Property

Full On

Full On

It’s not called the “Maximum City” for nothing

China isn’t the only Asian nation with a booming economy. Firmly entrenched in the so-called BRIC club is India, as diverse and complex as China but with, arguably, more practical global experience. The world’s largest democracy emerged as a major player on the world stage in the 1990s, and though any Indian will tell you the country has its problems (crushing poverty, pollution, a lingering caste system, socio-religious friction), it also does a lot right. “Maximum City” refers to Suketu Mehta’s underworld Mumbai biography, but it’s a fitting description of the sprawling metropolis of roughly 20 million.

India’s economy once hinged on agriculture, textiles, gems and leather, but has increasingly drifted toward software services and technology, engineering goods and chemicals, and Mumbai is its beating heart. Its now-burgeoning and diversifying 21st century economy — predicted to be the third largest in the world come 2020 by Jones Lang LaSalle — rich history, diverse modern and ancient culture, natural beauty, rapidly developing transportation infrastructure, aggressive environmental policies, growing middle class and educated labour force are making India the go-to spot for businesses seeking locations for outsourcing. That doesn’t take into account major homegrown players like the Tata Group (Taj Hotels and Resorts), Reliance Industries, developer DLF Ltd, the UB Group (Kingfisher Airlines, United Breweries) and Bharti, owner of the world’s fifth largest telecom operator. Its entertainment industry needs no introduction.

In that light Colliers International’s April 2011 Property Market Overview conclusions would appear predictable. Colliers noted that floridly monikered luxury projects such as Seasons, Azzure, Invictus, Sparkle and Oculus all launched in the first quarter of ’11 in Mumbai. Major market transactions came from sales and leases by both private and multi-national institutional investors. “[The] Reserve Bank of India estimated GDP growth of 8.5 percent for 1Q2011, and increase of 250 basis points from the 1Q2010 estimate. The increase … is attributed to robust economic growth and positive investor sentiment globally over the past four quarters. Foreign direct investment inflow for the fiscal year April 2010-January 2011 increased to INR77,902 crore … More than 60 percent of the total FDI was attracted from countries like Mauritius, Singapore, the United States and United Kingdom,” Colliers stated.

Himadri Mayank, Research and Real Estate Intelligence Service manager for JLL in Mumbai agrees. “Being the financial capital of India, Mumbai attracts people from across India, who migrate for the abundant employment opportunities that the city provides. Due to high migration levels from other parts of the country, demand for housing in Mumbai is high and the city has been an attractive investment destination, giving high returns in the past.” Mayank points out that since the current property cycle bottomed out in 2009, rates have increased an average of 35 to 40 percent. Rising capital values and increasing mortgage rates (approximately 200 basis points) have resulted in lower absorption levels by January of this year. So how does that influence Mumbai’s status as the next Singapore or Hong Kong for urban investment? “The residential market is turning from being a developer’s market to a buyer’s market. However, capital values have not declined, but have remained stable over the past six months,” Mayank states.

For now, residential investments are concentrated largely in the luxury sector, and branded residential developers know it. UK-based Yoo is proceeding with a Mumbai property and Trump Organization has partnered with Indian developer Rohan Lifescapes to develop a luxury tower in the city (despite a local family’s refusal to budge from their home on the proposed plot). They won’t be the last. As Mayank notes of Mumbai island city, the, “average price of apartments is in the range of US$1.25-2.5 million.” Considering the levels of internal migration, housing for the growing middle class will be a pressing matter for India to deal with soon. But there is opportunity there too. “The suburbs of the city also provide ample opportunities for residential investments, where the average ticket size is less than US$250,000, and infrastructure is rapidly improving to create habitable destinations.” Mayank admits connectivity to the outlying districts must improve. Ideally this will come through, “smart growth” that focuses on transitoriented development in metropolitan cities, as JLL India’s chair Anuj Puri told the CII Real Estate Conclave.

Not surprisingly, the central Mumbai districts of Bandra, Dadar and Parel remain preferred locations. For the time being, “Investments are being [made] in the luxury segment by industrialists, non-resident Indians and toplevel executives. These properties are rented to corporations and executives, who want to live close to their workplaces,” Mayank says, echoing the sentiment that drives investments in investor favourites Hong Kong and Singapore, Kuala Lumpur, Shanghai and Bangkok. The time may be right to look at Mumbai, particularly in the shadow of its emerging business position. “Mumbai is a wise investment option when assessed at a medium to long term,” he reasons. “Although in the short term price levels seem high, several under-construction properties are available at lower than average market prices and are a good investment option.”