WHY INVEST IN INDIAN PROPERTY?
India has long been known for its centuries old civilisation and cultural heritage that is as rich, diverse and unique as the Indian landscape. Be it music, dance, fine arts, cuisine, customs or festivals, the cultural heritage of India touches all who visit.
In the last few years it is India’s tremendous economic progress that has captured the world’s attention. The country now has the fourth largest economy in terms of purchasing power and is the second fastest growing large economy. Today India is one of the most exiting emerging markets in the world. Goldman Sachs believes India will be the fastest growing economy over the next fifteen years, and emerge as the 3rd largest economy by the year 2020. In the latter half of the 21st Century India is set to overtake the US and China (due to demographic advantages) to become the largest economy in the world. In certain locations in INDIA, apartments and commercial properties have doubled in value in the last year alone (on average property values in England double every 4-7 years).
Within India’s fast growing economy, real estate has emerged as one of the most appealing investment areas for domestic as well as foreign investors. By the end of 2006 GDP growth had reached 9.1% and property prices are increasing by an average 30% per annum. Real estate is able to sustain such fast growth because the demand for property continues to outstrip supply.
Government and industry analysts forecast a current shortfall of between 20-30 million units in urban areas. This demand is forecasted to increase by approx 1.5 million each year.
Other factors which are contributing to the booming real estate prices include a more mature mortgage market, modern attitudes to home ownership (the average age of a new homeowner is 32 years compared to 45 years a decade ago). The young working population is shifting to the more western philosophy “buy and repay” as opposed to “save and buy”. Despite this, saving rates are still nearly one third of GDP. The liberalisation of FDI rules is also encouraging interest in the country and its real estate market from investors around the world. Unlike many other parts of the world the Indian real estate boom is by and large based on sound fundamentals. India consistently proves its long term potential. However, being such a large and diverse country there are naturally many different markets. Whether Bangalore, Pune, Calcutta or Chennai, Mumbai or Dehli, the Indian real estate market has the potential to meet the requirements of most investors criteria.
The current opportunities for growth and yield in the commercial and residential markets in India are impressive and diverse. As India builds on its reputation (1) as an affordable retirement location, (2) as an attractive and safe luxury tourist destination, and (3) as a centre for manufacturing and service-based excellence, so the domestic and international demand for property in India will increase.
And finally, India is a country with many social and economic issues to address over the long term, it is also a country blessed currently with strong political leadership determined to liberalise investment opportunity, improve the lives of all its citizens, develop infrastructure and speed up economic reform, therefore India is a country with a positive economy future offering massive room for development and profit in the property market.
In just four decades, India will be the most populous nation on earth. India’s middle-class alone will be 983 million people strong by 2015. Already, one half of India’s population is under the age of 25. This is a young and increasingly wealthy nation. India’s net income has doubled in the last 10 years. The result? India is the 2nd largest mobile phone market and the 2nd largest scooter and motorbike market in the world. It is also home to an increasingly sophisticated housing market. Unclear titles, poor building standards and ridiculous tenancy laws, have historically plagued Indian real estate and alienated foreign investors. But today, the government goes to great lengths to ensure that the title on a property is clear and is considering computerisation of all land records.
Does all this activity mean the Indian real estate market is in a bubble? We don’t think so. There is a difference between a bubble and a robust market. Let’s compare India with the US for example. Are Indians consuming more housing than they can afford? NO. In India, the ratio of total value of mortgages to GDP is only 2%, whereas it is 52% in the United States. That means in the United States, for every $100 they produce, they owe $52 as a mortgage. Indians, however owe just $2. Has Indian home buying sent prices through the roof? Hardly. Over the last 10 years, real estate prices have barely budged with the exception of those in certain areas of a few large cities, such as Bombay, Delhi, and Bangalore. But average real estate prices in the United States have risen over 15% in the last 12 months alone. Are Indians taking out mortgages simply because the rates are low? NO. Even though the interest rates are 18% lower than they were in 2001, mortgage rates still vary between 8-12%. However, overall it seems that the growth in the housing sector has been income driven, not interest rate driven. Indian net income per individual has increased nearly 100% over the last 10 years.
SUPPLY AND DEMAND
The main reason for the constant increase in property values can be explained by using basic economics. If the demand for a commodity exceeds the supply, the price will always rise. Population growth compared to the lack of new housing availability continues to generate price increases (Mumbai, along with 45 other cities in India, is experiencing this).
India’s property prices are on fire, even though they are still cheap compared to the prices in other emerging countries. Property is appreciating by 25-40% p.a. We believe that the factors behind this growth are the huge Indian population and its middle class. As the needs, desires, requirements and earning capacity of the masses increases, so do the property prices. This will probably continue for the next 30-50 years, until the Indian earning capacity and economy comes to par with the rest of the world.
RISK
When one is buying off-plan, the developer’s incentives to the early off-plan investor with discounts, thereby allowing the investor a built-in profit margin on completion of the property, thus minimising risk. The developer will do this for the early investors as it also locks in his own minimum development profits. It’s a win-win situation.
FINANCIAL BENEFITS OF PURCHASING IN INDIA
- Low Property Taxes and Low Capital Gains (20%)
- Safe Investment – Notary Supervised similar to France and Spain
- Active Resale Market
- Rental Occupancy reaching 85-95% most years
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