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India's Property Market Booms Along with Its Economy


India's property markets are booming, driven by a rapidly expanding economy and a growing middle class.

Thirty-five-year-old software engineer Ranjana Kumar took a bank loan last year to buy a 139 square meter apartment in Gurgaon, on the outskirts of Delhi, for $100,000. She is happy with her investment, the price of the apartment is up 50 percent.

Despite a dizzying rise in real estate prices, India's growing middle class is continuing to snap up new homes, and the average age of a homeowner is down, from 45 a decade ago to 32 today.

K.G. Krishnamurthy, managing director of the HDFC property fund, says higher pay packages and easier housing loans are fueling the demand.

"You spend five years' salary and you can own a home today, whereas 17 years back you need to have 22 years' salary to own a home… Affordability has gone up, there are tax benefits, incentives given by the government, interest rates from housing finance institutions have reduced," he explained.

The real estate boom is not confined to residential property. In the financial hub of Bombay, prime commercial plots on which defunct textile mills once stood have sold in recent months for prices that have amazed even seasoned property developers. For example, a two-hectare plot of land was snapped up for more than $100 million.

Much of the construction boom is centered in the technology centers of Bangalore, Bombay, Hyderabad, Chennai and Gurgaon.

Mr. Krishnamurthy says it is estimated that India's booming information technology companies will require nearly 6.5 million square meters of space in the next five years, and their employees will need a range of services.

"In the last three years, the real estate industry is on an IT trail, because there is a huge demand for space from the software industry, and the call-center operators…There is also going to be a demand for housing, demand for retail space, followed by health care, followed by the hospitality industry," added Mr. Krishnamurthy.

Demand for retail space has already increased. Three years ago, India had just three shopping malls. Over the next three years, investors are planning 250 glitzy new centers that will include entertainment complexes and multiplex cinemas.

In February this year, India eased restrictions on direct investment in the property market, allowing foreign companies to establish subsidiaries or joint ventures to develop property. Since then, at least half a dozen foreign builders have launched construction projects.

But much of India's real estate market remains disorganized, and consultants say rent control laws and other regulations may hamper growth. Some developers are also warning that property prices are due for a correction.

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