From 1980 through to the end of the 2000s, China buoyed the world economy. From iron ore to coal, this waking giant sucked up every raw material it could get its hands on.
In many of those years, its GDP grew by more than 10% YoY. Recently, though, China appears to be slowing down. As a result, many investors missed out on the moneymaking opportunity of a lifetime.
However, as this eastern giant cools, India is on the rise. This nation now has the low wage workforce that China increasingly lacks. Unlike China, it is not a target of Trump tariffs.
Recently, its GDP growth rate, usually a volatile figure, has settled at a consistent 6%-8% per year. Are future returns worth the risk of investing in Indian real estate? In this article, we’ll weigh the pros and cons.
India – The Next Major Asian Economic Powerhouse
China has had its day in the sun. From 1980 – when Deng Xiaoping began to open up the Chinese economy – to about 2010, the nation grew at breakneck speed. Recently, though, the East Asian giant has been transitioning to a mature service-based economy.
More and more, China is becoming less of a producing nation. Much of this has to do with the escalating cost of labour. Western firms accustomed to low expenses have begun to search for alternatives.
The ongoing trade war between China and the United States has sped this transition along. Foreign investors have been scrambling to find unaffected markets, as many are facing tariffs as high as 25%.
In light of this, India has an opportunity to emerge as Asia’s next economic miracle. Its demographics alone give a considerable advantage. It is home to 1.33 billion citizens – 65% of which are under the age of 35.
People here make an average of 32,200 INR – or about 450 USD per month. Compare that to China, where the average office worker earns 8,000 CNY or almost 1,200 USD/month. If you’re looking to employ factory labourers, costs drop further, as some will work for 3 USD per day.
On top of all this, many Indians speak English. In a nation where 122 languages are spoken, schools teach English as a lingua franca. As a result, you’ll find it far easier to communicate with contacts here than in China.
Development over the past two decades laid the foundation for future growth. Cities like Bangalore are technology and IT hubs. Pune and Mumbai are expanding their industrial estates. And, all across India, vast swathes of the countryside are ramping up food production.
Taken together, all these trends point to a strengthening in the Indian real estate market.
Development over the past two decades laid the foundation for future growth. Cities like Bangalore are technology and IT hubs. Pune and Mumbai are expanding their industrial estates. And, all across India, vast swathes of the countryside are ramping up food production.
Taken together, all these trends point to a strengthening in the Indian real estate market.
What Is The Indian Real Estate Market Like?
At present, there is a disconnect between the housing market and the Indian economy. Although GDP advanced 5.6% YoY in 2019, prices have remained stagnant.
They refuse to budge for a few reasons. First and most important, incomes are depressed relative to housing prices. As long as engineers and IT technicians make $25-$35 per day, support for price increases will remain tenuous at best.
Second, those who can buy are sitting on the sidelines. Prices have fallen over the past several years, so many are waiting to see if they can get a better deal.
All in all, it’s not a pretty picture. But it isn’t all bad. Presently, the Indian housing market is skewed heavily towards buyers. It can be tricky to try to catch a falling knife. However, recent demographic and geopolitical trends point towards a significantly improving situation in the coming years.
The Pros And Cons Of Investing In Indian Real Estate
Investing in Indian real estate isn’t for everyone. Buying property here comes with its own set of risks. But, if you’re willing to accept them, the rewards may be worth it.
Below, we’ll list some pros and cons of investing in Indian real estate as a foreigner.
Pros:
- Valuations are low relative to what Westerners earn. In many Indian cities, you can purchase 1,000 square foot condos in the heart of downtown for less than 120,000 USD. Away from the centre, you can buy them for 60,000 USD or less.
- We are at the trough of the current downturn (or close to it.) Prices have fallen for several years already. Yet, the economy continues to grow at a decent clip. With China becoming more expensive for foreign investors, more are choosing India.
- Unemployment nationwide currently sits at 6.1%. With an influx of investment, full employment won’t be far behind. When India reaches this threshold, wages will rise, boosting purchasing power, which will fuel real estate investment.
- Legal protections are improving. In 2016, the Indian government passed the Real Estate Regulation Act. This new law requires builders to put 70% of funds received from financiers in a secure fund. Also, it requires builders to disclose info about the development openly and transparently. As a result of these measures, buyers can be more confident about investing in a project.
Cons:
- Dealing with the bureaucracy here can be headache-inducing. To be fair, things have been getting better. But when it comes to the ease of starting a business, India ranks 130th out of 189 nations. That puts this nation solidly in the bottom half of this index.
- India’s red tape situation is even worse for real estate developers. India ranks 183rd out of 189 nations when it comes to the timeliness of getting construction permits. If you plan on investing Indian real estate, patience isn’t just important – it’s essential.
- The culture is different here. If you’ve never been to India, know that it’s an entirely different world than America, Europe, or Australia. Obvious issues aside (pollution, cleanliness, religion, etc.), you’ll have to contend with how people do business here. When interacting with investors, they’ll often do so with their associates in tow.
- Also, punctuality is considered a “nice-to-have” quality, rather than essential. Everyday life in India can be chaotic – traffic, family emergencies, breakdowns can all change plans. So, if your contact is 15 minutes late, they’re considered to be on time.
- Indian geopolitics are inherently unpredictable. A few years ago, the government demonetized all 500 and 1,000 INR notes. This move whacked market liquidity, partially leading to the real estate crunch that currently exists.
- Now, the current administration has passed a law that some say encourages discrimination against Muslims. Riots have broken out recently, destabilizing parts of the country. These events and others can cause periodic strife. If you plan on investing in India, you need to be able to weather whatever this country can throw at you.
How To Invest In Your First Indian Property
After weighing the pros and cons of investing In India, you’ve decided to proceed. How do you go about purchasing your first Indian property?
If you are a foreigner who was not born in India, the process can be incredibly difficult. Indian law does not permit non-Indian foreigners to own property. This revelation may come as a surprise to you, especially if you have a friend who “owns” property in Goa.
Yes – it is possible to purchase five-year leaseholds. However, to attain true ownership of a property in India, you’ll have to acquire residency. Do not participate in “bribe culture” – if the local government decides to crackdown on corruption, you can lose everything.
If you are an NRI (non-resident Indian) or a foreigner who has Indian residency, you can buy property in India. We strongly advise those in the latter camp to seek out the assistance of a lawyer. Local authorities can cancel a deal even if you are in good standing. Without legal counsel, you could lose your deposit.
Things are easier if you are an NRI. You can freely acquire as much property as you like. There is one proviso, though – if your purchase capital is coming from abroad, you must set up an NRI bank account first.
Eventually, you’ll agree on a price. Have your attorney draw up an Agreement of Sale. Then, make preparations to transfer your capital. You should have enough to pay a 20% deposit, stamp duty, registration and legal fees, and the realtor’s commission.
One last thing – remember that when you transfer cash internationally, fees and exchange rate margins can get costly. However, there are ways to cut fees on international money transfers. By using an online cash transfer provider, you can save thousands via slimmer margins and lower fees.
Fortune Favours The Bold
There’s no question about it – investing in Indian real estate can be a risky endeavour. However, no one ever made a tonne of money playing it safe.
By doing your homework, you’ll have a better idea of whether the potential gains are worth it. If current trends hold, though, those who do invest should become very wealthy indeed!
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Thanks for the very interesting materials! I accidentally stumbled upon this article. Prior to this, I did not know that in India there are advantageous real estate offers …