Where Does India Stand In Asia's Real Estate Market? [Infographic]
When Donald Trump visited India in 2014 August, he said that Mumbai's real estate is unbelievably cheap. The irony of the statement couldn't be starker. At the time Donald Trump was making the statement, prime real estate in Mumbai was the 16th most expensive in the world, according to Mercer's 'Cost of Living 2015'.
Here are four slides that tell you how Indian real estate performs relative to real estate in other Asian countries:
1. Singapore's per capita income is the highest in Asia, but home prices are only moderately higher than that of India's.
According to Global Property Guide, a 120 square meter upscale home in Mumbai's central business district cost 11,455 US $ per square meter in early 2014. This is expensive, because India's GDP per capita was then 1,510 $. In Singapore, while the GDP per capita was $ 55, 182, a comparable home cost merely $ 15,251 per square meter. This means that in a year, a median citizen of Singapore can buy a home that a median Indian citizen will be able to buy only with his cumulative income earned over 27 years.
2. In India, the ratio of home prices to income is high while gross rental yield is low.
In India, a typical upscale residential unit of 100 square meter cost 758.61 times the country's GDP per capita in 2014. In contrast, it costs just over 27 times the GDP per capita in Singapore and Malaysia. Why?
1) Building restrictions are greater in India, as the World Bank's Ease of Doing Business Index for 2015 shows. India is ranked 184 on a list of 189 countries on dealing with construction permits in the Index. 2) Floor space index (FSI) in Indian cities is exceptionally low. In Hong Kong's CBD, the FSI is 15 and in Singapore's CBD, the FSI is 10. In Indonesia's Capital Jakarta too, the FSI in the CBD is 10. But, in Nariman Point, the FSI is merely 4.5, and in much of Island City, it is 1.33. 3) In India, it often takes a complex process to convert agricultural land for residential, industrial or commercial purposes. 4) In most Indian cities, infrastructure is minimal. When water supply, sewerage and electricity are not adequately provided, it hinders residential development. 5) India's mass transit systems are not as efficient as that of the ones in Asian city-states like Singapore. This constricts the supply of urban land. 6) Often reported and discussed, the regulatory process is more time consuming and expensive in India.
3. India's real estate prices are way higher than rental rates.
Rent control laws are stringent in India. Rent control laws were imposed in most cities in the world around the Second World War. But, even as the cities in the developed world have tried to ease those restrictions in recent years, Indian laws have changed little. As a result, rental yield in India is among the lowest in Asia. In 2014, it was 2.2 in India, while it was over four times as much in Indonesia. Even in the case of commercial property, rental yield in India is much lower. Even though capital appreciation is often higher in India, rental yield is not. In efficient real estate markets, rental yield tends to reflect real estate prices more accurately.
4. To make homes affordable, India needs strong property rights.
Countries with better economic policies are more globally competitive. Relative to income, home prices are lower in countries in which foreign investment restrictions are lower, black markets and price distortions are rarer, productivity is higher and fiscal deficit is lower. Private property rights matter too. India's rank in economic competitiveness is low, and this is true of its position on the property rights index too. The Indian government wants to build homes for everyone by 2022. But, broader economic policies influence home prices more than the success or failure of such large programs and schemes. To make homes affordable, the Indian government needs to create an environment where people can build homes at the lowest cost to themselves.