Is It The Right Time To Invest In India’s Property Market?

Indian developers leveraged a weak rupee to lure visitors to Dubai’s largest non-resident Indian (NRI) property showcase in June. The event witnessed around 17,500 visitors over three days.

There were nearly 112 developers at The Indian Property Show, pushing various schemes to draw NRI investors.

Jignesh Mashru, business development director, Deva Enterprises Ltd, said: “At present, the stock market is almost dead in India, gold prices are fluctuating, fixed deposit income is also down, so there are very few options left for investors. If buyers enter into the Indian real estate market in the right places where prices are not too high, then they could get very good returns.”

Market expert Ashutosh Limaye, head of research & REIS, India, at Jones Lang LaSalle is positive on India’s real estate market: “It’s a good time to invest in property in India for two reasons: the value of the Indian rupee has depreciated considerably so
property prices in dollar terms have fallen, and India offers a wide range of real estate options for various budgets, with improved quality and property features. Currently, some of the cities are witnessing a slump in sales, which forces developers to offer good deals.”

“There is a possibility of two-fold benefits for the NRI investors– the current weakening of Indian rupee is expected to be a short-lived phenomenon and once the rupee starts appreciating, the investor will get more dollars for the same investment in rupees and secondly in mid-long term (three to five years), property prices in India will appreciate considerably, thus giving good returns to investment,” he advised.

To lure in the longer-term investors, developers are coming up with attractive schemes that reduce the investor’s risk profile and assure fixed returns, such as the 20:80 subvention scheme and buyback plans that offer buyers a chance to resell the property to the developer for up to 18 to 25 per cent profit over a couple of years.

Mumbai-based developer Sushil Raheja, who says he derives up to 30 per cent of his sales from Dubai-based NRIs, said: “Property is at a decent pricing right now, compared with last year. There is now a bigger end-user demand for homes and we’ve introduced the 20:80 plan to cater to their demand. We are seeing a good response for this new scheme because the buyer’s risk factor is low.”

But while the attractive exchange rate and profitable home schemes are a clear draw for Indian expats, NRIs are still being cautious and buying with the understanding that there will be a long gestation period before their investments start to generate returns.

According to Dixit, sales manger at Bluejay, a Bangalore-based company, said: “Buyers are cautious and want to check the developments before they buy the property. They are even willing to forgo the 10-20 per cent discounts that we are offering for registering at the show. So, in that sense, home buyers are being careful not to fall into a trap.”

Anshuman Magazine, chairman and managing director of the South Asia region for CBRE, advised investors to be prudent: “The residential market has witnessed stagnancy for the past couple of months, which has slowed down price appreciation in most of the leading urban centres. This makes for an attractive scenario for NRIs to put in money in prominent residential projects by established developers. The steep decline of the rupee against the dollar as well as other currencies also augurs well for NRIs to look at investing in residential property.

“However, NRIs should also remain cautious about dubious payment schemes, developer profile and the ability of the developer to deliver the project on time” he cautioned.

Are attractive schemes and relatively low property rates targeted at mid-long term investors in danger of fuelling a market bubble?

Jones Lang LaSalle’s Limaye doesn’t think so “Investors are playing a greater role than before and that is keeping the prices high in a way, particularly in cities and areas where investors are very active. However, one must accept that input costs have increased a lot too. Land costs, construction costs and finance costs all have gone up and naturally the total price has gone up. However, the current prices would not be sustainable if end-users were the only buyers. The prices are floating where they are because of investors.”

CBRE’s Magazine is confident that the strong end-user pipeline will eventually balance the Indian property market.

“Speculation-based investment exists in most fast developing residential markets across the globe and the same holds true for India as well. However, the country also has a strong end-user interest guiding demand for new housing in the country. It is in fact the end-user interest and demand from the mid-income populace that has fuelled housing sale and construction activity in most of the country’s emerging suburban residential markets.”