India: Overview

RENTAL YIELDS

Last Updated: Apr 28, 2009

Mumbai low, by international standards

By international standards, the yields on residential property in India are low. This has long been the case in Mumbai, and despite the market correction, our research suggests that South Mumbai gross yields are still low, averaging 3.88%.

These yields are not completely unreasonable (at least, not as unreasonable as Mumbai yields used to be) and many European capital cities are on this yield level. But it does mean that if capital gains are your chief aim, Mumbai would not be a particularly inspired choice, in our view.

South Mumbai apartments remain breath-takingly expensive, at US$7,353 per square metre (sq. m.)

New Delhi apartment gross rental yields average 3.54%. This figure is of course distorted by rent control laws. The average price of the apartments that we surveyed in New Delhi is US$2,091 per sq. m.

Apartments in Bangalore have higher gross rental yields than either South Mumbai or New Delhi, with an average figure of 4.65%.

Bangalore per square metre prices are low, at US$592 per sq. m., on average. This combination means that Bangalore appears to us the most attractive of these three major Indian cities, from an investment perspective.

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TAXES AND COSTS

Last Updated: Jan 05, 2009

Rental income tax is low to high in India

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	8.1%	19.3%	21.1%
Click here to see a worked example
Source:			Disclaimer

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 INR1,500,000 (US$30,881).

Residents: Residents of India are subject to tax on their worldwide income.

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BUYING GUIDE

Last Updated: Jun 12, 2007

Buying costs in India range from low to high

Total roundtrip transaction costs, i.e., the cost of buying and selling a property, are between 7.5% and 17%, inclusive of the agent’s fee of 1.1% to 2.1% (inc VAT). Stamp duties and registration fees vary according to city and locality.

The total cost of property registration is around 7.9% of the property value. The six procedures required can be completed in roughly 67 days.

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LANDLORD AND TENANT

Last Updated: Jun 20, 2006

Pro-tenant laws in India often inhibit rental market

Indian 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.

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ECONOMIC GROWTH

Last Updated: Jul 27, 2009

An emerging economic powerhouse

India is the world's second most populous country, with 1.1 billion people. Occupying more than three quarters of the land mass of South Asia, it is an emerging economic superpower. India’s economy is the 4th largest in the world at purchasing parity terms and 12th largest at market exchange rate.

India’s rapid economic growth started after the government gradually opened the economy in the early 1990s. The government instituted economic reforms and reduced control over foreign trade and investment.

The economy expanded by an average of 5.4% annually from 1990 to 2002. GDP growth accelerated to an average of 7.6% in 2003 and 2004, and to 8.9% from 2005 to 2007.

In 2008, GDP growth slowed to 7.1% due to the global economic downturn. However, the economy remains to be one of the fastest growing in the world, having the potential to revive the global economy.

Average inflation was 10.1% from 1990 to 1998 before slowing to an average of 4.1% from 1999 to 2005. In 2006 to 2007, inflation averaged at 6.2%. With the global food and oil crisis in 2008, India’s inflation rose to 8.3%, the highest since 1998.

Unemployment is expected to worsen due to the global financial crisis, especially in the IT, finance and SME industries. The last official employment survey in 2004 reports an 8.3% unemployment rate.

From 1990 to 2008, real income per person doubled in local currency terms. However, India’s GDP per capita is still very low in international terms, at US$640 in 2008. About a third of Indians still live in poverty, and poverty reduction continues to be slow since the economic liberalization.