Fed Rate Hike Just Made Indian Real Estate More Attractive For NRIs

The impact of Donald Trump's election as the new US President has begun to show even though the Republican has yet to take over as the head of the world's most-powerful economy. A ceremony in that regard would take place only on January 20.  During his election campaign, the real estate mogul had been critical of the woman heading the country's central bank. Trump accused Janet Yellen, the Federal Reserve chair, of keeping rates to help Democrats, an accusation trashed by her.

Also Read: What Happens To Indian Real Estate When US Fed's Interest Rates Rise?

In the monetary policy review on Wednesday, Yellen obliged the upcoming President with a rate hike. In fact, for the first time since July this year, the participants of the Federal Open Market Committee (FOMC) were unanimous in their opinion to hike interest rates. The widely-anticipated rate hike of 25 basis points in interest rates to between 0.50 per cent and 0.75 cent by the US Federal Reserve (Fed) will lead to higher borrowing costs for consumers and companies.

However, it was hard to miss the underlying tone of it all. 

"All the (Federal Open Market Committee) participants recognise that there is considerable uncertainty about how economic policies may change and what effect they may have on the economy," said Fed Chair Janet Yellen in a press conference making the announcement. After hinting at the “uncertainty”, Yellen, whose term as the Fed chief ends in early 2018, added: "I am not going to offer the incoming president advice about how to conduct himself." 

The US President-elect has pledged $1 trillion in infrastructure investment, tax cuts and deregulations to lead the country towards greater heights. While Trump is busy achieving his long-term goal, the prices of property in the country would go up. As a report in the New York Times says, “when the Fed raises rates, all sorts of other expenses eventually tick up.” Not to mention the fact that the rippling effect would be seen worldwide.

Impact on India

Property in India is likely to get costlier, too. The Reserve Bank of India (RBI) might change its policy stance post the Fed rate hike, and hold rates unchanged in future. The central bank greatly disappointed real estate developers when it decided to hold rates in its recent monetary policy review on December 7. Expectations were rife the central bank would reduce rates in wake of the Central government's demonetisation drive. 

Also read: Fed Rate Hike Has Put RBI In A Tight Spot

Achhe Din for NRIs

Non-resident Indians (NRI) will now find investing in Indian real estate more attractive. How so?

According to a Business Standard report, "the dollar hovered near a 14-year peak against a basket of major currencies on Thursday, receiving a major boost after the Federal Reserve increased the number of projected interest rate hikes for 2017." This is an indication the Indian currency would go weaker against the dollar. Now, when the Indian currency depreciates against the US currency, investing in property markets of India would become cheaper for NRIs. And, it only gets better if you are investing in ready-to-move-in properties. It is worth mentioning here that the ready-to-move-in housing segment has been predicted to take the worst hit after Prime Minister Narendra Modi demonetised existing currency notes of Rs 500 and Rs 1,000 on November 8. With some help, the segment can see the crisis through. 

But, there's a catch

For NRIs to gain from investing in under-construction projects, the dollar will have to retain a strong position even in the future. Any weakening of the dollar against the rupee while an NRI is making the payment in installments would amount to losses.

There is a way for you to get some benefit out of it even if you are not an NRI. Here is a tip. Convert your money from the US Dollar to the Indian rupee. This will make you richer.

What's next?

Do wait for more clarity on things when the Fed meets next on January 31 and February 1 in Washington. However, it is only on March 14-15 the Fed would be announcing growth projections. What they do in Washington will certainly change things at home, too.