Introduction to India .

Why India?
India has long been known for its centuries old civilization and cultural heritage that is as rich, diverse and unique as the Indian landscape. Be it music, dance, fine arts, cuisine, customs or festivals, the cultural heritage of India touches all who visit.
In the last few years it is India’s tremendous economic progress that has captured the world’s attention. The country now has the world's fourth largest economy in terms of purchasing power and is the second fastest growing large economy. Today India is one of the most exciting emerging markets in the world. Goldman Sachs believe India will be the fastest growing global economy over the next 15 years, and emerge as the third largest economy in the world by 2020. In the latter half of the 21st century India is set to overtake the US and China (due to demographic advantages) to become the largest economy in the world.

The economy has posted an average growth rate of more than 7% in the decade since 1994. Each year the Indian middle class grows by around 10 million people or one per cent of the population. The Indian middle class is now greater than its counterpart in either the USA or EU. India has been able to achieve this transformation by capitalising on the enormous numbers of well-educated English speaking people.

Skilled managerial and technical manpower matches the best available in the world, providing India with a distinct cutting edge in global competition. English is the official language making it easier to do business in India than other emerging markets. In fact India now has more English speakers than any other country in the world.

Economic reforms starting back in 1991 have enabled India to capitalise on this large pool of educated people. Since the relaxation of foreign investment rules in 2004 India has become the top destination for multinational corporations looking to outsource operations and is now the second largest beneficiary of foreign direct investment.

Within India's fast-growing economy, real estate has emerged as one of the most appealing investment areas for domestic as well as foreign investors. By the end of 2006 GDP growth has reached 9.1% and property prices are increasing by an average 30%. Real estate is able to sustain such fast growth because the demand for property continues to outstrip supply. Government and industry analysts forecast a shortfall of 20m units in urban areas. Cushman and Wakefield have reported that there is an urban shortage of more than 12m homes in the 45-50 cities with a population of more than 1m. The demand increases by approximately 1.5m homes each year.

Other factors that are contributing to the booming real estate prices include a more mature mortgage market, modern attitudes to home ownership (the average age of a new homeowner is now 32 years compared with 45 years a decade ago). The young working population is shifting to the more Western philosophy `buy and repay' as opposed to `save and buy'. Despite this savings rates are still nearly one-third of GDP. The liberalisation of Foreign Direct Investment (FDI) rules is also encouraging interest in the country and its real estate market from investors around the world.
2006 has seen further relaxation of FDI rules, widening opportunities for those looking to invest in India. In February the Government enabled foreign investment in the construction and development sector. In order to spur investment in the vital infrastructure sector 100% foreign direct investment (FDI) is now allowed under the 'automatic route'. This is the first time that the Indian real estate market has been fully opened up to global investors. Over 150 private equity funds including JP Morgan, Goldman Sachs, Morgan Stanley, Deutsche Bank and Blackstone have raised over $10bn to invest in Indian Real Estate.

Where are the investment hotspots?

Unlike many other parts of the world the Indian real estate boom is by and large based on sound fundamentals. India consistently proves its long-term potential. However, being such a large and diverse country there are naturally many different markets, each with their own pitfalls and potential. Whether Bangalore, Pune, Calcutta or Chennai or even already sky high Mumbai and Delhi, the Indian real estate market has the potential to meet the requirements of most investors criteria.

What type of property to invest in?

Residential Property

Favourable demographics, urbanisation, rising incomes and easier access to finance are fuelling strong demand for residential accommodation. Government and industry analysts forecast a shortfall of 20m units in urban areas. Cushman and Wakefield have reported that there is an urban shortage of more than 12m homes in the 45-50 cities with a population of more than 1m people each. This increases by approximately 1.5m homes each year. In Bangalore, for example, total demand for apartments is estimated at 24,000 units each year, with an expected annual growth rate of 20% over the next several years.

Commercial Property

Offices  (incl. IT parks)

According to Cushman and Wakefield estimates, office space demand will reach 66m sqft over the next 3 years. Over the next 10 years, an estimated 3-3.5m jobs are set to be outsourced to India.

Across the major cities in India, demand for new office space alone has grown from an estimated 3.5m sq.ft in 1998 to nearly 16m sq.ft. in 2004. Approx. 14.5m sq.ft was added in 2004 with an additional 22m by year-end 2005.

Yet Cushman and Wakefield conclude: “the supply coming online cannot possibly meet the insatiable demand. Over the next three years, cumulative demand for office space is estimated to exceed 66m sq.ft. Approximately 80% of this pan-India demand is expected to come from the IT and BPO sectors. Potential absorption of IT is close to 43m sqft from 2005-2008.”

Retail (incl. shopping malls)

India has huge potential for retail expansion and the sector is growing in the region of 10% a year. Organised retailing currently accounts for only 2-3% of the market compared to 70% in developed countries. Jones Lang Lasalle say the sector is “undergoing structural change, with leading domestic retailers going through rapid growth, format migration and consolidation.”
For more information on the economy and real estate markets call the Assetz India team on0845 430 0010.