WEDNESDAY, 31 JULY 2013

Real Estate Markets in USA and India

Posted by RK at Wednesday, July 31, 2013 Labels: Global Trends

With liberalization of Indian economy and globalization during last two decades, it is expected that all major economic indicators will move in tandem with global trends. There is always a debate about coupling and de-coupling of Indian economy and stock markets with world markets and specifically the US markets. The real estate markets in India and US had also started moving in tandem at the beginning of the first decade of 21stCentury. However, this trend has not lasted long and US real estate market has started languishing in second part of the 1st decade of the century and things reached to a grinding halt with sub prime crisis in 2008. There were fears of real estate bubble in India and apprehensions that Indian real estate market will also meet with the same fate as USA. Fortunately the fears have not come true so far and real estate prices in India Metro cities have increased almost 7-8 times in last 10 years. The Indian Real Estate market is still on the growth trajectory with rates moving up slowly but steadily. However, due to movement of USA and Indian Real Markets in different directions for a long period of last almost 6-7 years, the gap is widening. The real estate prices in some Metro and A class cities in India are now even higher than those prevailing in fairly big cities in USA. Considering the higher GDP growth rate inIndia, some gap in growth of prices seems reasonable but huge gap sometimes does not seem justified. Despite better infrastructure facilities and strong US Dollar in comparison to INR, the lasting of boom in Indian Real estate market sometimes looks doubtful. There were stories in between of Indian investors investing in properties abroad as they were finding it cheaper and a good bargain in comparison to India. Despite all these factors, the real estate prices in India are still going up though a bit slowly. US market is also stabilizing though it will take longer period. Let us hope that sooner or later the real estate prices in USA will also catch up.

Source:- http://www.investplaning.com/2012/05/real-estate-markets-in-usa-andindia.html

Wealth Management Division , ICICI Securities Ltd. Rupee is the new star on the horizon. All debates on bond yields, equity market valuation and triggers have suddenly receded in the background to make space for discussions on the Indian currency. While 60 was considered to be the last frontier for the Reserve Bank

of India to defend, the dollar breached the level nevertheless. The tide of rupee depreciation battered everything in sight from bonds to equities. From being subservient to debt and equity flows, rupee direction is now determining debt and equity flows. While domestic investors have bled due to the sharp depreciation that led to the bloodbath in the equity and debt markets, non-resident Indian (NRIs) investors have been presented with an attractive opportunity. The rupee depreciation has made all Indian investments cheaper in dollar terms for NRIs looking at making fresh allocations in India. Those who have already invested have had to face a double whammy of falling markets as well as currency depreciation. There are various investment options available for NRIs today who are looking to invest in India. They can directly invest in India in their local currency by buying equity shares on their own account or go through managed solutions such as equity mutual funds and portfolio management services. They can also participate in the Indian local currency debt market through debt mutual funds. They also have fixed-income deposit options both in local currency through non-resident external (NRE) fixed deposits as well as foreign currency non-resident (FCNR) deposits. In case of FCNR deposits , the NRI investor does not face rupee depreciation risk, however he will also lose out in case the rupee appreciates. In addition they can also directly participate in real estate by buying property which can be either commercial or residential. There are also a lot of Indian and foreign asset managers who offer dollar-denominated funds in the Indian equity, private equity, debt and real estate funds. These funds collect money in dollars and then remit and invest in rupee. However in most of these options also, the currency remains unhedged and the currency risks lie with the investor. Going ahead, we believe the imminent tapering of the quantitative easing from the US coupled with the strengthening of the US economy will lead to the strengthening of the dollar against the rupee. Hence the bias of currency depreciation is here to stay. While in the medium to long term, this is good for the Indian economy especially since it will make Indias exports more competitive and lower the demand for imports thus eventually balancing the current account. In the short term, it increases the complexity of investing in India for NRIs. The short-term depreciation bias is going to largely eat away bulk of the returns from the debt segment. However, investments which are done with a medium- to long-term horizon such as equity and real estate have become attractive for NRIs. The Indian equity market has stayed range-bound over the last five years despite the earnings of the underlying companies growing by more than 50% during the last five years. This made the valuation of the Indian markets extremely attractive. For NRI investors, this is a double sale offer since the Indian rupee has depreciated by at least 50% over the last five years and more than 10% in the last one year. Indian real estate also offers a similar dynamic, though to a lesser extent. While prices have remained stagnant over the last one year, the sharp depreciation of the Indian rupee has made Indian real estate cheaper in dollar terms which again gives an entry opportunity for NRI investors. A lot of commercial real estate in India is currently available at attractive rental yields which offer both income as well as potential price appreciation.

We believe that the best way for NRIs to invest is to create a tailored portfolio which is based on risk appetite and ability to withstand volatility. A blended portfolio of Indian equity and residential real estate can be created for investors who have a higher risk appetite. A portfolio of leased commercial real estate can be created for the conservative investor. The current volatility in the global markets has created attractive entry points for NRIs across a range of investment options in India. Once the volatility subsides, the assets will no longer be available at these valuations as the price of stability is very high, and those who can stomach the roller-coaster ride will, in our view, have an exciting finish. Source:- http://www.livemint.com/Money/jfbzFwcko2inLhpMnc4SsL/NRIs-investing-inIndia-should-be-ready-to-face-volatility.html