Rate of conversion of NRI inquiries to sales very low
Online property portal Commonfloor.com, has been receiving around one million NRI visits per month, which in comparison to the past few months is almost double the figures.
While most export-related sectors are chagrined over the depreciation of the Indian currency, the perception of the real estate segment of the country is to be celebratory.
Inquiries from Non Residential Indians (NRIs) have been increasing since the past few months, with legions of them even flying down to purchase properties back at their homeland.
This has kindred new hopes and aspirations for the builders and developers as the realty sector has been sustaining a subdued growth for over a year now. Sales through NRIs is certain to create a marked improvement within the present grim climate of the country’s real estate, but it may not suffice to ignite a full-fledged revival.
With their natural closeness towards India combined with the depreciation of the Indian rupee against the US dollar, the NRI community’s decisions pertaining to their realty investment is altering in favour of the Indian market, however the rate of conversion of inquiries to sales is very low.
Reasons for investments:
More recently, the Indian rupee has witnessed a depreciation of 12.0 per cent against the US dollar, since the beginning of May (till June), thereby forcing its value down against all other currencies pegged to the US dollar, including the UAE Dirham (AED).
A simple calculation would suggest that if a Dubai-based NRI currently invests AED 10 million within the Indian real estate (INR/AED at 16.4), and assuming only conservative returns of 15 per cent from the Indian real estate sector in the shorter-term, the investor could expect repatriated returns of minimum 27 per cent assuming that the Indian rupee returns to its pre-May mean of 14.8/AED.
The incremental return of 12.0 per cent attributable to exchange rate fluctuation is comparable to 10-12 per cent of total returns expected by Dubai Land Development (DLD) in the near-term from investment in Dubai real estate.
Incremental returns can be expected from investments made by NRIs from other parts of West Asia where the local currency is mostly pegged to the US dollar.
The depreciation of Indian Rupee has made Mumbai’s expensive properties a little more affordable for the average NRI. Of the total annual apartment sales amounting to Rs 50,000 crore within Mumbai, approximately Rs 8,000 crore was attained from NRI investors.
The Mumbai-Pune markets witnessed good traction after the dollar touched Rs 60. The interest is being generated more towards properties ranging from Rs 1 to 3 crore rather than high-end apartments.
A new crop of Property Management Firms (PMF’s) are flourishing in India. These PMF’s provide services ranging from maintenance, supervision, security as well as renting the property, collection of the rent, transfer of the rent to the NRI, etc. These PMF’s ensure that a real estate investment remains a performing asset, at appropriate and economical charges.
Reasons for slow conversions:
Lot of big real estate ideas are riding on infrastructure projects like expressways, airports, highways, metro rails, mono-rails, unfortunately however, most of them failed to see much execution progress within the last 4 to 5 years. Investors are sitting on fence to wait and see how these big stories will pan out in the future.
The bulk of NRIs are still withholding their investment funds due to the greed factor. They expect the rupee to depreciate further and touch Rs 65. These are not the actual niche end users, but investors in possession of surplus money.
The size of the segment of actual niche users who seek houses to live in during their visits to the country pales in comparison to NRI investors looking to take advantage of the rupee depreciation as well as the ones waiting for the realty market to hit rock bottom.
The uncertainty caused by the upcoming 2014 Indian elections as well as the new regulatory real estate bill to has been a major reason of concern for the NRIs. The other challenges faced by the NRIs at the time of investment is the lack of transparency in the Indian real estate market and clarity over regulations and approvals in overall real estate sector of India.
The general perception amongst investors and buyers pertaining to the Indian real estate sector, is that of dramatically inflating prices. The current realty market is witnessing a ‘cross situation of 2008’; where NRIs were allured by the properties in India, but are presently being drawn to properties located back in the states.
NRI investors prefer investing within Tier 1 cities as the growth and demand for property in these cities proffer a safe bet for the investment. The IT and ITeS along with manufacturing corridors attract a huge migrating population. These corridors are predominantly concentrated in and around Tier 1 cities.
With the Indian economy in a slump, major business houses are employing job cuts as a viable option. The employment rate too has drastically gone down. Due to the same, the average spending power along with the demand for residential units and the decrease in rent or prices of these units is observed. This in turn impedes the investor to wait out the slump before investing.
Due to the risk factor involved, the Mumbai realty sector is generally ignored by NRIs. NRIs have usually preferred destinations such as Bangalore, Chandigarh, Pune and Kerala.
Lack of clear, simple and unbiased information over the internet. Majority of the NRIs would be more than willing to invest even in the present scenario if they had clear, simple and complete information regarding the property markets of India. This also translates into a window of opportunity for the sector at large top innovate and cash on this. One of the top Indian property portal’s Commonfloor.com has been working towards improving the same through its projects,locality, article and news and forum.
