Send money to India: Internet remittance

Non Resident Indians (NRI) and Persons of Indian Origin (PIO) remit several billions of dollars to India each year. A lot of this is in the form of small amounts sent to family members.

There’s a chance that for some of you who have been at the receiving end, the process of getting money from overseas could have been an inconvenient experience. The traditional ways of remitting money come with several encumbrances. You would have found that it takes time to cash cheques, and large charges are levied by the banks. Or in the case of a wire transfer, you could have a tough time trying to locate where your money is held up in the correspondent bank network.

But all that has changed. Communications technology has made the business of international payments fast, flexible and even free at times. The more proactive private banks such as HDFC and ICICI have started Internet based remittance services, to serve the needs of those who send small to mid sized amounts back to their home country. Non banking company, Times of Money has also been active in this business.

Now, if a relative overseas wants to send you money, ask him or her to log on to the website of any of the banks that offer Internet remittances. Upon completion of a simple account verification procedure, he or she is given a tracking number, which will enable the transfer of funds online from his or her bank account to where it is destined.

Not only is this process simple and paper free, it also gives the remitter a measure of control, since the tracking number helps him or her know where the money is at any given time.

What’s more, money can be sent to remote locations easily. The banks will either transfer the money to their nearest banking branch or deliver a demand draft to the recipient’s doorstep. Even the delivery options are flexible – payments can go into a bank account, be handed over as a draft or be credited to a debit or ATM card.

For the remitter, one more advantage is that there is no need to hold an account in the bank that is being used to make the transfer. Money can be transferred from any of their accounts, even through PayPal.

At a US$ 3 to 5 transaction fee for transfers up to US$ 1,000, online remittances are way cheaper than wire transfers. Even this fee is waived for higher amounts. One can also specify the exact amount that is to be credited in Indian rupees, if need be.

Usually service providers quote a delivery of 3 to 5 working days. That works well for most people. Some online remittance services “guarantee” that the money will be delivered – since all the current players are of high repute, and have the necessary infrastructure and security systems in place, guaranteed delivery is implicit anyway.

The only limitations are regarding the amount of money that can be transferred at a go and within a certain duration, which is of the order of a few thousand dollars. Some banks allow higher transfers in special cases. Also, only those based in select countries can make Internet remittances to India.

But for a lot of people who want to send some funds to the folks back home, the system works well enough.

Gold prices in India – time to rush in ?

Internationally, gold prices have risen strongly since 1999. Today’s spot price is the range of US$ 735 per ounce. It must be remembered that despite this rise, prices have not reached the peak reached in 1980 (US$ 850 per ounce on 21 January 1980). Recent price rise appears to be driven by global financial worries, lowering US interest rates and strong demand in China and India.

Gold prices in India are expected to continue rising. ICICI Bank is reportedly pricing gold at approximately Rs 9550 per 10 gms. Spot price of gold today (8.10.2007) on MCX (Multi Commodity Exchange of India Limited) was at Rs 9461 per 10 gms, while the 05 Dec 2007 contract is priced at Rs 9510 and a 05 Apr 2008 contract priced at around Rs 9715. Some commentators expect gold prices to touch Rs 9800 by December 2007.

Resident Indians and NRI, both maintain a keen interest in gold due to social reasons. However, if this expected price rise is seen as a reason to rush in and buy gold for investment – investors need to stop and consider for a moment that the expected price rise in India is equivalent to a 10.5% pa growth rate. India bank deposits (e.g. with SBI, HDFC Bank) can get you more than 9 % pa and therefore a 10.5% return on an asset class where prices fluctuate seems moderate.

There has also been a perception that gold acts as a long term natural hedge against inflation. Data from the US does not necessarily support this assumption. If gold prices were to have kept pace with US inflation since Jan 1980, current price should have been US$ 2100 per ounce!

Indian investors should also be aware, that while gold prices in dollars could strengthen, a weakening dollar could mean a slower rise in gold prices in rupee terms. Some are expecting the Indian rupee (INR) to get to Rs 39 per US Dollar by December 2007, which in itself could create additional challenges for the Indian economy.

Buying a house or apartment in India today – what should you worry about ?

Home loan rates in India have started dropping, real estate prices have been soft for 9 or so months – you must be wondering whether this is the right time to buy that house or apartment/flat in India. Here are some thoughts for you to keep in mind:

1. It is recognized that there is a shortage of dwelling units in India. Sustained lowering in interest rates can reignite demand and therefore raise prices again

2. Price softening has happened primarily in outer areas of metros, while prices within the main cities like Delhi, Mumbai, Bangalore and Chennai have remained strong. In fact, prices in well known residential areas in these cities are now way higher than what most residents in the city can afford. This has been primarily due to shortage of land in such localities while demand has kept rising with growing wealth disparity in India

3. Outer areas of metros suffer from lack of infrastructure and security making it less attractive for people to live in these locations. Therefore, a significant portion of money that has gone into such locations has been investor money. Such locations are easily hurt by lowering of demand due to interest rate hikes

4. Land titles remain a major issue in India, except in areas approved by local authorities. With large amount of private equity money seeking large land deals, price of large tracts of ‘clean titled’ land and apartments/flats built on them keeps going up. However, unless demand for such properties/complexes in outer areas firm up, one can expect a flattening of prices here

5. Significant number of apartments/flats in such large complexes has been bought by NRIs and investors from outside the city, based on promising brochures. Unless you are able to assess the land and builder quality yourself, you are always at risk of being led astray by these promises.

As ever, the best way to buy property in India is to focus on areas approved by the local authorities and within accessible distance to key city centres. It will be a long time before India has road and metro infrastructure to enable people to live comfortably in more distant suburbs.