singhal, director for strategy and international operation at Investors Clinic, the real estate consultancy.

And with demand being such, India’s developers “are able to hold prices,” Singhal added. “With the impending cut in interest rates by Reserve Bank of India, we are poised for better days ahead.” Investors Clinic has seen enquires from Dubai based expat Indians go up from 300 a month to 1,000 now.

Into the mix of factors influencing property investments comes the continued weakness of the rupee, which on Thursday broke the 60 barrier that it had been threatening to do for some time. But the rupee has been tracking lower for the better part of two years and as such much of the property buying brought on by it has already taken place. It remains to be seen whether the current extended weakness of the rupee will trigger another bout of buying by expatriates.

Tandel believes there is a win-win situation for buyers — “The customer can expect appreciation on both the currency as well as the real estate transaction in years to come. A weakening rupee and the inflation trends have an impact on the cost of development. The positive part of such depreciation is that the investment becomes more attractive for a NRI customer.”

Anuj Puri, chairman and country head at Jones Lang LaSalle India, makes it clear that the nature of property investment is such it can be viewed from a mid- to long-term horizon.

“The minimum investment horizon for a successful property investment [which also meets other essentials like good location, location-appropriate typology, pricing and timing] is between 3-5 years,” said Puri. “Also, Indians living abroad do not necessarily buy property only for investment — many of them do so on the basis of sentiment too.”

That being the case, rupee’s current volatility needs to be one of a set of factors influencing the decision to buy property back home. Expatriate buyers looking to take the plunge now could keep that in mind.