People have always preferred investing in real estate over any other investment means for the longest time. Whether you are in the US or India and considering investing in real estate, both have pros and cons.
In this article, we have decoded us vs India real estate market conditions and brought out the differences and the similarities between both.
US vs India Real Estate Market
There are several attractions while investing in real estate, both in India and the US. Factors like liquidity, progressive appreciation, and lower risk are among the top contributors to elevating the popularity of real estate investments.
Typically, one can buy a residential property with an 80 percent loan-to-value ratio, making the equity margin only 20%. The loan repayment terms and tenure are structured so that the rental income covers the loan. But once the loan is repaid, the rental income is the additional free bonus on a long-term basis. Liquidating the investment also garners great capital gains.
Thanks to all these benefits, an average US citizen ideally prefers investing in residential real estate. However, this is not the case with Native American citizens. In fact, as per the data, the Chinese, Indians, and Mexicans are way more invested in real estate than their US counterparts. Schemes like the Liberalised Remittance Scheme (LRS) under the Foreign Exchange Management Act (FEMA) and the conducive regulations from the RBI for Indians have made it further easier to invest in real estate. Due to this, Indians are now the third to fifth largest investors in the US real estate markets.
How Different Is India’s Property Market from the USA?
The common consensus is that the US real estate market is better than in India. Let’s see how different is India’s property market from the USA and the reasons that contribute to this conclusion:
Capital scarcity and high interest rates in India ideally mean higher RRR. But this is not the case. The average rental yield is as low as three percent compared to seven percent in the US.
The difference in the percentage of people living in rented apartments in the US is much more than in India. About 78% of people residing in New York rent an apartment, as compared to only 30% of Indians living in rented apartments in India.
This furthers that the residential investments in the US are more, particularly by Indians living in the US. To put this into more perspective, here is a table with data on the US vs India real estate market.
| Particulars | New York | Mumbai |
| The average cost to buy(in INR) | 3,99,60,000 | 1,75,00,000 |
| Loan Amount | 3,19,68,000 | 57,31,250 |
| Loan To Value (%) | 80.00 | 32.75 |
| Interest Rate on loan per annum | 3.80 | 6.50 |
| Loan Tenure | 15 years | 15 years |
| Monthly expected Rent | 2,33,470 | 50,000 |
| Monthly EMI | 2,33,272 | 49,925 |
| Annual property appreciation (%) | 2 | 3 |
| Property Value by Loan End | 5,37,80,899 | 2,72,64,430 |
| Total Period Return (%) | 573 | 132 |
Difference between the US and Indian Real Estate Market
While we have learned how investing is different in the US vs Indian real estate market, it is also essential to know how different the two markets are. Let’s look at how different is India’s property market from the USA:
1. Interest Rates
The interest rate in the US is much lower than in India. Home loans are at a historical low but still are 6.5%. The different interest rates can be attributed to the differences in economies. One is a mature economy, while the other is emerging. While mature economies tend to have lower growth and inflation rates, the interest rates are also lower.
2. Maturity
Real estate in the US is a mature economy as it started as early as 1960. This makes it a well-developed investment pool and regulations in place. The average American with a job was able to afford a home. The price is much more competitive as they are not building new towns or districts. According to the reports, we will need more buildings in India in a decade. We are on the journey to get the aspirational first-time buyer in India now.
3. Real Estate and Financial Market Exposure
REIT also is a major factor in determining how different is India’s property market from the USA. REIT markets are bigger in the US compared to India. Indian REIT’s total market cap is $8B, while the US market cap for REIT is $1.6 Trillion. Many financial products are based on Real estate, for example, mortgage-based security. Penetration of financial services is much deeper, like refinancing and NBFC.
4. Implications
Since the average US REIT was under 4%, many PE investors from the US and even worldwide invest in commercial real estate in India.
Indian real estate is more into selling newly made properties. The higher return is also a big cause for these foreign investments in India. The return disparity is high.
Similarities between US and India Real Estate Markets
As much as there is a difference between us and India’s real estate market, there is also a big area of similarity. Let’s delve to learn more about that:
- Buying real estate is not very affordable for a common-earning man, both in the US and India: Property rates are not cheap because of the limited supply and new regulations from the government in either country.
- The disparity between demand and supply: The demand for affordable homes is much higher than the higher-priced units in both countries. While buyers are more willing to buy properties in a middle segment, builders focus on expensive units.
- Unbalance price-to-income ratio: The price-to-income ratio has been increasing in the last few years. The homes are valued about five times more than the average household income in both countries.
- Painful loan/ mortgage process: It isn’t easy to get a loan both in India and the USA. Off late, lenders carry an extensive background check before lending off any loan amount. With higher interest rates, it is becoming increasingly difficult to get credit.
- High Inventory pile-up: As buying is becoming more expensive, the unsold house stock is high in both India and the US. As per the data, the number of unsold homes has been at an all-time high since 2015-2018, indicating that real estate agents are sitting on high unsold inventory stock.
