NRIs: Real estate or deposits?

Capital appreciation on real estate in India is far higher than the high-yielding deposits for non-resident Indians (NRIs), according to a global consultancy.

“Data covering the last two decades indicates that NRIs have, in fact, been losing out when they funneled their foreign exchange into such accounts during such volatile times,” says Om Ahuja, Chief Executive Officer - Residential Services, Jones Lang LaSalle (JLL) India.

“They have erroneously assumed that they are capitalising on the rupee's volatility by locking into high yielding deposits.

“However, this route has caused NRIs to miss out on overall capital returns, because the perceived benefits of high interest rates are actually eroded by the depreciating rupee.”

Ahuja adds: “The reason why more and more NRIs are choosing to invest in Indian real estate instead is because they are now aware that this is the only route that assures them of optimal benefits.

“As long as they maintain a broad investment horizon and have chosen their properties well, the capital appreciation on real estate translates into multi-fold that put all other asset classes in the shade.”

Realty check

It has mostly been seen that when it comes to Indian real estate, NRIs take centre-stage when the rupee depreciates. But is it the right time?
A JLL report earlier said prices of residential properties are set to fall because of rising inventories across India's big cities.

The number of unsold flats in metropolitan cities such as Mumbai, Delhi and Bangalore are near a record high, nearing the 2007 levels – the year when the US sub-prime crisis led to a global collapse in housing activities.

JLL said developers in Mumbai were sitting on inventory of 48 months, while Delhi and Bangalore real estate inventory was at around 23 months and 25 months, respectively.

Moreover, Sanjay Dutt, the executive managing director for South Asia at Cushman & Wakefield told ‘The New York Times’ that big Indian cities would see a price decline of 10 per cent and outskirts of large cities, where many speculative projects have been built, will witness a 15 per cent fall.

In order to attract NRI money, Indians banks have been increasing interest rates following the Reserve Bank of India directive in August that said it had deregulated the interest rate offered by banks to NRIs. Banks, till now, were not been allowed to pay higher interest rates for non-residence external deposits (tax-free and fully repatriable) than those for resident ones.

Federal Bank, IDBI Bank, Karnataka Bank and Dena Bank have already raised their rates for NRE fixed deposits with Axis Bank, publishing adverts in local newspaper, offering to double money in seven years, 4 months and 21 days at 9.5 per cent annual interest rates.

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