How The Falling Rupee Will Affect The Real Estate Sector

The depreciation of the Indian rupee might be getting all the bad press lately, but the recent fall of the rupee does have some happy takers. The Indian real estate market which has been sluggish following the Lehman-collapse period, is all set to see a boost with more and more nonresident Indians (NRIs) investing in the Indian real estate market. Here is quick look at how the falling rupee is likely to affect different players in the real estate sector.

Impact On Developers

Rupee depreciation signifies escalation of cost of raw materials and services, transportation, and other expenses involved in construction. This in-turn raises the overall cost and time index of a project,and often results in unwanted delays. Rupee depreciation also affects import of construction equipment and technologies. The biggest blow comes in the form of Cash Reserve Ratio (CRR) by the Reserve Bank of India (RBI). Any change in CRR affects the lending rate of banks, which in-turn negatively impacts the funding of new and existing projects.

Impact On Indian Buyers

Rupee depreciation increases the price of household objects. The added burden discourages buyers from investing in real estate at the moment. Further, with interest rates escalating, buyers would prefer to stay away from higher EMIs. On the bright side, in order to attract more buyers, the real estate market will see a lot of developers offering easy payment schemes, discounts on pre-bookings, and free installments of home appliances.

More Savings For NRIs

With the dollar touching Rs 60, the grass sure looks greener on the Indian side for a lot of nonresident Indians. Experts say, a flat in Mumbai costing Rs 5.5 crore ($1 million) in May will now cost around $900,000 for an NRI investor. The fall of the rupee has made expensive properties a little more affordable for the average NRI.

While there is substantial saving for NRI buyers, most NRIs might want to wait for the rupee to depreciate further. Moreover, there are logistical constrains including identifying the right property, negotiating a deal, repatriating large sums of money in outright purchases, and completion of all necessary documentation and formalities during the transaction lifecycle.

Early NRI Buyers To Gain More

The depreciation of the rupee may largely benefit those NRI buyers who are already in the process of finalizing an existing transaction, where they have still not converted their foreign exchange into rupees to pay for their purchase. However, there is no denying the fact that with nonresident Indians amongst the top five investor communities in India, the slump of the Indian rupee will initiate a cycle that will see a subtle, if not immediate, growth in the real estate sector in the next couple of months, provided the dollar continues to remain strong against the Indian rupee!


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