There are many similarities between the general characteristics of India and China, the world’s two most populous countries. India is huge, constantly developing, and the presence of over 1.2 Billion people help make it very, very interesting and promising in many ways.
It’s also similar to China in the sense that one wouldn’t dream to buy there without solid legal representation. While countries that we’ve so far covered, like Singapore, Hong-Kong and Japan promise a generally honest and reliable transaction basis, with varying degrees of difficulty due to language and custom, government policies etc – India, like China, is unfortunately not as reliable.
While you can and regularly will find excellent deals and developments in India at any given time, it’s essential to emphasize that shoddiness, corruption and plain cheating are, if not rife, quite common. Developers charge in advance, then go out of business or disappear on you, people sometimes sell the same property to multiple owners, or just plain steal your money and walk. So, before we delve into specifics, let’s keep in mind that, in India as well as in China, one gets, at the very least, a reputable and verifiable law office to represent them, before they even consider jumping in. If you ask me, you’d also want to sign up with a well-connected, reputable, registered and licensed realtor or two (practically, a buyer’s agent) – you’ll pay these guys a percent or two, but the combination of the two will save you from flops, sour deals and rotten apples – and India, like China, has a fair few of those.
Again, in similar fashion to many of its Asian neighbours, and probably not in little part due to the financial mayhem in the west – India’s experiencing a huge property boom. While prices haven’t been closely monitored thus far by any reputable international organizations, a brief scan of gripes and moans on Indian property forums reveals that, if you could buy 2-bedroom, brand new or newish developments in Delhi, Mumbai and immediately adjacent areas (pictured on right) for up to 50K USD as late as six or seven years ago – these will now set you back anywhere between 200-400K USD.
Rent, as you may suspect, hasn’t caught up, and average returns around large metropolitan centres have slumped down to something like 2.8%. Bubbles tend to pop, and there may be a slump coming soon. With the size of the country and population, though, as well as the stable slowing of the economy and depreciating Rupee – this doesn’t necessarily mean a violent crash and burn, as foreign investors tend to “save the day” and inject some serious funds into the economy. This has been happening in India these days – certainly, if developments are anything to judge by, these haven’t slowed down a bit.
Deal mining is also highly lucrative in India, which has a large number of erupting rural metropolitan centres, with population explosion dictating new residences being completed virtually on a daily basis – if you buy into a legit new development for 30-50K USD, which is still possible out of the biggest population hubs in India, it’s hard to imagine you’ll lose huge amounts of money – there are alot of people in India, the rupee is cheap at the moment, and these people all have to live somewhere.
Income tax is fairly high, but capped at 30% (in reality, you’ll be paying something like 20-30%, depending on portfolio size). There’s also a 1% “Wealth tax” if you’re making over 66K USD. The above facts make hiring a local accountant a necessity, as you’ll want to claim as much as you can for depreciation, expenses etc.
Property tax is negligible, and so is capital gain tax (unless you hold for less than three years, then it could go up to 15%, so that by and large that income tax is probably all you’d really need to consider to be profitable.
Previous restrictions on foreign ownership and investment have largely been lifted as far as real estate ownership is concerned – while “permission” in the form of a Foreign Inward Remittance (FIRC) document is required, this can be easily enough obtained from your bank – and yes, Indian banks will lend money for property purchases, secured against the properties themselves.
Complications, Turn-ons and Turnoffs
Unfortunately, in India’s case, this is much harder to clearly categorize (which is also why this article doesn’t have a “part 2”). Not because there aren’t any, but because India is, well – eclectic, to put it mildly. It’s hard to categorize them as “stable”, “unstable”, “unpredictable”, “predictable” or any of the terms we could, at least loosely, associate with any of the previous countries we’ve covered.
Government policy, while not iron-fisted and rife with capricious about-turns like China’s, is also very far from Japan or Singapore/HK’s iron rigidness and relative safety. They’re far more amorphous. Developments happen, but rarely finish on time. Terms are set in contracts, but rarely are these upheld to the letter (I did mention “get a lawyer”, didn’t I?). Reviews are widely mixed, prices wildly fluctuate, and while the economy is doing great as a general rule and prices are sky-rocketing, there are huge disparities in the country between areas as near as two neighbourhoods or a city away.
I guess the bottom line is, in much similar fashion to China again, that India is probably not the best of places to jump into without being intimately involved with it – or at least without being comfortable with a completely reliable and highly recommended team on the ground – and one that has a track record on delivering to foreign investors.
And while in Singapore, Hong-Kong and Japan, reliable is the norm – in India, like in China, you’ll have to visit, personally, a few times, and look darn hard. Once you’ve conquered that particular mountain, there are very attractive deals, potential and room for growth in India – which makes it one of the more attractive – albeit speculative – Asian real estate hubs.
Would love to hear your comments – as I’m sure there are more than a few experienced individuals of Indian background reading this – pure statistics dictate. 😉
The majority of information above has been collected from “The Wall Street Journal”, “Bloomberg”, “Global Property Guide” and various opinions expressed by property professionals, investors and owners-occupiers in India, on public media channels)
(Picture 1 – Delhi Residential Building / Shalom Adamina, Picture 2 – Ganges River Sailing / Jeeheon)