Commercial and Residential properties in India

There is a real need for new construction to keep pace with India's robust 7% economic growth. The commercial and residential real estate market in India is valued at about $50 billion now, and is expected to grow 25% annually. Rental income yields are more than 12% in India, compared with 9% in China and 5% to 8% in developed markets. Pent-up demand could increase that return. Analysts see an annual shortfall of 20 million housing units through 2011, and they say India will see 75 million sq. ft. of retail space by 2007. 3 years ago, India, with 1 billion population, had just three shopping malls. Now investors are planning 250 new centers by 2008. Some says, it all amounts to "the biggest growth story in organized retail ever witnessed on Planet Earth.

Overseas companies are taking advantage. Last February, India adopted a regulation allowing foreigners to bid on Indian construction projects without local partners. (They still cannot own property or buy and sell existing buildings.) Since then a half-dozen foreign builders, including New York-based Tishman Speyer, have launched projects. Atlanta's Portman Holdings, which helped develop Shanghai a decade ago, will open an office in Bombay by yearend. The foreigners are expected to bring the latest technology, discipline, and management systems to this nascent market.

About 70% of the new construction is for the IT industry -- whether it's tech parks for companies or housing and shopping centers for their employees. The most stunning new development is in Bangalore - Adarsh Palm Meadows, an 85-acre California-style gated community complex of commercial, residential, and IT park space. In Bombay, K. Raheja Corp. spent about $1.4 billion building a 5 million sq. ft. upscale complex called Mindspace, which includes IT back office space, residential towers and stores.

On the residential side, the increasing affluence of IT workers and more liberal bank lending has helped sustain the building boom in houses and apartments. The average age of a new homeowner is now 32, compared with 45 a decade ago, according to Kotak Property Trust. And the typical mortgage is now 20 years instead of 10. The average price of a middle-class home in Bombay has shot up 40% in the last three years.