Interest rate rises are beginning to bite in India, and housing markets in major cities weakened in 2010.
Yet this hasn’t broken the clear pattern since the relaunch of the National Housing Bank residential property index (NHB Residex) in 2007:
- Successful growing cities have seen house prices rise rapidly (Chennai, Mumbai, Pune, Faridabad)
- Prices in some other cities have fallen strongly (Jaipur, Hyderabad, Kochi, Bengalaru).
The contrasts are really striking. House prices have more than doubled in Chennai from 2007 to today (with the index moving from 100 to 204). During the same period the house price index fell from 100 to 66 in Jaipur.
House prices still rising in some cities
Prices are still rising in Chennai (+11.5% on a quarter-on-quarter basis), and Bengaluru (India’s Silicon Valley and third largest city, +2.9%). In Mumbai and Patna, house prices were unchanged from Q2 to Q3 2010.
House prices fell q-o-q in eight of the 15 major cities covered by the NHB Residex. Declines ranged from -1.8% for Delhi, -2.8% for Kolkata to -21.3% in Surat (the capital of Gujarat state in eastern India). The Residex only started publishing quarterly figures in 2010; from 2008 to 2009 the index was updated semi-annually.
Compared to last year: -
- Property prices are sharply up in five cities (Chennai +43%, Mumbai +27%, Pune +24%, Bengaluru +19% and Hyderabad +8.6%).
- Cities which suffered included Bhopal (-12%), Surat (13%), Kolkata (-7.6%) and Delhi (-4.4%).
With property boom spreading in all directions, real estate in India is touching new heights. However, the growth also depends on the policies adopted by the government to facilitate investments mainly in the economic and industrial sector. The new stand adopted by Indian government regarding foreign direct investment (FDI) policies has encouraged an increasing number of countries to invest in Indian Properties.
India has displaced US as the second-most favored destination for FDI in the world. As the investment scenario in India changes, India which has attracted more than three times foreign investment at US$ 7.96 billion during the first half of 2005-06 fiscal, as against US$ 2.38 billion during the corresponding period of 2004-05, making India amongst the "dominant host countries" for FDI in Asia and the Pacific (APAC).
The positive outlook of Indian government is the key factor behind the sudden rise of the Indian Real Estate sector - the second largest employer after agriculture in India. This budding sector is today witnessing development in all area such as - residential, retail and commercial in metros of India such as Mumbai, Delhi & NCR, Kolkata and Chennai. Easier access to bank loans and higher earnings are some of the pivotal reasons behind the sudden jump in Indian real estate.
Why invest in Real Estate industry in India?
Flying high on the wings of booming real estate, property in India has become a dream for every potential investor looking forward to dig profits. All are eyeing Indian property market for a wide variety of reasons:
- It’s ever growing economy which is on a continuous rise with 8.1 percent increase witnessed in the last financial year. The boom in economy increases purchasing power of its people and creates demand for real estate sector.
- India is going to produce an estimated 2 million new graduates from various Indian universities during this year, creating demand for 100 million square feet of office and industrial space.
- Presence of a large number of Fortune 500 and other reputed companies will attract more companies to initiate their operational bases in India thus creating more demand for corporate space.
- Real estate investments in India yield huge dividends. 70 percent of foreign investors in India are making profits and another 12 percent are breaking even.
- Apart from IT, ITES and Business Process Outsourcing (BPO) India has shown its expertise in sectors like auto-components, chemicals, apparels, pharmaceuticals and jewellery where it can match the best in the world. These positive attributes of India is definitely going to attract more foreign investors in the near future.
The relaxed FDI rules implemented by India last year has invited more foreign investors and real estate in India is seemingly the most lucrative ground at present. The revised investor friendly policies allowed foreigners to own property, and dropped the minimum size for housing estates built with foreign capital to 25 acres (10 hectares) from 100 acres (40 hectares). With this sudden change in investment policies, the overseas firms can now put up commercial buildings as long as the projects surpass 50,000 square meters (538,200 square feet) of floor space.
Indian real estate sector is on boom and this is the right time to invest in property in India to reap the highest rewards.