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Last Updated: Apr 15, 2016




India’s property market faces a worrying rise in unsold inventory, after a spectacular house price boom over the past three years. Sales in India's top eight cities fell by 4% in June 2015 compared to June 2014, with unsold inventory rising 18% during the same period, according to property research firm Liases Foras. 2015 ended with lower new launches and sales volumes, at 240,360 and 261,260 units, respectively, across the top eight cities.

According to Knight Frank, unsold inventory has now reached:
  • 206,000 units in the National Capital Region (NCR)
  • 181,000 in Mumbai
  • 100,000 in Bengaluru
  • 63,000 in Pune
  • 41,000 in Ahmedabad
  • 36,000 in Chennai
  • 36,000 in Kolkata
  • 31,000 in Hyderabad

Growth in the Reserve Bank of India’s nationwide housing price index slowed to 13.7% (8.7% inflation-adjusted) during the quarter ended September 2015 compared to the same period in 2014 – down from a 17.5% rise in Q1 2015 and 14.5% in Q2 2015.

All major cities, with the exception of Chennai and Bengaluru, exhibited slowing momentum:
  • Prices in Delhi rose 21.9% (16.5% inflation-adjusted) year-on-year in Q3 2015, slower than the first and second quarters’ 26.5% and 22.7%, respectively.
  • In Mumbai, house price rises weakened to 10.8% (5.8% inflation-adjusted) from 11.0% in Q1 and 11.1% in Q2.
  •  In Ahmedabad, growth slowed to 7.4% (2.6% inflation-adjusted) from 9.2% in Q1 and 7.4% in Q2.
  • In Kolkata, growth was 7.1% (2.3% inflation-adjusted), down from 32.4% in Q1 and 19.1% in Q2.
  • Prices in Kochi even fell by 7.2% (-11.3% inflation-adjusted)
  • Bangalore price rises, on the other hand, have been gaining momentum from 10.0% in Q1 and 15.5% in Q2 to 19.1% (13.8% inflation-adjusted) in Q3.
  • Price growth in Chennai is also impressive at 12.4% (7.4% inflation-adjusted) in Q3, up from 4.9% in Q1 and 3.8% in Q2.

The Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points to 6.5% in April 2016, in line with the reduction expected by economists after inflation slowed to 5.18% in February. Interest rates are now at the lowest level since 2011.

The Indian economy expanded by 7.3% during FY 2014-2015, according to the Statistical Office - the fastest rate of economic growth in the world, coming just as the Chinese economy is losing steam, with its annual growth slipping to 6.8%. The same organization forecasts growth of between 7-7.5% for India in 2016-17.

Analysis of India Residential Property Market »


RENTAL YIELDS
Last Updated: Apr 01, 2016



Residential property prices have risen strongly in India in recent years. Rents have not kept pace, so it is hardly surprising that the gross rental yield - i.e., the percentage return on your purchase of property - is low in India's major cities.

South Mumbai has very low rental yields, with property investors earning around 2.40% gross. Apartments remain expensive. In US$ terms they are less expensive this year than last, reaching about US$9,800 per square metre (sq.m.) for 120 sq.m. apartments.

In New Delhi, prices per sq. m. are of course much lower, despite the continuous price rises in that city. In 2016, the price per sq. m. of a 120-sq.m. apartment in New Delhi was around US$3,350. Gross rental yields in Delhi remain poor, at between 2.88% to 3.20%.

In Bangalore, prices are around US$1,000 to US$1,200 per sq. m. Rental yields are higher in Bangalore, ranging from 3.33% to 4.04%. Again, this is a long way below the nice yields of 7.16% to 9.92% which could be obtained way back in the year 2007.

Conclusion: Indian gross rental yields are very low. This suggests that Indian residential property is somewhat overvalued. While low rental yields do not always indicate over-valuation, especially in periods when interest rates are low, they are only justified if rapid economic growth is expected, and also, if there are sufficient restrictions on new building to prevent the market being flooded with new properties as prices rise. The buyer must ask himself whether these two conditions are met in India.

Round trip transaction costs are moderate to high in India. See our Property transaction costs analysis for India and Property transaction costs in India, compared to the rest of Asia

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Feb 12, 2016



Rental Income: Net rental income is taxed at progressive rates, from 20% to 30%.

Capital Gains: Capital gains are taxed at the standard income tax rates.

Inheritance: No inheritance or gift tax is levied in India. But a wealth tax of 1% is imposed if the net wealth exceeds INR10 million (US$147,059).

Residents: Residents of India are subject to tax on their worldwide income at progressive rates, from 10% to 30%.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Feb 06, 2014



Total roundtrip transaction costs, i.e., the cost of buying and selling a property, are between 8.75% and 15%. Stamp duties and registration fees vary according to city and locality.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Jun 20, 2006



India colonial style housesIndian law is pro-tenant.

Rent Control: For Delhi, the maximum annual rent is 10% of the cost of construction and the market price of the land. But both construction cost and land price are based on historical values, not on the property's current market value.

Tenant Security: It is difficult for a landlord to protect his property from unwanted overstaying tenants. Though contracts may be enforceable in the courts, the enforcement process is likely to take years, or even decades.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Apr 15, 2016


Is Indian economy the world's fastest-growing, or are the numbers wrong?

India gdp inflationThe Indian economy expanded by 7.3% during FY 2014-2015, according to the Statistical Office - the fastest rate of economic growth in the world, coming just as the Chinese economy is losing steam, with its annual growth slipping to 6.8%. The same organization forecasts growth of between 7-7.5% for India in 2016-17.

However not everyone is convinced. The figures, which are based on a new methodology, raised eyebrows from several institutions including the Reserve Bank of India. The new methodology instantly raised India’s GDP growth from 4.7% to 6.9% for FY 2013-2014, according to Arvind Subramanian, chief economic advisor to the government of India.

“Some observers feel the figure is inflated, and that sectors like IT are booming while core fundamentals like agriculture and industrial manufacturing aren’t performing as well: In other words, India's economy may look better on paper than it feels to a lot of Indian citizens,” said Jonah Blank, senior political scientist at the RAND Corp.

The Reserve Bank of India is now attempting to get a more accurate picture of the health of the economy through hybrid models that mix elements of the old and new GDP methods.

The Statistical Office, however, assures the fitness of its data. “You have to understand the new GDP data essentially captures efficiency, says Ashish Kumar, former head of the CSO. "Comparing it with volume-based indicators would be a mistake.”







  • High yields in cities like Bangalore
  • Rapid economic growth
  • Rent control in some cities
  • Moderate to high taxes & cost
  • Siginificant ownership limits
RESIDENTIAL PROPERTY FACTS
Price (sq.m): $9,783 For a 120 sq. m. property, usually an apartment.
Rental Yield: 2.39% For a 120 sq. m. property, usually an apartment.
Rent/month: $2,338 For a 120 sq. m. property.
Income Tax: 8.28% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 11.88% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 30.00% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice.

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