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Property Investment in India 2008

Over the last few years India’s explosive economic progress has captured the world’s attention, and its real estate market has emerged as one of the most appealing investment areas for domestic as well as foreign investors.

Tourism plays a key role in India’s wealth with hundreds of thousands of visitors each year. The coastal regions in particular play host to world renowned festivals, creating a huge demand for a wide variety of accommodation. Government statistics have shown that 52% of first time visitors repeat their visit to India up to an average of 3 times.

India enjoys yearly tourism growth of 18%-20%, to which the government has pledged to ensure continual stability. The World Travel and Tourism Council has predicted tourism related employment to reach 25.6 million by the end of 2007 with figures of 28.3 million expected by 2017.

According to the OECD, India is currently the third largest economy in the world in terms of real prices and purchasing power, and the country’s economic boom looks set to continue, with strong economic growth to come. India’s private sector is already sufficiently dynamic to support this, and real GDP expenditure growth is expected to be 9.2% for the fiscal year 2006/2007 with a 7.6% growth predicted for the period between 2007/2008 and 2011/2012.

"India is one of the world’s largest and fastest growing free market democracies today."

India is one of the world’s largest and fastest growing free market democracies today. The country presents a diversified base of natural resource advantages, which has attracted investors from across the globe. As highlighted by India’s Finance Minister, the country possesses a demographic advantage of a young and educated work force, which is set to continue until 2040. This combined with the development of the industrial sector and a dynamic services sector has distinguished the Indian economy.

Major factors attracting foreign investors attention to India’s real estate market includes strong market returns, capital value appreciation, and quality supply. Despite a slow start to foreign direct investment (FDI) into India’s property market, a number of foreign construction and housing groups are establishing themselves in the country, with a large proportion of investment being placed in the development of residential and commercial real estate projects.

The total FDI share for 2007 is likely to rise by 26% as opposed to 16% in the previous year, and the Confederation of Real Estate Developers Association in India, has forecast a capital infusion by foreign investors of $5 billion. Large investments have been made by big companies such as Morgan Stanley, Citigroup Property Investors and JP Morgan.

With a current value of $50 billion, India’s buy-to-let and commercial property investment market is set to become the single largest business sector in India, forecast to grow by an annual rate of 25%. Property Analyst at India Property Auction noted that “Demand for accommodation is ever increasing…renting accommodation is a good business and the returns are amazingly high."

Rental yields vary to a fair extent throughout India, according to Global Property Guides. Bangalore records high yields of approximately 9.9%, whilst in New Delhi, yields range between 4% and 8.4%. Mumbai tends to be at the lower end of the spectrum with average yields of around 3.83%.