Since
2004 foreign investor interest in India’s real estate
sector has really started to take off in earnest. Few doubted
the prospects for prosperity in India prior to 2004 but the
investment climate wasn’t right until that point with
the Indian government placing excessive restrictions on foreign
direct investment into the real estate sector.
A slight easing of restrictions and some impressive
property price growth figures together with an influx of large
overseas commitment to major developments in India have all
resulted in tentative inroads turning into strong inward flows
of overseas real estate investment interest in India.
Overseas property investors thinking about
India for the first time may like to take confidence in the
fact that US real estate billionaire Sam Zell plans to make
substantial investment into India and has stated that “there’s
probably no better market in the world for low-cost housing.”
Add to this fact the knowledge that Dubai
based Emaar Group have already invested in excess of USD 100
million into projects in Hyderabad, and major companies from
UK, Tokyo, Canada, Singapore, Malaysia and Indonesia have
all committed hundreds of millions of dollars to property
development projects in India’s main cities in the past
year and you can see that global confidence for growth and
profits in India is at an all time high.
An increasing local demand for property for
sale and rent in India is the main driving force behind the
growth in the real estate market. And as India has well in
excess of a billion citizens the potential for growth in the
real estate sector in India is uniquely huge!
As India’s economy begins to boom in
certain geographic areas particularly as a result of the growth
in outsourcing and IT industry sectors for example, so local
buying power is increasing as the professionals employed in
these booming industry sectors can afford to own their own
homes.
In addition to this, cheap housing loans are
more available in India today than at any other time previously
and this makes owning a home a concept accessible to more
people and it makes owning a home more affordable for more
people as well.
These factors all fuel demand, and an increase
in demand naturally inflates underlying property prices.
So far India only attracts about 1.1% of its
foreign direct investment into the real estate sector, this
was as a result of the Indian government placing strict controls
and restrictions of foreign ownership of immovable property
in India and also fixing the terms of investment making it
difficult for some property investors to achieve their particular
goals from India’s real estate sector.
In 2005 these restrictions were eased slightly
and the general consensus of opinion from property experts
examining India is that restrictions will be further eased
as the Indian government who are keen to control investment
are even keener to attract growing investment to the sector.
In terms of the profitability of property
in India, locally developers are reaping an average internal
rate of return on capital of between 30 and 50% and for property
investors prices have risen by in excess of 20% in the past
few months in some areas of the country.
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