Indian Realtors Sniff Gains in Rupee Low

Laborers worked at a construction site in Hyderabad, March 3.

India’s real estate developers are trying to turn bad news for the rupee into good news for themselves.

These developers have long targeted the non-resident Indians or NRIs, who are often tempted to buy property in their country of origin, whether it’s for emotional reasons or family ties.

Lately, however, Indian developers have been working on a new marketing pitch: buy now to benefit from the rupee’s decline.

The rupee has fallen nearly 18% over the last one year, to trade at around 55.48 rupees per U.S. dollar on Tuesday. “The rupee has touched an all-time low, very recently, making investment in India a win-win situation for you,” says BPTP, a real estate developer in the Delhi suburb of Faridabad, on its website. “Your dollar has never been this strong,” it adds.

In a recent ad in the Times of India’s e-paper, BPTP announced that its apartments in Gurgaon were around $25,000 cheaper, thanks to the decline in the rupee’s value. BPTP touted this as an opportunity to make an investment.

Meanwhile, Dubai-based Sternon Group, is running television advertisements on Indian channels in Singapore, hawking its “Magic Kingdom City” project off the Mumbai-Pune highway as a potential investment.

Whether for investment or not, some NRIs seem to think this is an attractive time to buy property in India, according to media reports and brokers.

“We have seen increasing interest by NRI customers who are taking advantage of the dollar’s rise,” says Jitesh Kansal, a real estate broker in Ghaziabad, a New Delhi suburb.

But buying property in India remains fraught with risks, especially for NRIs who can’t monitor the progress of construction routinely. Last summer, dozens of NRI buyers of some residential apartments in the state of Kerala had to turn to law enforcement authorities to attain possession of apartments they had paid for years ago. The founders of the real estate firm, Apple a Day Properties Pvt., were arrested and later said they would complete the projects.

As Apple a Day buyers learnt, it’s still buyer’s beware in Indian real estate.

Source: blogs.wsj.com

ING Global Real Estate Fund: SELL

Investors can consider exiting fund-of-fund scheme ING Global Real Estate fund.

With the rupee depreciating 24 per cent against the dollar in the last one year, international funds have seen a sharp increase in their short-term returns.

Underperformers such as ING Real Estate Securities Fund, too, have gained in the process, thus bringing their return scorecard since inception to the positive territory. With an annual return of 5.7 per cent since starting out in December 2007, the fund outperformed local benchmark indices.

ING Global Real Estate is an open-end fund-of-fund which invests in ING Global Real Estate Securities Fund. The parent fund invests in stocks of property developers across the globe.
STRATEGY

Investors who entered the fund especially at the time of its NFO may consider exiting the fund.

While the fund’s underperformance buttresses our recommendation, the sharp fall in the rupee has provided an opportunity for the fund to improve its NAV thus providing a window to exit for those who were in losses. With the rupee gaining ground in recent times, the return scenario may not look attractive for long.

As is the case with local thematic funds, ING Global Real Estate fund too requires active tracking of the real-estate scenario.

This may be challenging for investors, given that property market performance varies across the globe. The volatility in owning theme funds, together with currency swings, enlarges the investors’ risk.

If investors originally bought the fund for diversification purpose, they will be better off moving to more diversified international funds such as Templeton India Equity Income.

Note that capital gains tax will be applicable as these funds are treated as debt schemes .
PERFORMANCE

ING Global Real Estate struggled to perform since its inception. Until late 2011, the fund’s NAV remained below its face value of Rs 10, underperforming its benchmark.

High exposure to US real-estate stocks and the muted property price scenario there appear to have been the causes for such underperformance.

The fund could not therefore capitalise on the sharp rally witnessed in 2009 across various markets. Between April 2009 and March 2010, for instance, the fund returned 51 per cent. The fund’s benchmark S&P BMI World Property index returned 63 per cent (in dollar terms) during this period.

That the rupee appreciated from Rs 50 to 44 levels over this period did not help returns in rupee terms.

In India, broad index CNX 500 delivered 85 per cent over this period. In the subsequent two fiscals up to March 2012 too, the fund underperformed its benchmark.

While latest data on the benchmark is not available, a comparison with another popular index, Citigroup World Property Index, suggests that the domestic fund managed positive returns as against the negative 8 per cent compounded annually by the World Property index. The real estate index performance also suggests that property market returns remain lacklustre.

The fund also witnessed erosion in NAV since its inception. From over Rs 200 crore, assets under management dwindled to Rs 44 crore in June 2012.
PORTFOLIO

As it is a fund of fund, the local fact sheet does not disclose the portfolio of investments.

A look at the global fund’s portfolio suggests that as of March 2012, close to half of the assets under management were invested in US securities, including real-estate investment trusts. A fourth was invested in Japan and Hong Kong. The fund’s NAV is Rs 12.9.

Source:www.thehindubusinessline.com