Dubai is known as one of the best real estate investment hubs in the world. In 2012, real estate prices in Dubai witnessed a 10% y-o-y growth rate, as per Dubai Land Development (DLD) authority’s data. Also, the real estate transactions increased by 8% to AED 154 million during this period. Interestingly, Non-resident Indians (NRIs) are among the top 5 investors in the Middle East. We can be sure that any NRI would be more inclined towards investing in his mother country, more so if he is also assured of higher returns. But the question is, how is higher returns assured.
Well, a simple answer is that no one can give you that assurity. But numbers do speak in favor of the same. Post the Global recession, Indian prices have witnessed a significant increase in property values averaging 40-42 % across all major markets as per the database of Real estate intelligence services, Jones Long Lasalle. Refer to the chart (figure 1) given below.
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| Source: Real Estate Intelligence Services, Jones Long LaSalle, India |
As we can see, Mumbai witnessed a price increase of 66% during the same period. But there has been a 65% slump in the real estate market value in Dubai in the four year period before 2012.
To top it all and to make real estate investment in India more lucrative for NRI investors, the rupee value has depreciated by 12% against dollar between May and June. So what? How this rupee depreciation means more profit for NRI investors in Indian real estate market?
Let’s do a simple maths here.
Currently 1 AED is pegged at 16.60 INR. Let say a Dubai based NRI invests 10 million AED into the Indian real estate market now. Let us assume conservative 15% returns from the Indian Real Estate markets. The investor could expect a repatriated returns of 27% (15% of returns from the Indian Real estate market and 12% of currency appreciation) assuming that Rupee returns to its pre-May mean of 14.8/AED.
As we can see, merely the returns of 12% expected from exchange rate fluctuation is comparable to 10-12% of total returns expected on investments in Dubai according to the reports of DLD.
It seems like I have painted a very rosy picture for investments in India. Now let’s play a devil’s role here. There may be no guarantee for an investor booking an under construction property that he will continue to enjoy the benefits of depreciated rupee during the payment period. It could also be argued that the political scenario is real bad in the country. There is no stability as far as the government is concerned. As a result, there is no surety of when the laws may change depending on the whims and fancies of different political parties in power. Moreover, Dubai has a world class infrastructure to top it all.
Though I am hoping that with the establishment of Real Estate Regulatory and Development Authority, there would be a better transparency and maturity into the Indian Real estate sector that has been so far unregulated.
Despite these facts the challenge still remains as far as identifying the right property is concerned.
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