India is now a real option for investors

Editor Note: I like to see these articles around the world as it really begins to show India as a mature investment for the average investor. In reality it isn't (yet), but as the press mounts and if the India government continues to loosen investing restrictions, it will be another legitmate option for global investors and mutual funds.

Property investment is a global business. Nicola Quinn explains why Irish buyers are setting their sights on Asia

INDIA is emerging as a major global market with a population of over a billion people, including 25pc of people in the world under the age of 25. In 2005, India displaced the US as the second most favoured destination for foreign direct investment after China.

In terms of purchasing power parity, India is the fourth largest economy in the world. The middle class is set to double in three years and increase four fold in a decade. This has resulted in a boom in the demand for retail outlets, commercial office space and residential townships. PwC Ireland's 2007 CEO Pulse Survey showed that 9pc of Irish indigenous CEOs are expecting to invest in India compared with 2pc last year. Overall, nearly a quarter (21pc) of Irish indigenous CEOs said that they would invest in Asia compared with 12pc last year.

For Irish investors looking to leverage the gains generated from Irish property to invest in overseas property, India offers exciting opportunities.

The real estate market in India is steadily growing and is expected to grow from US$12bn in 2005 to US$90bn by 2015. A number of big ticket foreign funds are already in India with many more expected to follow over the next few years.

Taking New Delhi as an example, Emerging Trends in Real Estate Asia Pacific 2007, recently published by the Urban Land Institute (ULI) and Pricewaterhouse Coopers (PwC), found that this city offers solid development and investment opportunities.

The expected increase in tourism and business travel, in addition to large-scale development plans associated with hosting the 2010 Commonwealth Games means that there is cautious optimism for the New Delhi real estate market.

The Indian Government has, in fact, recently announced a five-year income tax holiday for new hotels and convention centres which start operations in and around Delhi up-to March 2010. Emerging Trends notes that housing demand is rising in many emerging markets in Asia, due to rapid urbanisation, rising incomes and a growing middle class. New Delhi is one of the cities in Asia Pacific listed as a top market for apartments and residential properties.

Industrial and distribution sector development is taking place rapidly across India. The Indian government introduced a policy of Special Economic Zones (SEZs) in 2000. Private developers of SEZs are entitled to 100pc tax holiday for 10 years with exemptions from all taxes and duties.

A 10-year income tax holiday and other fiscal benefits are also available to businesses which operate from SEZ

We have seen greater demand for SEZ ensuring better prospects for the SEZ Developers. An industrial parks scheme has also been introduced with a view to enhancing the development of infrastructure facilities for the purpose of industrial use.

Under this scheme, the developer of an Industrial Park (including technology parks) commencing its operations before March 31, 2009 is eligible to enjoy a 10-year income tax holiday.

Foreign investors into India are permitted to invest in the real estate sector in accordance with prescribed guidelines. In our experience, investors benefit from forging a strategic alliance with an Indian partner who has experience and expertise in Indian property development.

There are significant opportunities for Irish investors and property developers both in New Delhi and other cities in India and Asia Pacific generally. However, before making any decision to invest, careful consideration must be given to tax, regulatory and legal framework.

Emerging Trends notes that assessing investment risk for projects in Asia Pacific is challenging due to the huge diversity across the region, particularly in terms of market maturity, economic development, cultural background and government openness to foreign capital.

Risks include those associated with property title documentation, market transparency, rigid government regulations, and exit strategies. However, despite these risks, with careful planning the future looks bright for 2007 and beyond for India and Asia Pacific real estate investment.

Nicola Quinn is a tax senior manager with PricewaterhouseCoopers.

She can be contacted at nicola.quinn@ie.pwc.com - Nicola Quinn