Real estate in India looks really inflated to me. Two data points – one in Mumbai on very expensive flat in South Mumbai and another on a more modest flat in the Chennai. The annual rent on both is between 1.5 and 2% of the price of the flat. Yields on Indian government 10 year notes, is currently close to 8%.
One can draw two conclusions from this:
– It is far, far better to rent than to buy real estate in India. On a 2 cr. apartment the difference between buy vs rent is 12 lakhs per annum (and the peace of mind that GoI bonds give you)
– People who buy real estate at these prices are counting on capital appreciation and definitely not rental income. How much higher can it get?
On the other hand, in So Cal, a friend who thinks it is a good time to buy real estate in California, is making 8-10% just on rent (after costs).
Maybe those Mumbai fat cats should think about investing in California real estate. A much better long term bet, good rental yields and easy to manage long-distance.
I wonder if there is the makings of a business in channeling this investment from emerging markets with super high real estate prices to developed economies where post the financial crisis, real estate is quite depressed.