How Has Rupee Depreciation Affected NRI Investment Plans

In 2022, the Indian currency depreciated by 5.2% against the US dollar. Due to the Rupee depreciation, rising international interest rates, and the geopolitical situation, the NRI investment plans have begun to increase as the Indian real estate market seems more affordable to the foreign investors. 

The breakdown of the currency value in a floating exchange system in par with the other countries is known as Rupee Depreciation. Any variations in a country's currency value can impact its real estate market. It may also influence the costs associated with the real estate industry, such as raw materials, human resources, transportation charges, equipment costs, and so on.

So, let's take a quick look at how the rupee depreciation can offer several benefits to NRI investment plans in real estate.

Improved Affordability

Since the value of the rupee has depreciated against foreign currencies, it has become more affordable for NRIs to buy a property in India. This can especially be appealing to the NRIs living in countries with stronger currencies, such as the US, Canada, or Australia.

For example, if an NRI is earning in US dollars and wants to buy a property worth INR 1 crore (about USD 134,000) in India, a 5% depreciation in the value of the rupee would make the property cheaper by about INR 5 lakh (about USD 6,700) thus, increasing their purchasing power. According to Niranjan Hiranandani, vice chairman of NAREDCO, the current global currency situation allows NRIs to purchase more square feet of Indian real estate.

Higher rental income

A depreciation in the value of the rupee can help NRI invest in a property in India with much ease. It can also help them work on their already existing property and increase the occupancy value. They can opt to purchase a luxury property as well, which inturn will give them a higher income.

However, investing in a ready-to-move-in property is more profitable than an under-construction property to generate high rental income. But, cautious steps are required for such NRI investment plans as there are high chances of suffering losses if invested in the wrong property without research, as the market may change once the rupee stabilises.

NRI Property Investment Plan

Getting loans for real estate deals have become an expensive task. But when the value of rupee goes down, it gives NRIs a chance to invest in real estate in India. As a result, the number of requests for real estate from other countries has gone up. People often think that when the value of rupee depreciates, it would be good for a NRI to buy property in India. But this is only possible when you are at the final stage of your house purchase and are waiting for the money to be transferred. A NRI may have to wait at least two to three months to complete all the procedures to buy a property. During that time, there are chances that the rupee’s value may become more stable which can affect your property investment plan you made due to the depreciation in the value of the Indian currency.

Capital Appreciation

A depreciation in the value of the rupee can lead to capital appreciation in the long term. For example, if an NRI buys a property in India when the value of the rupee falls, he has made a capital investment. So sometime in the future when the value of the rupee appreciates he will be capable of receiving higher returns of his investment.

Diversification of Portfolio

Rupee depreciation can also provide NRIs with the opportunity to diversify their investment portfolio. By investing in Indian real estate, NRIs can reduce their risk and provide a hedge against fluctuations in other investments, such as stocks or currencies. This can help investors protect their NRI investment plans and ensure their investments are well-balanced. In addition, when the value of the rupee is low, the cost of sending money to India is also lower, making it easier for NRIs to fund their real estate purchases.

Debt Mutual funds

NRIs put a lot of their money into debt mutual funds because they have a higher chance of making money and are better for their taxes. Most of the debt mutual funds’ money is invested in property. On the other hand, the rise in interest rates has hurt the duration approach. When interest rates go up,  it’s likely that funds with very short maturity span and debt funds that use the accrual method will be comparatively successful. You should be aware that your investment plans in debt mutual funds that hold medium to long term measurement could become more volatile. But NRIs who plan to sell their house and convert it to USD in the near future might be able to get back some of the value of their debt mutual funds that they lost during Rupee Depreciation.

Other Factors

It's important to note that rupee depreciation is just one factor that can affect NRI investment plans. Other factors, such as economic growth, infrastructure development, and government policies, also play a major role in the performance of the real estate market in India. NRIs should consider these factors and do their own research before making any real estate investments in India.    

It's also important to note that rupee depreciation can negatively impact the real estate market. For example, it can lead to higher inflation, which can make it more expensive for NRIs to invest in real estate. Or it can lead to a slowdown in economic growth, which can impact the demand for properties and the value of investments.

Final Words

Despite these potential negative impacts, the overall benefits of rupee depreciation for NRIs investing in real estate in India are significant. NRIs can take advantage of increased purchasing power, attractive returns, more competitive pricing, and the opportunity to diversify their portfolio. By carefully considering these factors, it's possible to create informed NRI investment plans and earn significant profits.

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