Prime real estate prices in India expected to increase by up to 15% in 2010, according to new report

Property prices set to increase in India market

Prime property prices in India are likely to increase by 12 to 15% in 2010 as richer buyers invest in real estate, it is claimed.

India’s prime property market is being inexorably driven by demographic change with the number of households described as rich expected to rise from three million in 2003 to 11 million by 2013. Meanwhile, the number of middle class aspirers is predicted to leap even more dramatically from 46 million to 124 million.

‘The number of HNWIs in India is growing at 20% a year, second only to Singapore,’ says Pranab Datta, head of Knight Frank India in the company’s newly published Wealth Report 2010 that looks at the global property market.

After falling by 20% to 25% in 2008, prices at the top end of the Delhi and Mumbai markets are expected to return to peak levels this year as people take advantage of easy access to credit, the report says.

Although foreign residents are not permitted to own property in India, there is a huge community of wealthy non-resident Indian’s living overseas many of whom are keen to invest.

There are growing prime markets in every Indian city but south Mumbai and south New Delhi are still far ahead in terms of prices, with Bangalore, Chennai and Hyderabad the nearest challengers, according to Anand Narayayan, head of residential sales for Knight Frank India.

Developers are responding with a slew of new projects that could lead to an oversupply in Mumbai. ‘At the moment there is only one 60 storey building in the city but there are plans for 10 more,’ said Narayayan.

When markets are booming developers rush to supply the more profitable top end of the market, when the biggest story is really the huge demand for affordable housing from middle income families, says Datta. ‘We estimate that two million houses are needed by 2011, a potential market of US$66 billion,’ he added.

In terms of luxury holiday homes, Goa was traditionally the favoured destination, but many rich Mumbai residents are now buying seaside properties in the resort of Alibag two and a half hours drive south of the city or a 15 minute hop by speedboat. Five acre properties can cost up to US$10 million, says Narayayan.

Separately, real estate consultants Jones Lang LaSalle say that the property market in India has weathered the global downturn well. It says a growing middle class is leading the way and pushing up residential prices.

But India has long way to go when it comes to foreign direct investment in the real estate sectors, it adds. This is due to strict banking regulations and also the lack of a transparent investment mechanism. ‘A lot of deregulation needs to happen. An investor needs to know not just how he can bring in the money but also how to take it out,’ said Colin Dyer, president and chief executive.

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