India takes off
India looks set to provide investors with lucrative returns in the next few years – but you will have to look beyond Mumbai for the best deals, says Lucy Davis
Look out, India is going from strength to strength. Hot on the heels of China, it has one of the fastest growing economies on the globe, which expanded by an average of 5.8 percent annually from 1993 to 2002. What’s more GDP growth accelerated to 9.2 percent in 2005 and 2006, and is predicted to further expand by around 8 percent in 2008.
The fact that India’s economic boom looks set to continue was affirmed in a recent report by Goldman Sachs. The investment banking and securities firm predicts that India will be the second largest economy in the world by 2050, and has already announced its intention to invest heavily in the country over the next few years.
Furthermore, since India announced plans to allow foreign capital into the property sector two years ago, Kuwait Investment Company, for one, expect the Indian real-estate sector to grow by 700 percent in the next decade.
International interest on the up
In the face of such mouth-watering investment prospects, Donald Trump Jr paid a visit to the country last November, revealing that the family firm plans to invest in India’s burgeoning real-estate market – particularly luxury homes and resorts – over the next 18 months.
Other companies who have announced their intention to get in on the India act include everyone from General Electric to United Arab Emirates’ real-estate investor The Nakheel Group, who has chalked up renowned projects like The Palms, Dubai Waterfront and The World. The Nakheel Group recently signed a 50:50 joint venture project with Delhi-based DLF Group covering a total area of 40,000 acres near Gurgaon, Mumbai and in Pune. While this project is worth about US$5 billion, the Nakheel Group has also signed a US$20 billion deal with India’s Trimex Group to develop townships across the country.
Despite such economic advances and the ensuing opportunities for investment, India remains a relatively poor country (research released in 2006 estimated that around 28 percent of Indians live below the poverty line), and it is one of the last few nations where there is primary demand for real estate – rather than individuals trading up.
Although poverty remains an issue, of India’s 1.1 billion people, the number of upper and middle class are growing, and with it a demand for quality housing.
Due to its rapid economic growth, India is now experiencing a housing shortage, and the Indian government says that about US$800 billion-US$900 billion in investment is required to overcome the problem. This factor has ensured that residential property prices in India have skyrocketed during the last few years, particularly in the financial capital, Mumbai.
Property in Mumbai, India’s most populous city currently, has a costly price tag of around US$3,000-US$4,000 (HK$23,377-HK$31,170) per square foot. So those looking for bargain-basement opportunities with potential are heading elsewhere.
In the capital, Delhi, properties are considerably more reasonable at US$666-US$1,000 per square foot. Then there is the green suburb of Gurgaon on the outskirts of Delhi, the site of many a multinational’s office including Motorola and Dell.
Property magnate KP Singh (whose real-estate company, DLF, is India’s largest) saw the potential of Gurgaon early on, and in the 1970s, he bought 1,000 hectares of land in the area. With so many blue-chip companies and young professionals calling Gurgaon their home, investing in India’s sixth largest city might be money well spent.
Bangalore, India’s Silicon valley, is home to IT giants such as Infosys and is also the site of Google’s Research and Development Centre. Rated as one of the best places to do wired business in the world by CNN last year, it is also an excellent place to find a real-estate bargain. Prices start at around US$316-US$666 per square foot, which, particularly at the lower end of the spectrum, is a good price, given the rate at which this IT town is expanding.
While buying property in India is hardly a bargain, especially when compared to other Asian countries such as Thailand or the Philippines, as its economy continues to spread its wings, real-estate investment prospects definitely look promising.
Votes of confidence from industry heavyweights such as the Trumps and Goldman Sachs, meanwhile, will certainly do India’s realtors no harm.
Mumbai may not be a viable option short term – initial outlay is very high yet yields are low – but Delhi, neighbouring Gurgaon and Bangalore all look like good places to invest in this up-and-coming economy.
For those who don’t want to deal with the maintenance and upkeep costs involved in buying individual properties in India, investing in local property funds might be a real alternative.
Click here for international property listings and reference articles