When smart dinner-party chatter turned towards the dull London suburb of Tulse Hill as the latest property hotspot, we knew the property boom was out of hand, says The Times. “So how to take news that the boom has hit Delhi?” Last week, Indian steel magnate Sanjay Singhal forked out 1.5bn rupees (£17m) for a bungalow in the city, just big “enough for his two daughters, son and wife”, a colleague told The Guardian.
Although it’s in the city’s millionaires’ row, the price illustrates the squeeze on residential and commercial property space in the sub-continent, as we indicated in our India cover story (see: Move over China – why India has the real investment potential).According to real-estate agency Cushman & Wakefield, 400 new townships for 200 million people will be needed by 2011 as the country’s cities currently lack 12 million homes. The state of commercial property isn’t much better. Despite its size, India has only 35m sq ft of office space, about a third of that found in London, says Investors Chronicle. Demand is so high, that firms will “move in before the air conditioning is installed,” says Alastair King of Indian property investors Eredene in The Mail on Sunday.
But congested transport systems in Mumbai, Bangalore and Delhi,
where property prices have tripled in the past two years and “valuations are absurd” says King, mean firms are looking to suburbs and outlying towns for space. And so should investors, say several experts. For example, Jones Lang laSalle are bullish on ‘Tier II cities’, noting that yield gaps in Hyderabad, Chennai and Pune have narrowed to as low as 1% against their larger counterparts.
But to buy property as a private investor you must be resident and living in the country for more than 182 days, with the intention of staying. Buying indirectly through a firm such as Eredene could be easier, although it has no meaningful long-term track record yet, so is a gamble. According to Sam Mathani, manager of F&C Emerging Markets fund, Gujarat Ambuja Cements’ volumes are growing by 10%-12% a year. It’s “the best play on the Indian cement sector”, he tells Investment Adviser.
Note, though, that India is adding about 25% a year in A-grade office space, warns Lex in the FT, while rising interest rates could undermine yields. “Even when supply is spread thin, property investments are seldom safe as houses.”