A very close friend of mine (Mr. X) and me (Mr. Y) met an Indian Investment pundit in 2011 at a property show in Dubai. In that discussion, he briefed us about the Indian real estate scenario and predicted an extremely upbeat future. He compared the NCR real estate with that of the real estate market in Dubai, and the picture that emerged was of Dubai being a poor second cousin compared to the NCR market.
Encouraged and spurred by the choice of words and looking at the track record of Manmohan Singh government’s work till then, that friend got convinced and made up his mind for the investment in India. In fact, he agreed to give the cheque the very next day. He speculated on the profits that he was supposed to make, and being from a non-finance background, we made our own fantastic calculations, buoyed by the upbeat market picture. So, my friend decided to invest in the one of the Prestigious Group flat in Noida, Delhi/NCR.
It was the spring of 2011 when the Arab Emirates Dirham was trading at Rs. 12 against the Indian Rupee. The total investment for the Noida flat came to about 1.2 crores (INR). That roughly translates into AED 10Lacs and we made on the spot payment. My friend took the sale letter at the time of the next trip when we did the other necessary documentation for the sale of the house. At the same time, when my friend bought the apartment in Noida, I bought an apartment at AED 9.75 lacs in the Jumeirah Lake Towers (JLT) and put it on rent.
Since then, four years have passed and the realistic scenario of the real estate market in Dubai and Delhi/NCR can now be compared –
- The value of the flat in Delhi/NCR has decreased due to delays in project handover and other incidental factors. If he want to sell the apartment now then the going rate is Rs. 75-76 Lacs, and at the current Dirham rate, it comes to about AED 4Lacs that means a ‘good 60 percent drop’ in his investment, in global perspective.
- And, suppose even if it sells now at its original bought price of 1.2 Crore INR, the currency itself has depreciated by more than 40 percent; that will give us AED 6.5Lacs only, in the best case scenario possible. This actually means a 35 to 40 percent clear loss on the initial investment due to currency devaluation.
Cut to the Present Scenario…
This week we attended one more property fair to try and assess the situation better. The participants from India were not looking as upbeat as they were four years ago. Most of them were talking glib and resorting to typical marketing tactics not backed by proper facts and figures. In fact, they were giving very vague replies to genuine queries and were once again comparing the Dubai market with the Delhi/NCR market.
However with experience, we have now developed an instinctive feel for doing the comparison ourselves this time; and now, we consider ourselves experts in that assessment. The results of our comparison are as follows:
1. A 2 Bedroom apartment in JLT was AED 9.75Lacs during the same period and is now selling at AED 16Lacs, which means a good 61 percent growth.
2. Rental that it has already paid back on the original investment is AED 3.6 Lacs, which means a total gain of AED 9.6 Lacs, which translates into the invested money being doubled.
3. On the present currency valuation, if I sell my JLT apartment, after the sale, the savings would be AED 20Lacs, which if I take to India, will be INR 3.65 Crore at the current conversion rates.
My Investment vs. My Friends’ Investment Comparison…
The worst part is that the oil prices are at an all-time low now due to the various political reasons, and India is lucky to enjoy the current raise due to that. However, as per industry experts, the oil prices will bounce back to normal in 2016, and then the imports in India will be more expensive compared to the already falling exports prices and dropping industrial production. In fact, the industry prediction is for the demand for $ to rise with an estimated Dollar-Rupee conversion to reach 1$=75 INR.