NRI Investments in real estate and the rising dollar – The Economic Times

Clipped from: https://economictimes.indiatimes.com/nri/invest/nri-investments-in-real-estate-and-the-rising-dollar/articleshow/96372765.cms

Synopsis

NRIs today are investing in the luxury home segment because it suits their lifestyle, and provides them a safe haven by yielding a higher rate of appreciation and greater life-long rentals. Recent data has shown that over the last two years, the average monthly rentals in the top seven real estate markets in India, along with the prominent luxury micro-markets, have increased by 8-18%.

As the global real estate sector remains under pressure due to a major economic slowdown, the real estate sector in India has performed well over the past few months, with the prices of residential properties remaining stable in some regions and bullish in others, owing in part to NRI investments in the sector that are expected to grow to a whopping USD 14.9 billion in FY22.

Valuation of the INR, the US Dollar, and other foreign currency:

Since the beginning of this year, the Indian Rupee has continued to depreciate against the USD, falling from Rs 74.51 to an all-time low of Rs 83 in October 2022, indicating a drop of nearly 11.40%. The current rates continue to puctuate between Rs 81 and Rs 82 per US dollar. On the other hand, the Euro along with the Canadian and Singapore Dollars have continued to appreciate over the years along with the USD. NRIs, who live in such countries that have a stronger currency value against the INR, are at a dual advantage as their money multiplies faster after conversion, resulting in a better gain.


Demand for luxury homes in India:

NRIs today are investing in the luxury home segment because it suits their lifestyle, and provides them a safe haven by yielding a higher rate of appreciation and greater life-long rentals. Recent data has shown that over the last two years, the average monthly rentals in the top seven real estate markets in India, along with the prominent luxury micro-markets, have increased by 8-18%.

The locality of Worli in Mumbai saw the highest rental growth of 18% during the period, with the rentals of the luxury segment homes rising from INR 2 lakh per month in 2020 to INR 2.35 lakh in 2022. Bengaluru’s Rajaji Nagar on the other hand, saw an increase of 16% during the same time, rising from INR 56,000 per month in 2020 to INR 65,000 per month in 2022. The locality also recorded the highest capital appreciation of 9%, as the average prices rose from INR 5,698 to INR 6,200 per square feet in 2022. The capital appreciation in these luxury housing markets has remained in the single digits (between 2-9%) over the last two years.

Rising interest rates
Banks around the world have been raising interest rates in an effort to keep inflation under control. The rise in home loan interest rates has put pressure on the housing market, particularly in the United States and China. The housing market in India, however, has performed consistently, in spite of the rising interest rates. The Reserve Bank of India (RBI) has raised the repo rate by 190 basis points (bps) since May 2022, and going ahead, these rates may rise again as they are still in a hike cycle.

Policy Development
Since 2015, the Indian real estate sector has seen a tremendous transformation as it inches towards becoming a customer-focused market. Policy initiatives like RERA, and regulations around stamp duty and GST payments have made the market more transparent, credible, and profitable. Wealthy customers in the niche luxury housing segment have continued to engage in high-ticket transactions, while investors and those on the fence have accelerated their decision-making processes.

NRIs invested up to $13.1 billion in India’s residential real estate sector last year, and this gure is expected to rise by around 12% this year. Due to the aforementioned factors, the top markets that have attracted a large portion of these figures are Mumbai and the Gurugram region.

The author is Founder & Managing Partner, Viceroy Properties LLP

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