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India: India

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

India is undoubtedly an emerging market – with all the potential for capital appreciation which that entails. Yet it is also a market in which transactions take place in English, finance and banking is straightforward, and a growing middle class ensures a healthy rental market.

The rocketing population creates a constant demand for property, meaning that India unarguably presents an interesting prospect for real estate investors.

There is, however, a catch. The opportunity to buy is restricted to people with strong personal links to India, defined as either non-resident Indians (NRI) or persons of Indian origin (PIO). This means either Indian citizens living abroad or people who have held an Indian passport at some time, have a parent or grandparent with Indian citizenship or are married to an Indian citizen.

Technically foreign citizens of Indian origin also need agreement from the Reserve Bank, but a general permission to buy immoveable property has been granted.

If the buyer has status as an NRI or PIO the rule is as follows:

“An Indian citizen residing outside India (NRI) can acquire by way of purchase, any immovable property in India other than agricultural, plantation or farm house. He is allowed to transfer such kind of immovable property to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India or a person resident in India.”

Is this a good place to buy?

The growth of India’s middle classes is one of the big demographic stories of the past ten years. China might be forging ahead economically, with average GDP growth over the past decade of 9% compared to India’s 6%, but India is still growing at a rate double that achieved by the West during the Industrial Revolution.

India’s middle class is now growing by 15 – 20 million people every year and by 2025 half of the population will be categorised as middle class. This creates a new class of young relatively wealthy consumers who buy mobile phones and laptops and are moving into homes of their own.

India’s stability, the lack of a communist government, and the right to freehold property makes the real estate market here in many ways preferable to that in China. And it isn’t just economic growth which encourages people to buy: there is also ample room for the real estate industry to develop. The ratio between mortgages and GDP in India is still only 2% – compared to 52% in the US. Interest rates hover just above a reasonable 4%, having plummeted since 2001.

Net income in India has grown 100% over the last ten years and population growth is expected to help India take China’s place as the most populous country by 2040. Twenty million houses will be needed in the next five years if supply is to keep up with demand. Investors couldn’t ask for a better set of market fundamentals.

There are over twenty million non-resident Indians and they retain close links to the country. Remittances by overseas Indians are higher than for any other country in the world, according to recent World Bank Studies they now total US $21.7 billion a year; ahead of both China and Mexico.

Overseas and non-resident Indians often like to maintain a base in the country. Their wealth provides a constant boost to a property market which has been one of the strongest internationally over the past few years.

Price history

The property market in India first boomed and then crashed in the mid 1990s as over-optimistic developers released too much residential and commercial supply onto the market. Prices declined until an expansion of the mortgage market allowed prices to again expand. Prices have been rising since, as a growing middle class, falling interest rates and increased take up of mortgage lending help the property market to rise.

More pages

Page 1: Guide to the Risk and Opportunity Ratings
Page 2: Buyers this market will appeal to
Page 3: Buying process

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