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India is one of the fastest growing countries in the world at the moment, and set to become a superpower in the coming decades.
Real estate investors, manufacturers, and other international companies have turned their eyes to this country, as it’s set to compete with neighboring rivals like China.
The real estate market has not performed as good compared to places like China, Vietnam, or the Philippines though, and the future is yet to be determined.
In this article, I explain more in detail about how India’s real estate market has performed the past years and what my predictions are for 2019.
India’s real estate market performance in 2017 & 2018: A throwback
India’s real estate market has not been one of the best performers in the past decade and has grown with a slow rate. Even if we saw a brief slowdown in 2015 – 2016, the market gradually bounced back in 2017 – 2018.
In fact, we saw a stronger demand of real estate in most of the bigger cities throughout 2017 and 2018. The main reason is that the economy grows quickly, gaining much attention from international corporations and the media.
Some of the most eye-catching cities you should have a look at include Mumbai, Hyderabad, Bangalore, and Delhi.
With a high demand, yearly price increases still remain low and average between 0-2, which is are far off compared to countries like China and Vietnam.
The impact of the banknote demonetization in 2016
In 2016, India surprisingly rolled out news about a banknote demonetization.
In short words, the government aimed to replace around 86% of the banknotes in circulation, with a purpose to catch tax evaders and people that earned money illegally.
Normally, banknote demonetizations have a negative impact to economies, something that could be seen in India as well. We even saw reports of casualties as people rushed to exchange bills.
So what impact did the demonetization have in the real estate industry?
Many believed that the sudden implementation of demonetization was a direct track to a property slump. Some even predicted an annual price decline of 30%.
Fortunately, the demonetization had little effect as the demand continued to grow in 2017 and 2018. A bit embarrassingly, more than 99% of the old bank notes are back in circulation.
Despite a temporary decline in real estate prices during the first months of 2017. The market successfully absorbed the shock created by the demonetization, wiping out over USD 200 billion from the circulation in just a day.
According to PropTiger DataLabs, the real estate market went through a sharp increase in Q4 2017 (for top 9 cities) with a 19% increase in sales.
Overall, there were 7200 more sales compared to the third quarter of 2017.
A growing demand in 2018
Data from the first half of 2018 showed a strong comeback in terms of demand. In addition, the sale of residential and commercial property has also been on the rise in most cities.
Still, despite having a big increase in demand, prices remained fairly the same all over India.
Below I’ve listed other interesting and positive facts about India’s real estate market in 2018:
- The number of salesincreased by 25% compared to the first half of 2017 in most of the big cities
- The number of new launches continues to rise all over India, including the biggest cities: Mumbai, Delhi, Pune, Hyderabad, and Bangalore. The number of new launches increased from 38,324 units in Q4 2017 to 42,975 in Q2 2018
- Knight Frank has issued an interesting report for the first half of 2018 showing that there were 46% more new launches and 3% more sales compared to the first half of 2017
Mumbai’s real estate market
Mumbai is one of the fastest growing and the wealthiest city in India. Having a comparably big middle- and higher middle class, real estate is high in demand here.
As India is urbanizing, people tend to move to metropolises like Mumbai, which adds on to the demand.
Still, the average price per square meter is a fraction of that in Hong Kong, or even Bangkok, averaging at INR 79,000 (USD 1,110), which is the highest in India.
According to Knight Frank, we saw a significant 128% year-on-year increase in the new launches and 1% increase in sales for the first half of 2018. Still, prices decreased by 9% compared to the previous year.
Rental yields are kept low, like in other Indian cities, which makes renting a preferred choice over buying for many locals.
Hyderabad’s real estate market
Hyderabad scored the highest year-on-year price increase at 8% in the first half of 2018.
Still, the average price per square meter is merely INR 43,000 (USD 600), almost half of that in Phnom Penh, Cambodia.
At the same time, we saw a 44% year-on-year increase in new launches and a 5% increase in sales in the first half of 2018, according to Knight Frank.
Bangalore’s real estate market
Bangalore is the fastest growing city in the world and a technology hub in India.
Bangalore has grown fast the past years, making it the second most expensive city. Prices average at INR 50,800 (USD 715) which is still far below the average property price in Ho Chi Minh City, just to give you an example.
We saw a 11% year-on-year increase in new launches and a 22% increase in sales during the first half of 2018 in Bangalore according to Knight Frank.
Also in Bangalore, we’ve seen a poor performance in terms of price increases as there was a 2% decline compared to the first half of 2017.
Delhi’s real estate market
Delhi is the capital and a major hub in India. The same as it goes to Mumbai, people flock in masses to find job opportunities in Delhi, which has resulted in a higher demand and higher property prices.
The average price per square meter is around INR 46,000 INR (USD 650), still below the average price in Bangalore.
According to Knight Frank, there was a 90% year-on-year increase in new launches and a 5% increase in sales during the first half of 2018, compared to the same period in 2017.
Not surprisingly, we didn’t see any price increase compared to 2017.
Indian cities with declining property markets
When it comes to smaller cities, the number of sales transactions dropped much during the first half of 2018. Below I’ve listed data from Knight Frank, showing the changes in new launches and sales transactions:
- New launches: +8%
- Number of sales: -3%
- New launches: +78%
- Number of sales: -6%
- New launches: -35%
- Number of sales: -19%
Keep in mind, Calcutta is one of a few Indian cities where the population is shrinking.
Population growth and individual wealth play a key role in driving real estate markets like India’s, as local buyers make up a big part of the investors.
Yearly price changes in Indian cities
Below I’ve included the yearly price changes in the first half of 2018, for various interesting Indian cities:
- Ahmedabad: +2%
- Bengaluru: -2%
- Chennai: -4%
- Hyderabad: +8%
- Kolkata: -8%
- Mumbai: -9%
- Delhi: 0%
- Pune: -5%
Big differences in real estate demand between cities
India is a big and diverse country in terms of economy, culture, individual wealth, and regional real estate markets.
For example, while cities like Delhi, Mumbai, Hyderabad, and Bangalore grow at rapid speed, the economy is in decline in Pune, Chennai, and Calcutta.
Not to forget, India is ranked as the second worst country in terms of uneven wealth distribution after Russia.
At the same time as there are wealthier upcoming cities like Mumbai and Bangalore, there’s extreme poverty in Bihar and West Bengal.
So, if you want to invest in real India estate, you need study each city carefully, and not only the country in general.
India’s ready reckoner rates
Worth mentioning, each state has different ‘ready reckoner’ rates, issued by the government to calculate registration fees and stamp duties. The higher the ready reckoner rate, the higher the prices of residential units in that city.
In simple words, ready reckoner rates show the minimum prices to be used for commercial and residential properties.
Due a to slow growth, several states have not increased the ready reckoner rates for 2018 and 2019, including Maharastra, where Mumbai is located.
How will India’s real estate market perform in 2019?
As you’ve seen, India’s real estate market has performed badly compared to emerging rivals like Vietnam and the Philippines. The market outlook doesn’t look well overall, even if there are some positive signs:
A rise in demand of real estate
As the demand increased in 2018, prices are expected to increase in major cities. Places like Mumbai, Delhi, Bangalore, and Hyderabad are going through rapid urbanizations and see high migrations from other cities and states.
So, with a higher demand, prices are expected to increase gradually.
The growth of India’s middle and upper middle class
Even if India has a third of the total poor in the world, there’s a growing middle and upper middle class.
In the coming years, there will be an estimated growth of 70% in the number of individuals with a net worth of USD 50 million.
With a higher GDP growth rate, we see a quickly growing urbanized middle class that seem to buy mostly affordable housing.
Developers focus on affordable housing
Many developers plan to build affordable housing, with residential units in the price range of INR 1.5 – 3 million (USD 21,000 – 42,000). More affordable housing will be available for a big part of the population.
Investment from non-resident Indians (NRIs)
In addition to local buyers, many non-resident Indians (NRIs) invest heavily in India real estate. As the Indian Rupee loses value against the USD, NRIs are expected to invest more in real estate sector in the coming year.
India’s real estate market grows with a consistent, but slow pace. The growing economy contributes to the rise in demand, especially after the brief slowdown seen after the banknote demonization introduced in November, 2016.
Still, even with a rise in demand in most of the major cities, the year-on-year price increase has remained low, ranging between 0 – 2% during the past years. We can expect a similar trend for the coming years.
Another challenge is the uneven growth we see in the local real estate markets. While Hyderabad, Delhi, Bangalore, and Mumbai go through a surge in demand, markets are in decline in cities like Pune and Calcutta.
All in all, if you’re planning to invest in India real estate in 2019, you can’t expect high capital appreciations, nor high rental incomes. Many local experts believe that the market is maturing, but it’s still not good enough to expect high returns.
If you plan to invest in real estate in Asia, there are plenty of better options, like Vietnam, Cambodia, and the Philippines.
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