China Vs India: Whose Real Estate Market Wins?

June 1, 2007	(Be the first to rate this story!)  Loading ...
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There is no doubt that there are several similarities between India and China in terms of GDP growth, residential property boom, organized retail malls and improving lifestyle.  Both the countries are undergoing large economic expansion and envisage political and technological ambitions.

However, China has been leading in some developments for the past four to five years. Emerged as a significant employment channel, the real estate in China is certainly one of them. Growing by leaps and bounds, Indian real estate also continues to make rapid strides and is expected to outperform China, despite a concerted innovation drive from the latter. Indian realty is attracting large attentions from international players desiring to make large scale investments.

The fast growth of both the country’s market will further boost allied industries including metallurgy, raw materials, home decoration, electrical appliances, and finance, which will in turn the produce a pool of opportunities.

Taking a look at facts, Indian economy began to witness growth after 1990 and should not be compared to China, where free market systems started to take hold after 1978. The effects of reforms in Indian economy are now becoming apparent.

It took China 10 years to allow private ownership of real estate when the country started to allow overseas businesses to mainland China in 1978. Earlier, the entire housing was owned by the government.

The country began to invest heavily in building infrastructure, roads and tunnels after the year 1988-89. State governments used their proceedings that came from selling the land into large infrastructure development projects. This way, China stepped up its efforts to support its growth initiatives.

China is manufacturing based whereas the credit of India’s success goes to large proliferation of IT companies. Growth for India is comparatively easier with less infrastructure required for IT sector in comparison to manufacturing which actually has need for large, complex infrastructure including huge highways and machinery.

Today, there has been a rapid ramp up in development of Special economic zone (SEZ) in India. Considering the same, the Chinese model is though different from India. An SEZ in China is not a small affair.  Why there are only four SEZs in China is because the country does not consider an SEZ a part of the city but the entire cities are being considered located within SEZs.

The mode of financing the projects is different too. Real estate developers in India have just begun to explore the IPO market whereas China is more an IPO and pre-IPO market and witnessing a large inflow of real estate funds.  India does not have a much scope for pre-IPO financing and the pressure to go up into an IPO is stronger.  For that reason, several companies are making their mark in the market today.

The Chinese Government has taken high risks to boost its economic development. The country removed all restrictions on incoming foreign money which opened the ways for prospective investors from all across with major ones being Singapore, Hong Kong, and Japan.

Foreign players brought a lot of transparency and modern techniques in China real estate sector. Similar transformations are expected to happen in India as well, with large foreign direct investments (FDI) flowing into India’s real estate sector.

India seems to outshine China in terms of real estate growth prospects as China’s ability to get large tracts of land is limited. All land in China is owned by the government except a cathedral in Hong Kong which is on a long term lease.

Taking the difference on basis of property developers, India leads again. Most Indian builders such as Unitech, DLF, Omaxe, and Ansal API possess vast experience in construction and development. On the other hand, most developers are pretty new in Communist China.

India is believed to be a two speed market accommodating both large and small realty players. In China, the size of companies is more uniform which is a major reason for a stiffer competition there.  No property developer in China dominates more than 2-3 per cent of any market.

China offers low net and gross profit margins which is why most foreign investors are looking forward to India as the profitability is undoubtedly higher here. Net profit in China for listed companies is believed to be 15 to 25 per cent while in India it could be 30-40 per cent or, even higher.

News Published Under:   Real Estate Trends |

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