Key Global Events & Their Ripple Effects : Creating a stir in the Real Estate Market
The global trends resonate across many countries and as India remains deeply entwined in the global economic landscape, the ripple effects of key happenings on foreign shores are bound to create a stir especially in the real estate market.
Text: Nadine D’Souza
The year 2019 started with the US government second shutdown of 2018 that stemmed from an impasse over President Trump’s demand for $5.6 billion in federal funds for a U.S.–Mexico border wall. The shutdown of the US government will certainly hit Indian economy because of crippling of the trade facilities at the ports and airports and in turn the health of real estate. The good news is the Trump Organization wants to double its real estate holdings in India.
Another political event likely to impact the Indian economy will be how Britain negotiates Brexit. Britain’s exit from the EU will push it for closer ties with commonwealth countries like India which is among the consistently growing and most stable economies in the world. In the long term, Brexit may possibly lead to bilateral agreements of UK and EU with India resulting in greater investments in India including real estate.
Similarly, the U.S.-China trade war could lead to deeper trade ties between India and the U.S, presenting opportunities for India’s manufacturing sector and U.S. businesses foraying in India thereby boosting the commercial, warehousing & retail real-estate.
Property market can shift in the blink of an eye. The international happenings through many twists and turns were evident in the past few years but most fortunately caused a positive impact in India. While there is much to rejoice, one can’t throw caution to the wind as the international developments continue to influence Indian geo-political and economic situation.
Rupee red zone rakes in NRI investment
In September last year, the Indian rupee plunged to a fresh record low below the 72-mark against the US dollar. The rupee had been sliding since the beginning of 2018 and the depreciation continued over the next several months.
The fluctuating rupee had an upside for the real estate sector. Non-resident Indians (NRIs) and institutional investors such as MNCs saw it as an opportunity to explore investments in the Indian property market. The 10 per cent depreciation caused by a weaker rupee has allowed NRIs to enter the Indian realty market at a 10 per cent discount with further addition of incentives offered by developers. Real estate companies have been receiving a spate of enquiries and transactions over the recent months, and the trend is estimated to rise by about 10 to 12 per cent.
What makes the scenario more lucrative today is that along with property prices already down by about 10 to 15 per cent and the current rupee depreciation that adds a discount of another 10 to 15 per cent, the realty sector has also been transformed by the Real Estate Regulatory Authority (RERA) legislation that has brought in transparency and accountability in the property buying process. NRIs and MNCs are particularly showing interest in the metro cities where their investments are likely to yield the best returns. Also read http://realtyplusmag.com/rising-aspirations-moving-towards-smart-cities/
The rupee slide has been an encouraging factor for expat Indians who see it as an affordable opportunity to not only purchase a home in their homeland, but also as a lucrative investment option. And this trend is likely to continue in 2019.
Indian investment in Dubai realty on the rise
According to statistics from the Department of Real Estate Studies & Research, Dubai Land Department (DLD), Indians make up the largest chunk of all foreign investors in the sector. Indian investments in the Dubai realty market has held strong for the most part of 2018.
One of the main reasons for this trend is that the real estate industry in Dubai has emerged as among the most lucrative, transparent and secure property markets in the world. In fact, Dubai’s Real Estate Regulatory Agency (RERA) was the inspiration for Indian authorities to reform their own real estate regulatory framework.
Investors in Dubai’s realty market receive layers of protection from Dubai’s RERA. Their money stays safe from property developers who are restricted from accessing their escrow accounts without prior permission from the regulatory agency, surveyors’ site inspection and a progress report. Dubai offers 7-8% rental return per annum, compared to 2-3% in most metropolises in the world, which means an investor could recover the entire investment in 12-13 years through lease or rent. These are much higher returns compared to similar properties in Indian metropolises. Quality infrastructure, excellent air connectivity, political stability and a recent relaxation in the UAE’s visa policy makes the Middle Eastern destination a hotspot for Indians looking to investing in property overseas.
But with Indian property buyers appearing to have shifted their loyalties to the Dubai market, what does it mean for Indian real estate developers? Well, they too are heading abroad! According to reports, developers such as Sobha Developers, Ajmera Realty, Lodha and Puravankara are all exploring their options in Dubai, where they have been receiving a tremendous response from Indian and foreign investors.
Realty reforms improve ease of doing business
India bumped up its World Bank’s Ease of Doing Business ranking from 100 to 77 last year. The credit for this, according to the World Bank, is the streamlining of the process of obtaining building permits, making it quicker and less expensive. This was reflected in the improvement in ranking by 129 ranks in ‘Dealing with Construction Permits’ in the World Bank’s ‘Ease of Doing Business’ report.
The government has, in recent times, introduced a number of key reforms in the real estate sector, the most notable being the Real Estate (Regulation and Development) Act, 2016 or RERA, which has brought accountability in the sector. Through RERA, the home buying process for consumers has become easier, thereby boosting investments in the sector. The Goods and Services Tax (GST) was also introduced and later tweaked to improve efficiency. India’s ranking could further rise if it improves on time taken for registering real estate, starting business, insolvency and taxation and enforcement of contracts.