Brexit may prove to be a boon for India's realty & investors

Even as several industry leaders have reacted with caution to the recent Brexit verdict which led to a crash of global financial markets, India has sought to downplay the expected concern reiterating that the country’s fundamentals remained strong and the impact was expected to be minimal.

Both the country’s finance minister Arun Jaitley and RBI Governor Raghuran Rajan have voiced their confidence in the country’s economy and ability to weather the short and medium term impact of the Brexit vote.

For its part, real estate industry experts have sought to downplay the Brexit impact on India’s real estate industry. Sharing his views Anuj Puri, Chairman & Country Head, JLL India has stated that the domestic realty sector will continue to grow given India’s strong economy and capital inflows.

Adding that companies based in the UK accounted for only 5-7% of India’s office leasing market and PE fund investments from the EU was higher in India (than the UK), the impact will be minimal. However Puri opines that investors were likely to switch to a wait-and-watch mode and this could affect the FDI inflows into the sector.

Realty stocks are also likely to be impacted as investors opt for safer bets like FMCG and pharma in the short term. However recent policy reforms in the realty sector like the introduction of RERA are expected to reinforce the faith of investors in the realty market going forward.

Further India with its growing economy and vast realty potential is also likely to benefit from the added attention of UK-based realty investors who are may look for more attractive investment destinations outside the EU. But this may take some time as investors conduct a detailed due diligence on the risk-returns scenario of India’s realty sector.

With several leading Indian IT majors like  Infosys, TCS and HCL Tech earning a major chunk of their revenues from the EU, the ongoing turmoil is likely to have a negative impact on their revenues.

This in turn could result in a demand slowdown for domestic office space by the IT sector, which is a leading occupier of office space in the country. The same could also be said for leading European retail chains looking to enter India as part of their expansion plans.

Puri further adds that Indian investors and HNIs with close business and/or personal ties to the UK are likely to keep a close eye on the situation as it develops and in particular study the impact on UK’s realty prices.

The UK Pound is currently at its lowest in the last thirty years, making the UK property market an attractive investment for global investors including those from India.

Post Brexit, the US Federal Reserve is also likely to postpone its decision to hike interest rates, which augurs well for developing countries like India.

Sharing his views on the potential impact of Brexit on India’s realty scenario, Shishir Baijal, CMD, Knight Frank India opined that the decision to leave the EU could create short term volatility across both residential and commercial realty in the UK with pricing in select locations facing severe pressure.

Citing reasons of a possible technical recession and a fall in the value of the UK Pound, Baijal expects the Bank of England to announce a 25-basis point cut by July if not earlier to control the situation. “We may also see a return of quantitative easing, if there are signs that investment is deteriorating. This we see coinciding with a devaluation of the Pound,” he adds.

However he reiterates that the combination of a fall in the value of Pound and lower property prices in the UK are expected to cause an influx of Indian investors to destinations like London which has always been a favourite among Indian realty buyers, in the hope of acquiring prime realty assets at attractive valuations.