Should You Invest?
Foreign freehold ownership of land in India is not currently
permitted according to the country's constitution. The opportunity
to buy is largely restricted to people with strong personal links
to India, defined as either non-resident Indians (NRI) or persons
of Indian origin (PIO). This means either Indian citizens living
abroad or people who have held an Indian passport at some time,
have a parent or grandparent with Indian citizenship or are married
to an Indian citizen. If you are entitled to buy in India, there
are many options open to you in this emerging market.
- India has one of the fastest growing economies in the world
with a GDP growth rate of over 7% in the decade spanning 1996 -
2006. GDP growth in 2007 reached an impressive 9.2%.
- India's stability and lack of a communist government makes the
real estate market here in many ways more advantageous for those
emerging market investors who might otherwise turn to China.
- There is ample room for the real estate market to grow with
strong demand for accommodation. Investors could not ask for a
better set of market fundamentals.
- Population growth is expected to help India take China's place
as the most populous country by 2030. Twenty million houses will be
needed in the next five years if supply is to keep up with
demand.
- Rapid urbanisation of 2.5% a year has increased the need for
housing in Indian cities.
- A growing middle class with disposable income is also a crucial
factor in raising the demand for housing. India's middle class is
now growing by 15-20 million people every year, so that by 2025
half of the population will be categorised as middle class.
- This new class of young and relatively wealthy consumers are
moving into homes of their own. Net income in India has grown by
100% over the last ten years. There is a changing attitude to home
ownership, so that the average age of a new home owner is now 32,
compared to 45 a decade ago.
- A growing middle class has also created a healthy market for
rentals.
- Overseas and non-resident Indians often like to maintain a base
in the country and their wealth provides a constant boost to a
property market which has been one of the strongest internationally
over the past few years. Remittances by overseas Indians are higher
than for any other country in the world.
- In the medium to long term, the economic growth of India,
through its rapidly expanding BPO & IT sectors, combined with
government expenditure on health and education, will lead to
significant state improvements, such as extreme salary growth and
real estate appreciation.
- Property prices are expected to keep rising in most areas of
India. For example, property in Bangalore has an expected annual
growth rate of 20% over the next several years.
- Increased investment in infrastructure, as new international
airports are planned at Bangalore, Hyderbad and Pune, while 'The
Quadrilateral' project to provide an interstate road link between
Delhi, Mumbai, Kolkata and Chennai is nearly complete.
Rental Yields
Non-resident Indians are allowed to rent out property and to
repatriate the income earned through the banker/authorized dealer.
Yields in India vary hugely depending on the city or region, and
can be limited by rent control. In New Delhi, yields range between
4% and 8.4%. Mumbai rental yields, are on average around 3% to 4%.
Bangalore with less stringent controls has yields as high as 9.9%.
There should be a continuing rental market as India's middle class
and commercial centres grow.
Price History
The property market in India boomed and then crashed in the mid
1990s as over-optimistic developers released too much residential
and commercial supply onto the market. Prices declined until an
expansion of the mortgage market allowed them to appreciate again
and prices have largely been rising ever since.
There is still huge potential for investors if you choose your
region carefully. It must be noted though, that India's property
market is still immature and in certain areas prices have recently
fallen after their rapid rise. The Reserve Bank of India raised its
interest rates five times between 2006 and 2007 to a five year high
of 7.75%, while some mortgage rates are as high as 12%. Rising
interest rates and concerns over mortgage defaults have caused
residential property prices in India's largest cities, Mumbai and
New Delhi, to drop by an average of 15% in the first 6 months of
2007, after rising 60% in the two years previous to this. However,
in the medium to long term, the economic growth in India, through
its rapidly expanding BPO & IT sectors, combined with
government expenditure on health and education, will lead to
significant state improvements, such as extreme salary growth and
real estate appreciation.
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