BREXIT effect might hurt Indian property market

News Point: might hurt the Indian property market with both inbound taking a hit and outbound investment at the cost of luxury investment at home.

BREXIT, BREXIT impact on Indian property, Britain leaves European  Union, London property market, UK property, India real estate news, Indian property news, NRI investment in UK, Track2Realty has always fascinated me and I feel this is the right time to make a move. After BREXIT not only the property prices will come down with the immediate effect, but the Pound conversion rate has already come down pretty low,” says Jagjit Kalra, a Mumbai-based HNI with business interests across Europe.

He feels the nose-diving shares of property developers in Britain after the European Union exit suggests that the prolonged spell of house price boom is over in that part of the world. This expected sharp fall in property prices (FTSE 100 fell record low) added with the weakening of Pounds (it fell by 10 per cent as an immediate setback of BREXIT) makes the UK properties quite attractive for high-end investors like Singh. If the Bank of England cuts down the interest rate, as expected widely, it will make investment in the UK more lucrative. 

Ground realities

  • BREXIT to crash market and weaken Pound rates
  • UK property becomes quite attractive for Indians with lower price point and lower Pound rate
  • It will affect investment into office space by European companies
  • Luxury buyers to invest into UK properties

Anuj Puri, Chairman & Country Head, JLL India seems to agree with this HNI when he reminds that when economic recession had hit the US, Indians took up a leading position among investors keen to take advantage of the falling property prices there. The British Pound is currently at a 31-year low, which itself provides an attractive rationale for foreign investors with an appetite to do so to acquire properties in the UK.

“There is no doubt that the UK – particularly cities like London – has always held a special attraction for Indians, particularly HNIs, with business interests or families there. Such individuals will certainly keep a close watch on the effect of BREXIT on UK’s property prices, and it is very likely that many more Indians will seek to invest there,” says Puri.

However, this opportunity for HNIs and NRIs in the UK property market is not necessarily good news for Indian property market. It may affect the PE and FDI inflows into the Indian property market as the investors are risk averse and would play wait & watch for the time being. This has an adverse effect on the Indian real estate market that is struggling to revive.

Moreover, several major IT firms such as Infosys, TCS and HCL Tech earn a third of their revenues from the EU. A possibility of EU slowing down will have an adverse impact on their revenues. The IT sector is a leading occupier of office space in India every year. India’s office market, that is the biggest trigger point for the growth of the sector, is largely dependent on the European companies to set up base in India.

For the last 18 months many European retailers entering India as part of their expansion strategy to new markets may now prefer to wait for more clarity in the financial market.

Nikhil Hawelia, Managing Director of Hawelia Group feels the impact would be definitely there but not uniform across the segment of property. According to him, the impact on the office up-take might hurt the Indian economy as well. High-end property market will suffer more than the affordable housing.

“I feel there are ways and means to deal with BREXIT effect and the policy makers might be taking some steps soon. The remittance cap by the RBI over the Indians investing in the foreign property needs to be re-looked at. Then the RBI should also think of lowering the interest rates now. The Indian market has to be made more attractive and competitive to deal with it,” says Hawelia.

Vineet Relia, Managing Director of SARE Homes, however, maintains that it is too early to comment on the impact of BREXIT on the Indian real estate sector.

“I believe that Indian real estate sector will continue to progress on the path of recovery in the wake of policy reforms taken by the government and resilient economy,” says Relia.

In this cost & benefit analysis, while the sector may have to weather an adverse impact in the short term for the NRIs and HNIs like Singh, it is time to make the best of opportunities available in the UK market. The only catch here is the fact that the Reserve Bank of India (RBI) has a cap over the annual overseas remittance. The RBI has capped the overseas property investment at $200,000 per person per year.

Analysts still feel this remittance cap would not deter the investment into the UK property, keeping in mind the average cost of apartments across the major cities of Britain. And the fall in prices and the fall in Pound rates make it ever more tempting for Indians to invest in Britain.

By: Ravi Sinha

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