This is the third article in a series to acquaint globally minded readers with the four economies of the BRIC.
BRIC is an acronym for the economies of Brazil, Russia, India and China combined. The general consensus is that the term was first prominently used in a Goldman Sachs report from 2003, which speculated that by 2050, these four economies would be wealthier than most of the current major economic powers. This could prove valuable when planning a long-range strategy for your real estate business since investors from these countries are increasingly looking to invest in the United States and the greater Houston area.
Residential real estate in India: a general view and the differences compared to the U.S.
India has a large and growing population with increasing access to credit, causing high demand for residences. Unfortunately, infrastructure constraints have limited sprawl and led to high densities in the cities. With the demand and infrastructure limits, land costs are high and condos are generally smaller sized units compared to the United States.
India’s population, according to their 2011 census, is 1.2 billion. The population has grown 22% to 25% each decade from 440 million in 1961. More than 50% of India’s population is below the age of 25 and more than 65% hovers below the age of 35. It is expected that, in 2020, the average age of an Indian will be 29 years. This young population should lead to many years of demand for residential units.
Since the government loosened regulations in the early 1990s, international companies have flocked to India to tap into this young population and their increasing demands for products and services that were not available until the regulations were loosened. With the opening of markets, credit availability has also increased, including in the mortgage market, allowing people to purchase homes with, relative to historical availability, long terms. This has led to an even greater increase in demand for residential units all across the country.
Families in India have traditionally maintained multi-generational households with grandparents, parents, and kids living under the same roof. There were multiple reasons for this – families were very tight-knit, real estate was very expensive, credit was not available with mortgages almost non-existent, and the culture encouraged children to stay with their parents and pool resources to help build wealth for the future. With the spread of Western media and Western cultural norms, the nuclear family is becoming more common. With this shift, the demand for residential units has grown.
While India has a large population, the country has historically struggled with providing adequate infrastructure for the population. Roads (highways and streets), electricity, water, sewer, etc. have historically been inadequate with demand continually outstripping supply. This has generally led to very dense cities where more than 30% of India’s population lives. The rest of the population has lived in small towns or villages where available infrastructure was in a complete contrast to urban areas with no running water, no paved roads, with some villages lacking even electricity.
The dense cities have primarily condo units due to the high demand for residences close to the urban core. Over the last few decades, many cities have steadily lost single-family plots to mid-rise and high-rise condo buildings being developed with the goal of maximum density on any open land parcel. For example, the city of Mumbai is 233 sq. miles in area with a population of 12.5 million (this does not include the entire urban area). In comparison, the city of Houston has 2.1 million people in an area of 579 sq. miles. The density in Mumbai has led to increased traffic and ever growing pressure on the infrastructure of the city and local government.
As one might imagine, the high demand has led to surging prices for real estate – all the way from land pricing to construction prices to completed unit pricing. Over the past decade, prices of condos moved up almost 20% to 25% per year from the early 2000s until the recession hit in 2008. In 2011, sales slowed in most cities from the tightening in the credit markets and the loss of jobs in the outsourcing field. Developers are faced with increasing construction costs and also increased borrowing costs as interest rates have also risen steadily for the last 18 months. These increased costs have led to a slowdown in the pace of development and an increased focus on the budget segment of housing.
In Mumbai, the average condo is still less than 1,000 sq. ft. while the average home in the U.S. has been climbing steadily to reach 2,400 sq. ft. last year, up from only 1,400 sq. ft. in 1970. There are certainly some developers aiming at the higher end of society in India with large units upwards of 5,000 sq. ft., but the majority of homes are smaller than the average unit in the U.S. The units do have multiple bedrooms and bathrooms with the most common size being a 3 bedroom, 2 bath condo.
Multiple factors have contributed to this high-demand, high-price environment. With demographics in favor of continued growth, the residential real estate market in India looks like it will be growing for years to come.
By Karishma Asrani
REALTOR®, Certified Negotiation Expert
Keller Williams Realty
(832) 618-9309 – Cell