UK To Say Goodbye To EU In March 2019. How Brexit Will Impact Real Estate In India

Real estate is believed to be a locally driven market. The property market in India, for example, would not always be expected to be impacted by a development that may drive the real estate market in, say, Europe. However, it is not often that a development of the scale of the so-called 'Brexit' takes place — the United Kingdom (UK) will leave the European Union on March 29, 2019 at 11 pm (local time), British Prime Minister Theresa May announced on November 10, as she set out plans to enshrine in law the exact date and time for Britain's exit from the economic bloc. It might, therefore, not be far-fetched to think that Brexit will, indeed, have an impact on India's real estate market.

The opponents of Brexit were no ordinary people. They included the likes of US Federal Reserve chief Janet Yellen, former US President Barack Obama and former UK Prime Minister David Cameron. However, a Brexit referendum that took place on June 23 last year saw Britain voting in favour of exiting the European Union (EU). The whole issue might be much greater than real estate alone. But for now, let's understand whether this will impact real estate in India?

PropGuide puts things into perspective.

The knee-jerk reaction

The immediate impact of the voting outcome was devastating – the pound recorded a historic tumble, dropping more than 10 per cent against the dollar to a level last seen 30 years ago in 1985. In what many market experts described as a knee-jerk reaction to Britain's exit from the European Union – the 28-member block formed after the World War-II to promote better cooperation in the continent – markets across Europe recorded heavy losses, and the other world markets that opened after also saw ripple effects.

The Brexit process

Those who know better say the impact of the move will be long-lasting. Most experts, however, agree to disagree on the nature of the outcome. On its own, Britain might go weak, say many, including Obama, Yellen and Cameron. The opposite camp, hailing the division, says this may well herald a new era of growth for the UK, and should be celebrated as 'Independence Day'.

Indian markets

In India, a look at the graph of the rupee's fall against the dollar did not reflect a positive picture. And in the equity market, the BSE benchmark Sensex dropped as much as 1,058 points after the news of the Brexit referendum came. Some thought another crisis might be approaching – would it be as bad as the global economic slowdown of 2008-09? However, experts say there is no reason to worry.

“Currency markets are volatile by nature; there will not be a long-lasting impact. For now, people are looking to invest in protected assets like gold. Once things settle down, everything will be back to normal,” says a Mumbai-based stock market expert.

Brexit and real estate in India

Immigrants: Contrary to the common assumption, Brexit might make Indian real estate more lucrative for non-resident Indians (NRIs). A major portion of the immigrant population in the UK is that of NRIs. According to unofficial estimates on Indian diaspora, of the 6.3 million Indians settled in various parts of Europe, at least about 2.85 million are based in the UK alone.

If Brexit brings more restrictions or makes immigration from other EU constituents into the UK more difficult, the NRIs settled there might benefit. With more resources and jobs on offer and fewer people to take them, the income of these NRIs, mostly from Punjab and Gujrat, might get a boost. A higher disposable income might allow them to invest heavily in real estate in India's northern and western pockets, apart from increasing remittances to the country.

Currency: According to the supporters of Brexit, being part of EU was actually a drag on Britain's economy. Now, Brexit will mean that a lot of red tape would be cut, making investments in the country much easier. Assuming that the British pound becomes stronger over time, with increased economic activity, and the rupee remains where it is against the dollar and pound, investing in a property in India might become less expensive for NRIs living in the UK and earning in pounds.

Economy and investment: If Brexit indeed sparks more economic activity in the UK and goes on to increase liquidity in the system, an average NRI in the UK will have more investible money in hand. Given that average returns on investment from instruments like government bonds carry a two-three per cent yield, the property market in India might prove a very attractive asset class for them to park their money in.

However, most experts agree that a large part of real benefits or pains arising out of Brexit for the UK and its residents would depend on the terms and conditions based on which the country's exit from the European Union will take place.