by Mr.
Ashutosh Limaye, JLL India
Dubai, which is
touted to be the most popular & world-class property investment destination
in the Middle East, has started to witness a recovery of its property market
post the financial crisis.
In 2012, real estate
prices recovered for the first time, growing by 10 per cent year on year,
according to the Dubai Land Development (DLD) authority’s data and as quoted in
various regional media. Real estate transactions in Dubai had increased by 8
per cent to Dh 15.40 Crore in 2012.
Not surprisingly,
this recovery is backed by huge investments been made by expatriates,
particularly from India. Non-resident Indians (NRIs) are comfortably amongst
the top 5 investor communities in the region. With their natural affinity
towards India, and against the depreciation of the Indian rupee against the US
dollar, could the NRI community’s real estate investment decisions be changing
in favour of the Indian market?
 |
| Ashutosh Limaye, JLL India |
For Indian real
estate, general perception amongst buyers or / or investors is that prices have
increased dramatically over the last few years. Immediately following the
Lehman-collapse period, Indian property prices witnessed significant increases
- averaging 40 to 42 per cent across all major markets (as per Jones Lang
LaSalle India’s Real Estate Intelligence. (Service data - see chart below)
Even in cities such
as Mumbai, where capital values are already high, returns stood at 66 per cent
during the same period. As against this, DLD data for Dubai suggests property
prices witnessed a 65 per cent slump in the 4 year period prior to 2012,
thereby justifying the question whether a 10 per cent rally in 2012 is actually
all that significant
More recently, the
Indian rupee (INR) has seen about 12.0 per cent depreciation against the US
dollar since the start of May till June 2013, thereby forcing its value down
against all other currencies pegged to the US dollar - including the UAE Dirham
(AED). As a consequence, the Indian rupee has also depreciated against the AED
by 12 per cent during the same period.
A simple back of
envelope calculation suggests that if a Dubai - based NRI invests AED 10 mn in
the Indian real estate now (INR / AED at 16.4), and assuming only conservative
returns of 15 per cent from Indian real estate in the near-term, the investor
could expect repatriated returns of over 27 per cent assuming that the INR
returns to its pre-May mean of 14.8 / AED
(see diagram).
Merely the
incremental return of about 12 per cent owing to exchange rate fluctuation is
comparable to the 10 to 12 per cent of total returns expected by DLD in the
near-term from investment in Dubai real estate. Similar incremental returns can
be expected from investments made by NRIs from other parts of the Middle - East
where the local currency is mostly pegged to the US dollar (See Table 1).
It could be argued
that expatriate Indians may be favouring Dubai over Indian real estate on the
basis of socio-economic & other factors.
According to media
sources, Indian investors were buying properties in Dubai as it offers relative
political stability, world class infrastructure, tax benefits, attractive
prices and geographical proximity. Also, Dubai’s economy has been recovering
since last two years, growing by 4.4 per cent and 3.4 per cent in 2012 &
2011, respectively.
However, a recent
survey conducted by Sumansa Exhibitions, organisers of the successful annual
event called the India Property show in UAE, portrays a different picture.
The survey possibly
reveals that NRIs place a higher intrinsic value on property owned in India
over that of property owned in Dubai or elsewhere.
Apart from strict
visa rules in the Middle East region, there are certain regulatory obstacles in
buying a property in the Emirates. These are also other critical factors that
can help sustain NRI interest in Indian property market – including:
a The higher economic growth in India
a Improving infrastructure and renewed
political focus on timelines for new infrastructure initiatives
a Rising demand for commercial space in the
market (leading to job creation)
a Social infrastructure
a Price trends
Putting these
findings into perspective, the recent fall in the Indian rupee could
potentially act as a trigger for the NRI community in the Middle East to switch
focus towards properties back in India.
About the Author..!
Mr.
Ashutosh Limaye is (Head – Research & REIS), Jones Lang LaSalle India (JLL
India)
Media Contact..!
Mr. Arun Chitnis,
Head – Corporate
Communications & Media Relations
Jones Lang Lasalle
India, Level 6, Amar Avinash Corporate Plaza,
Bund Garden Road,
Pune - 411 001.
Tel: 020 - 3093 0441
Fax: 020 - 4019 6101
Mob: +91 96571 29999
Website:
www.joneslanglasalle.co.in
Blog:
www.joneslanglasalleblog.com/realestatecompass
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