To paraphrase Warren Buffet, a time of fear is a time for opportunity.
While all economies are shaken at the moment, it is in such times that smart investors buy into their preferred asset classes. For NRIs, opportunities back home are even more appealing with the fall of the Indian rupee. As the equity markets continue to vacillate, NRI investors had become wary of the stock markets and fell back on gold, real estate and bank deposits because of the relative security of these products.
Interest Rates Plummet
Amidst the turmoil in the Indian banking sector and SBI, the country’s largest lender, reducing interest rates on savings accounts and fixed deposits, NRIs are averse to trusting banks. SBI reduced interest on savings accounts to 3% for all categories from the earlier 3.25% for accounts with less than 1 lakh rupees, and 3% for accounts with more than 1 lakh rupees. Moreover, the interest rates for fixed deposits for a tenure of fewer than 45 days have been trimmed by 50 bps, meaning that they will earn 4% instead of the earlier 4.5%. For tenures of one year and above, SBI FDs will now earn 5.9% instead of 6% – the lowest since August 2004. Investors can gauge sentiment from the fact that this is the second reduction in interest rates in the past month.
Real Estate Vs. Gold
A real estate is clearly a superior option for NRI investors. With the sector-wide turbulence caused by the COVID-19 pandemic and the oil price war pushing oil prices to as low as 32$ per barrel, gold prices peaked and then reduced in the past few weeks. After opening March at INR 4274 per gram, gold prices jumped more than 6% to Rs 4536 per gram and are now once again on a downward trajectory. Only early investors could book profits in this asset class.
Meanwhile, real estate prices in India are at record lows and can go nowhere but up from here onward. The Indian real estate market is defined by perennial demand on the back of massive urbanization. For NRIs who will eventually return to India, this is an ideal opportunity to secure their now accustomed lifestyle back home. Not all NRIs have an ancestral property to bank on, so they always constitute a significant share of buyers of Indian real estate.
The direct and indirect benefits of a slew of Government measures in recent months continue to work in NRIs’ favour. A recent report stated that Mumbai – the oldest Indian real estate market – recorded sales of 1800 Crores from 60+ sales of ultra-luxury apartments. Plot rates in prime residential areas in Greater Noida increased by 40% after an exercise by GNIDA. A reputed developer in Borivali, Mumbai sold approximately 2500 flats in 3 months. In Pune, expedited operationalization of three Metro lines by 2022 will spur demand for projects along the Metro corridor.
Attractively-priced projects by reputed developers will certainly appreciate in the mid-to-long-term. Over the years, real estate has invariably been a preferred investment asset class in times of turbulence, since it is agnostic of market volatility in the long run. It works especially well for patient investors with longer holding capacity (short-term speculative investment is no longer an option in India.)
Despite the overall sluggish economy, India’s top listed developers have seen significantly improved sales performance in the last year. This vouchsafes the tried-and-tested mantra that in times of economic turmoil, security – not ROI – is the key metric for an investment.
Unlike the equity markets, real estate investment does not require a lot of functional and domain knowledge. However, NRIs who have become unfamiliar with India’s real estate market should rely on credible real estate consultant who will guide them to the best opportunities and also help them seal the deal. This is especially important in times when most NRIs will be wary of travel in the immediate future, making personal site visits a challenge.
Fortunately, Grade A developers today offer 3D views, walkthroughs and actual site images of their projects, enabling buyers to assess the product remotely. For investors focused on the even more lucrative office space segment, site visits have become redundant since the best projects are already pre-leased and offer guaranteed rental during construction and post possession.
As worrisome and troubled as the current situation is, it is also a highly opportune time for NRIs to invest in Indian real estate and book profits on the back of currency depreciation, record low prices and organic impending growth of Indian real estate markets.