Rupee crossed 65 per dollar; how it affects Indian real estate industry?
The Indian rupee has hit an historic low against the US dollar. The government has taken many steps to hold the free slide of rupee in the past few days but has failed to contain the decline. India's currency has lost 13 percent against the dollar this year. In the coming days whether the currency would find a stable level or will continue to slide further remains a question, but till then let us have a look at how has the continuous depreciation of the Indian currency affected the real estate industry.
Impact on buyers
With the increase in purchasing cost of daily household objects, the buyers and investors have adopted a wait and watch policy and have delayed their investments. Most Indian home buyers pay EMIs and sometimes rent; therefore, they feel the pressure to manage their finances with the increasing cost of living. There is a fear of a petrol price rise in the coming days that can trigger a chain reaction raising the price of all household items.
In the present scenario, the developers try to lure in buyers by offering freebies like easy payment schemes, interest free installments for some time, discount in pre bookings and much more.
Boost for NRIs
The silver lining in the crisis is that NRIs enjoy the rupee depreciation and invest in Indian real estate in order to later enjoy the appreciation. Indian properties have got discounted by 13% in the past 8 months due to depreciation. With each depreciation cycle, NRIs find it cheaper to invest in Indian real estate. Moreover, developers also concentrate their marketing strategies in a way to attract NRIs; developers know that in the present situation it is the non-residents that will be better placed to deploy their funds.
To take the advantage of the situation, the NRIs will have to make the property purchase immediately (next 3-6 months). In case the transaction is over a period of time, the rupee might rebound and the benefits that could accumulate due to the rupee’s depreciation could be lost. The maximum benefit will be achieved if one pays the entire transaction amount in one go i.e. one opts for ready to move in properties.
Impact on developers
Escalated project costs:
Costs of services and raw materials like transportation and steel have escalated indirectly raising the cost and delivery time of the real estate projects. The raised cost will become a reason for projects’ delay.
Another front of escalated costs is the equipments and technologies imported by the developers. India imports some of the construction material and heavy machinery. With the depreciation of the rupee, import of these items will be expensive for the real estate sector. The sudden and unexpected escalation of costs has disturbed the budgeting of developers and ultimately caused delays in the project delivery.
Increase in oil prices coupled with rupee depreciation has also had its negative impact on the real estate sector. Oil is important in the construction phase and with the prices up by quite a percentage there is a lot of uncertainty over transportation prices that will impact the real estate industry.
The developers face a major blow in terms of funding. An expected hike in Cash Reserve Ratio (CRR) by RBI will impact/increase the lending rate of banks that harms funding of new and existing projects. As a result the existing projects will be getting delayed and new projects will not be launched.
In order to stop further decline of the rupee, RBI had announced actions such as restriction on Indian firms investing abroad and on outward remittances by resident Indians. Till now RBI’s intervention has done little to save rupee from depreciating further; however, the hope of a revival is still on.