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Four Things NRI Real Estate Investors Should Know
Dec 20 2014 | 0 Comments | 1897 Views

We often hear our overseas buyers reach out to us and ask this simple question: is this a good time to invest in Indian real estate. Of course there are no simple answers to this and in this uncertain economic times the answer may change, and fast. Thus, rather than answering yes or no we will highlight several key driving force that will shape the economic climate in the short and medium run. In a two part series we will discuss several broad economic and real estate related factors that NRI should take into consideration. In the first installment we will cover broad economic forces that will influence the return investment in Indian real estate. Our next blog will dwell on forces that will affect. Here are four things that all NRI investor should be mindful of:

Weak State of Global Economy: It is well a well known fact that the downside risk for the global economy is elevated at this time. Except for USA (which had a robust 3.9% annualized growth in 3rd quarter of 2014  ) the other big  economies are slowing down. Europe is under the throes of impending deflation; energy prices are crashing (almost a 40% drop from June 2014); Japan is in recession, and China is growing at the slowest pace in last few years. So expect asset market volatility. We expect significant volatility in various asset classes (including stocks and bonds) in the near future. Indian real estate market is relatively less volatile as factors that drive real estate prices (supply factors and underlying demand among others) are fairly stable. This factor favors investment in Indian real estate market.

What is happening to global Interest rate: If the recession is around the corner, then central banks will not be far behind. As expected, Bank of Japan (BOJ) moved preemptively to reduce rates and China did the same thing. Similarly, ECB is also aggressively moving to reduce the interest rate. This means a lot of liquidity and few assets to invest in. Expect bond yield to drop and over time liquidity is expected to move into emerging markets (including India) which will have favorable impact on the real estate market. This factor favors investment in Indian real estate market

New Opportunities in Indian real Estate Market (REIT) : One of the exciting news happening in Indian real estate market is that  foreign REIT investment is now more attractive due to newly introduced  tax incentives (we will have a separate blog explaining this in greater details). We expect this to facilitate FDI inflow into the real estate sector. This is going to give a strong jolt to return on real estate investment. Again, this factor favors investment in Indian real estate market.

Risk of Rupee Depreciation:  This is one thing that NRIs investing in India should worry about. As US economy has grown steadily, and the Federal Reserve has progressively withdrawn from monetary injection to the economy, US interest rate is bound to rise which will also lead to a stronger dollar (thus a weaker rupee). Dollar appreciate is already observed in last few months in anticipation of this rise. While reserve bank of India (RBI) is successfully fighting inflation, given the low inflation outlook for US (and developed countries as a whole) we expect rupee to weaken (so return on NRI investment to be adversely affected by this depreciation). We consider this to be the single most important risk factor against investment in any Indian asset (including real estate). This factor discourages investment in Indian real estate market.

So we are three points in favor and one point against investing in Indian real estate. Our take is that we are guardedly optimistic about investing in Indian real estate.  We will discuss about real estate specific factor in our next blog.

Team Residencebuy.com

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