India
Last Updated:
Jul 27, 2009
House prices in big Indian cities continued to fall during the first quarter of 2009, having begun to slide in 2008. Households are deferring purchases in anticipation of further price falls. Property developers are trying to entice buyers through price cuts and other incentives – usually to no avail.
In an April 2009 survey, a resounding 99% of residential property brokers in Delhi, Mumbai, Bangalore and Chennai agreed that prices had dropped in Q1 2009, up from 78% reporting price falls in Q4 2008, according to Edelweiss.
Jones Lang LaSalle (JLL), a real estate consultancy firm reported that prices fell by as much as 30% in Q4 2008 from the previous quarter.
Indian house prices rose rapidly from 2002 to 2007. Strong economic growth and urbanization supported house prices, while in city centres a housing bubble was encouraged by inadequate infrastructure, lack of planning and antiquated land use laws.
Weak global demand for India’s services and exports combined with financial meltdown caused the housing bubble to burst.
A February 2009 report by Edelweiss, forecasted that the real estate sector will remain depressed, as prices are expected to decline by at least 30% over the next four years.
Despite the recent opening of real estate development to Foreign Direct Investment (FDI), non-resident foreigners still cannot buy land and property in India. Resident foreigners can buy land under restrictive conditions, where the property must be used for residential purposes only. If foreigners earn rental income from property, the proceeds cannot be repatriated to their home country.
In an April 2009 survey, a resounding 99% of residential property brokers in Delhi, Mumbai, Bangalore and Chennai agreed that prices had dropped in Q1 2009, up from 78% reporting price falls in Q4 2008, according to Edelweiss.
Jones Lang LaSalle (JLL), a real estate consultancy firm reported that prices fell by as much as 30% in Q4 2008 from the previous quarter.
Indian house prices rose rapidly from 2002 to 2007. Strong economic growth and urbanization supported house prices, while in city centres a housing bubble was encouraged by inadequate infrastructure, lack of planning and antiquated land use laws.
Weak global demand for India’s services and exports combined with financial meltdown caused the housing bubble to burst.
A February 2009 report by Edelweiss, forecasted that the real estate sector will remain depressed, as prices are expected to decline by at least 30% over the next four years.
Despite the recent opening of real estate development to Foreign Direct Investment (FDI), non-resident foreigners still cannot buy land and property in India. Resident foreigners can buy land under restrictive conditions, where the property must be used for residential purposes only. If foreigners earn rental income from property, the proceeds cannot be repatriated to their home country.
Analysis of India Residential Property Market »
RENTAL YIELDS
Last Updated: May 21, 2010
Prices of apartments in Mumbai continue to rise, astoundingly. Prices of US$17,000 per square metre are typical for 300 square metre luxury used apartments in Mumbai’s prime areas.
Rents in Mumbai have not kept pace, and as a result rental yields on apartments have slipped to 2.3% to 3.7%. At this level, few landlords can make money, once costs are stripped out. Given that the Global Property Guide’s figures are for gross rental yields, i.e., do not make any allowance for vacant periods, for legal costs, administration costs, cleaning and repairs, rental taxes, property taxes, and other taxes, etc, it is safe to say that landlords in Mumbai earn very little on their apartments.
Property prices in New Delhi have risen. They are moving above the US$3,000 per square metre range for used apartments in prime areas. But we find that rents have risen further, so that gross rental yields are now between 4% and 5%.
In Bangalore prices continue to be very reasonable, at around US$740 to US$1,250 for a used apartment in a prime district. Rents also continue to be low, so that gross rental yields of around 3.4% to 4.7% can be earned.
Rents in Mumbai have not kept pace, and as a result rental yields on apartments have slipped to 2.3% to 3.7%. At this level, few landlords can make money, once costs are stripped out. Given that the Global Property Guide’s figures are for gross rental yields, i.e., do not make any allowance for vacant periods, for legal costs, administration costs, cleaning and repairs, rental taxes, property taxes, and other taxes, etc, it is safe to say that landlords in Mumbai earn very little on their apartments.
Property prices in New Delhi have risen. They are moving above the US$3,000 per square metre range for used apartments in prime areas. But we find that rents have risen further, so that gross rental yields are now between 4% and 5%.
In Bangalore prices continue to be very reasonable, at around US$740 to US$1,250 for a used apartment in a prime district. Rents also continue to be low, so that gross rental yields of around 3.4% to 4.7% can be earned.
TAXES AND COSTS
Last Updated: Jan 05, 2009
Effective Tax Rate on Rental Income |
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| 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.
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.
BUYING GUIDE
Last Updated: Jun 12, 2007
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.
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.
LANDLORD AND TENANT
Last Updated: Jun 20, 2006
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.
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.
