RBI move to save rupee to curb overseas property buys

Indian developers may benefit, hawala deals may rise

The RBI’s latest move which reduced individual remittances under automatic route and banning usage of such funds to buy properties abroad could lead to sharp drop in number of property transactions abroad, while hampering the business of those marketing properties abroad and rise in hawala transactions.

On Wednesday, the RBI has reduced individual remittances under liberalized remittance scheme (LRS) from $2,00,000 (over Rs 1.2 crore) to $75,000 (Rs 45 lakh) under liberalized remittance scheme and barred individuals from using funds under the scheme to buy immovable properties abroad, which were largely aimed at arrest the fall of rupee.

According to RBI, $1.2 billion was used under LRS in FY 2013 of which 6% or $78 million were used buying homes. Experts said this amount used in buying real estate will come down sharply.

“Earlier, anybody could buy properties. If there was a family of four, total permissible amount came to $800,000 and it was a sizeable amount which could be used to buy properties abroad. Now, the pemissble amount has come down and it is difficult to take money and there could be a slowdown in buying properties aboard,”said Santhosh Kumar, chief executive, operations, at Jones Lang LaSalle, a global property consultant.

According to Jones Lang LaSalle, Singapore, Malaysia, New York, Dubai and some cities in the UK, the suburban areas of London in particular, are preferred destinations for Indian property buyers.

Added Sanjay Dutt, managing director, Cushman & Wakefield:”Overall property activity by resident Indians will reduce abroad.”

Dutt said many people were using full remittances allowed under LRS to buy properties abroad and RBI wanted to curb that. “I think people will still make use of $70,000 for 2-3 years and buy properties once the norms get relaxed. They may think that if they send money now when rupee is Rs 60, if rupee depreciates further, they can make extra income.”

The RBI move is also likely to hit the business of companies such as Knight Frank and others who market properties abroad.

“The business of companies marketing properties will be stopped now. They have to find some other avenues now,” said a senior director at a property consultancy.

Some such as Samantak Das- chief economist & director -research & advisory services at Knight Frank India, believe RBI’s move could be a potential opportunity for Indian real estate companies to tap into investors who were looking to buy properties aborad.

“Rs 480 crore to Rs 500 crore business can be good opportunity for Indian developers,” Das said.

JLL’s Kumar said the RBI move may encourage hawala transactions through which people will buy properties abroad. Hawala refers to alternative and illegal remittance channel which is run through large network of money brokers.