India

Overview

Since 2004 foreign investor interest in India’s real estate sector has really started to take off in earnest. Few doubted the prospects for prosperity in India prior to 2004 but the investment climate wasn’t right until that point with the Indian government placing excessive restrictions on foreign direct investment into the real estate sector.

A slight easing of restrictions and some impressive property price growth figures together with an influx of large overseas commitment to major developments in India have all resulted in tentative inroads turning into strong inward flows of overseas real estate investment interest in India.

Overseas property investors thinking about India for the first time may like to take confidence in the fact that US real estate billionaire Sam Zell plans to make substantial investment into India and has stated that “there’s probably no better market in the world for low-cost housing.”

Add to this fact the knowledge that Dubai based Emaar Group have already invested in excess of USD 100 million into projects in Hyderabad, and major companies from UK, Tokyo, Canada, Singapore, Malaysia and Indonesia have all committed hundreds of millions of dollars to property development projects in India’s main cities in the past year and you can see that global confidence for growth and profits in India is at an all time high.

An increasing local demand for property for sale and rent in India is the main driving force behind the growth in the real estate market. And as India has well in excess of a billion citizens the potential for growth in the real estate sector in India is uniquely huge! As India’s economy begins to boom in certain geographic areas particularly as a result of the growth in outsourcing and IT industry sectors for example, so local buying power is increasing as the professionals employed in these booming industry sectors can afford to own their own homes. In addition to this, cheap housing loans are more available in India today than at any other time previously and this makes owning a home a concept accessible to more people and it makes owning a home more affordable for more people as well.

These factors all fuel demand, and an increase in demand naturally inflates underlying property prices.

So far India only attracts about 1.1% of its foreign direct investment into the real estate sector, this was as a result of the Indian government placing strict controls and restrictions of foreign ownership of immovable property in India and also fixing the terms of investment making it difficult for some property investors to achieve their particular goals from India’s real estate sector. In 2005 these restrictions were eased slightly and the general consensus of opinion from property experts examining India is that restrictions will be further eased as the Indian government who are keen to control investment are even keener to attract growing investment to the sector.

In terms of the profitability of property in India, locally developers are reaping an average internal rate of return on capital of between 30 and 50% and for property investors prices have risen by in excess of 20% in the past few months in some areas of the country. Those seeking commercial opportunities should examine light industrial and retail units in the same locations as those seeking residential real estate and Mumbai, Bangalore and New Delhi and the Indian cities of choice for property investors in 2007.