Comparing investment potential in Indian vs US real estate markets (2024)

Over the last several decades, real estate has been considered a very safe and stable option to park hard-earned savings. As a standard, across the world, real estate is always going to escalate in value, and over time, as the global economy continues to evolve, investors are increasingly exploring opportunities beyond their borders. Two prominent destinations that attract significant attention because of the rapid escalations in value across each country are the Indian and US real estate markets. According to industry reports, India witnessed a 5.9% rise in real estate prices in the last 12 months in Q3 2023 and climbed 18 spots up to 14th rank in the global house price index in Q3 2023. So what are the key factors that influence these markets and compare their investment potential?

As we look to evaluate the real estate investment opportunities in both markets, it is critical to start right at the top by trying to understand the economic dynamics of each country. The United States boasts a robust and diverse economy, supported by a stable political environment and a well-established legal system. The Indian economy, on the other hand, is marked by rapid growth and a large population, making it an emerging market with immense potential. However, it is also characterised by regulatory complexities and occasional economic volatility.

Keeping the above facts in mind, the US real estate market has demonstrated consistent appreciation, particularly in major cities and desirable neighborhoods. The diverse geography of the US allows investors to choose from a wide range of markets, catering to various preferences and risk appetites across cities like New York, Los Angeles, and San Francisco with newer attractive markets like Dallas, Chicago, and Atlanta, among a host of others all making their presence felt when it comes to safe investment options in the US real estate environment. India, on the other hand, with its burgeoning middle class and urbanisation, presents significant growth potential in its real estate sector. Cities like Mumbai, Delhi, Gurgaon, Pune, and Bangalore are witnessing a surge in demand for commercial and residential spaces. However, navigating the regulatory landscape and potential bureaucratic hurdles can be challenging for foreign investors.

One of the key strengths of the US real estate market is its transparency and regulatory framework. Investors benefit from a well-documented legal system, clear property rights, and a stable economic environment. The availability of financing options and the relatively straightforward process of property acquisition make the US market attractive to both domestic and international investors. However, the US real estate market comes with its own set of monumental challenges. Prices in most metropolitan areas can be prohibitively high, limiting entry for smaller investors. Moreover, factors like interest rate fluctuations and economic downturns can impact property values, adding an element of risk even in this mature market.

One of the primary considerations for any investor is the potential return on investment. In the US, rental yields and property appreciation have historically provided solid returns. Additionally, the mature mortgage market and transparent property laws contribute to a favorable investment environment. In India, while the potential returns can be attractive, there are challenges. Fluctuations in property prices, coupled with regulatory uncertainties, can pose risks to investors. However, the high demand for real estate in major cities can offset some of these concerns, offering lucrative opportunities for those willing to navigate the complexities. Given the volatility of the Indian rupee, a key determining factor in determining an investment destination when it comes to real estate is currency risk. Fluctuations in exchange rates can impact the overall return on investment for foreign investors. In contrast, investing in the US real estate market exposes investors to a relatively stable currency, reducing the risk associated with currency fluctuations.

It is important to remember the role that Government policies and Central Bank regulations play a pivotal role in shaping the investment landscape. In the US, property rights are well-protected, and the legal framework is conducive to foreign investment. Additionally, the US government provides various incentives for real estate investors, enhancing the overall investment climate. In India, navigating the regulatory environment can be complex, with bureaucratic procedures and sometimes ambiguous policies. However, recent initiatives by the Indian government, such as the introduction of the Real Estate (Regulation and Development) Act, aim to bring transparency and accountability to the sector, potentially mitigating some concerns for investors.

Deciding between investing in either the Indian or US real estate markets ultimately depends on an investor's risk tolerance, financial goals, and understanding of the unique dynamics of each market. The US offers stability, a mature market, and transparent legal systems, making it an attractive option for risk-averse investors. On the other hand, India presents exciting growth prospects, but the regulatory landscape and potential volatility require a more strategic and informed approach. For both sets of investors, it is of utmost importance that they do their due diligence and partner with an organisation that has a good understanding of the real estate market, is transparent and has the wherewithal to navigate through the complexities to deliver the best ROI possible. In the end, diversification may be a prudent strategy for investors looking to balance risk and reward. Combining investments in both the Indian and US real estate markets could provide a well-rounded and resilient real estate portfolio, capturing the best of both worlds.

(The author, Sumi Rengaraj is Co-founder of Ashton Gray. Views are the author's own)