India Investment Options in US (Part 3)
This is Part 3 of the multipart series exploring investment options in India for people in US. You can check out the first two here and here.
Along with the Indian economy, Indian real estate has skyrocketed in the last 5 years. More and more people are shifting upwards from low-income to middle class, and where do you make a sensible investment for virtually guaranteed results over time? - real estate of course. Residential properties in Mumbai have reported real-estate appreciation of about 30-40% or more over the last 5 years, while cities like Bangalore and Hyderabad have reported an appreciation of whopping 60-80% as well. There have been many reports about the real-estate market being poised for a bubble burst, but if you are considering long-term prospects, real-estate still makes a lot of sense. A lot of bigger companies like Goldman Sachs have endorsed this view. Goldman Sachs recently increased its stake Indiabulls, a real estate development company in India, to 7%. The graph below summarizes the growing Foreign Direct Investment in India as percentage of the total Foreign Direct Investment, which has been 4.5% for year ending 2004, 10.6% for 2005 and 16% for the year ending 2006. Continuing at this rate, it is projected that for year ending 2007, foreign direct investment in real estate will be about 26.5% of the total USD 8 billion.
(Source: http://www.indianground.com/real_estate_fdi.aspx)
Direct investment:
Only Indian citizens, NRIs or people of Indian origin (whose parents or grandparents were Indian citizens at some point) can currently buy residential real estate in India, i.e. be sole owners. I will follow up with a post of steps involved of buying a house in India for NRIs later. Foreign investment is permitted in commercial and residential projects based on some stringent rules like:
Indirect investment:
Unlike US, there currently exist no REITs in India. For the unaware, REITs (Real Estate Investment Trusts) are like mutual funds, but the underlying asset is real estate as opposed to stocks or bonds. REITs in US are involved with buying, selling, operating and managing income producing real estate like apartment complexes, shopping centres, offices and warehouses. The advantages or REITs are many including more liquidity compared to actually owning real estate, and permits small investors to participate in the real estate boom. REITs were approved by the Securities and Exchange Board of India (SEBI) more than couple years back, but its taking a lot of time to put all the financials and accounting in place for the same. Some entities like HDFCICICI-Tishman Speyer, Ascendas India IT Park Fund, Kotak MahindraIDFC, and Edelweiss Capital have received approval to establish REITs (Real Estate Investment Trusts) or REMFs(Real Estate Mutual Funds). Once established, I believe REITs are the best way for small investors to invest in Indian real estate.
Along with the Indian economy, Indian real estate has skyrocketed in the last 5 years. More and more people are shifting upwards from low-income to middle class, and where do you make a sensible investment for virtually guaranteed results over time? - real estate of course. Residential properties in Mumbai have reported real-estate appreciation of about 30-40% or more over the last 5 years, while cities like Bangalore and Hyderabad have reported an appreciation of whopping 60-80% as well. There have been many reports about the real-estate market being poised for a bubble burst, but if you are considering long-term prospects, real-estate still makes a lot of sense. A lot of bigger companies like Goldman Sachs have endorsed this view. Goldman Sachs recently increased its stake Indiabulls, a real estate development company in India, to 7%. The graph below summarizes the growing Foreign Direct Investment in India as percentage of the total Foreign Direct Investment, which has been 4.5% for year ending 2004, 10.6% for 2005 and 16% for the year ending 2006. Continuing at this rate, it is projected that for year ending 2007, foreign direct investment in real estate will be about 26.5% of the total USD 8 billion.
(Source: http://www.indianground.com/real_estate_fdi.aspx)Direct investment:
Only Indian citizens, NRIs or people of Indian origin (whose parents or grandparents were Indian citizens at some point) can currently buy residential real estate in India, i.e. be sole owners. I will follow up with a post of steps involved of buying a house in India for NRIs later. Foreign investment is permitted in commercial and residential projects based on some stringent rules like:
- Minimum capital requirement of US $10 million if the company is involved by itself, or US $5 million in partnership with an Indian company
- Once the partnership or subsidiary is formed, capital must be brought into India within 6 months
- No repatriation before 3 years on initial investment, unless approved by the Foreign Investment Promotion Board.
Indirect investment:
Unlike US, there currently exist no REITs in India. For the unaware, REITs (Real Estate Investment Trusts) are like mutual funds, but the underlying asset is real estate as opposed to stocks or bonds. REITs in US are involved with buying, selling, operating and managing income producing real estate like apartment complexes, shopping centres, offices and warehouses. The advantages or REITs are many including more liquidity compared to actually owning real estate, and permits small investors to participate in the real estate boom. REITs were approved by the Securities and Exchange Board of India (SEBI) more than couple years back, but its taking a lot of time to put all the financials and accounting in place for the same. Some entities like HDFCICICI-Tishman Speyer, Ascendas India IT Park Fund, Kotak MahindraIDFC, and Edelweiss Capital have received approval to establish REITs (Real Estate Investment Trusts) or REMFs(Real Estate Mutual Funds). Once established, I believe REITs are the best way for small investors to invest in Indian real estate.
Labels: india investment, Indian REIT, Real estate in India, REIT
posted by Bini at
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