Home mortgage rates in India stood at about 8% early last year, and
have now risen close to 13%. Higher interest rates on home mortgages
mean that an Indian homebuyer’s purchasing ability has dropped to
five times the amount of income, from seven times the amount of
income in 2007.
The decline in purchasing power means that an inventory of high-end
for-sale apartments in that country could see a price correction of
roughly 20%, according to Shekar Narasimhan, CEO of Beekman Helix
India, a U.S. investment management firm based in McLean, Va., that
focuses on Indian real estate investments.
Narasimhan, who spoke at a conference session on investing in the
Indian market, sees more demand for mid-range apartment units in
India. A target audience of about 20 million Indian households would
be interested in buying mid-priced apartment units for about $60,000
each, he said.
Pricing a unit at $60,000 does not mean compromising on quality,
but rather cutting down on amenities in the apartment buildings,
according to Narasimhan. He believes that combining middle-end
apartment complexes with office and other mixed-uses would make for
a “winning formula.”
Commercial real estate investors see opportunity in India largely
because of urban demographic projections. According to Prudential
Real Estate Investors, about 40% of the Indian population will live
in urban areas by 2020, compared with about 30% of the population
living there now.
One shortcoming for investors considering Indian opportunities is
that “patience is not a virtue but a necessity in India,” Narasimhan
noted. Other India experts attending Cityscape noted that
opportunities in the market can prove chaotic, and the transaction
process is punctuated by a slow-moving legal system. Other
roadblocks to success include securing clear title to property, as
well as incidents of business and government corruption and
infrastructure failures.
In addition, the Indian economy has slowed after years of booming
growth, and inflation now stands at a 16-year high. This means that
demand for commercial real estate also is likely to slow.
India opened up its real estate sector to foreign investment in
2005. To date, Beekman Helix India has invested about $250 million
there over the last two and a half years.
