Why Invest In India?
Shri Kamal Nath
Indian Minister of Commerce & Industry
Over the last ten years India has become one of the world’s greatest economic success stories. The world biggest companies have been investing in India for years. You only have to look at India’s huge IT industry to realise this. However it is not only India’s IT industry that is now creating the growth. Almost every other sector in India is booming including tourism, telecommunications, pharmaceutical industry, aviation, retail, financial markets and the property market. India’s property has been booming for a while and prices have increased 70% over the last two years but it is only recently that the laws were changed making it easier to invest in Indian property.
Merrill Lynch has predicted a 7 fold increase in the property market from a current value of $ 12 billion in 2005 to $90 billion by 2015. This rapid growth is why so many foreign property funds and investors are pouring money into India. A report by property consultants Jones Lang LaSalle estimates that US$ 10 billion foreign investment will be injected into the Indian real estate sector in the next 12-18 months.
Here are four reasons why we recommend investing in India:
Economic Growth
Years of financial reforms, investment in infrastructure and huge foreign investment into the country have produced economic growth of over 7% for the last ten years and currently 7.4% growth predicted this year. This phenomenal growth is expected to continue well into the future. According to a report by Goldman Sachs (global economics paper #99) India will sustain over 8 % growth until 2020 and become the second largest economy in the world, ahead of the U.S., by 2050.
"India is growing fast and everyone seems to want a piece of the action."Martin Graham
Director of Market Services, London Stock Exchange
Huge Demand for Housing
Years of strong economic growth, increased mortgage lending and a growing middle class has helped fuel a huge demand for property in India. The demand for property is so high that the market is struggling to meet supply. Official Indian government figures put the shortfall in the residential sector at approx. 20 million units. This acute shortage is expected to continue due to
- Strong economic growth expected to continue. Goldman Sachs (global economics paper #99) expects India to become the second largest economy in the world, ahead of the U.S., by 2050.
- Changing attitudes to Indian home ownership. Once it was save and buy attitudes are changing to buy and pay back.
- The continued development of the mortgage market in India. The idea of home ownership on a large scale is relatively new to India so the mortgage market is quite underdeveloped. Despite this mortgage lending has increased 10 fold from 2000 -2005. Mortgages currently represent just 4% of GDP. It is much higher in other countries. Ireland for example has 28% mortgage to GDP ratio.
- India has the largest middle class in the world and it’s growing rapidly.
- India has an extremely favorable demographic. It has one of the youngest populations in the world. As a result of this by 2020, 47% of Indians will be between 15 and 59, compared with 35% now. The working-age populations of the U.S. and China are projected to shrink. So India is destined to have the world's largest population of workers and consumers. That's a big reason why Goldman, Sachs & Co. thinks India will be able to sustain its amazing growth.
- Urbanization has increased hugely and will continue to do so creating even more demand for housing in urban areas.
- India has the second largest population in the world but is expected to overtake China by 2030 to become the most populous.
- Indian society is changing and for the first time Indian children want homes of their own.
Jones Lang LaSalle
Retail Boom
The boom in Indian real estate is not restricted to the residential market. India’s increasing affluent middle class has created a retail revolution which is helping drive India’s economic growth. According to the latest AT Kearney study, for the third year in a row, India leads the annual list of most attractive emerging markets for retail investment followed by Russia and China.
Organised retail, which currently accounts for only 4.6 % of the US$ 270 billion Indian retail sector, is expected to grow at 37 % in 2007 and 42 % in 2008 (India Retail Report 2007). The report adds that organized retail in India has the potential to add over US$ 45 billion business by the year 2010.This is expected to create a demand for 220 million square feet of retail space by 2010. According to industry estimates, 27 million square feet of organized retail space is currently available. The demand for commercial space doe not stop at retail. There is also a huge demand for urban office space. Industry analysts estimate India has less modern urban office space than a single large American city
"...this is the right time to invest in India and we will be bold on the market here."
Jeffrey Immelt
CEO and Chairman, GE Worldwide
Huge Increase In Foreign Investment
Since policy changes introduced by the Government in February 2005 allowing 100% foreign investments in construction projects with fast-track approvals was implemented there has been a huge amount of money invested in Indian real estate. Already 25 US investment funds are raising US$ 3.5 billion for investments in Indian realty. Those raising the funds include Wall Street companies such as the Blackstone Group (US$ 1 billion) Goldman Sachs (US$ 1 billion), Citigroup Property Investors (US$ 125 million), Morgan Stanley (US$ 70 million) and GE Commercial Finance Real Estate (US$ 63 million).Others raising funds are JP Morgan, Warburg Pincus, Merrill Lynch, Lehman Brothers, Warren Buffett’s Berkshire Hathaway, Colony Capital and Starwood Capital.
"Here's a country that will show massive growth. We believe India will continue to have growing importance in the world economy, and we are working with clients to raise capital and create strategies that will allow them to participate in this growth."Sean Wallace
Co-head of Investment Banking, JP Morgan, Asia Pacific