Property prices in Mumbai have surged, with demand from Indian expats in the UAE helping to fuel the boom.
Home prices in Mumbai have increased by 66 per cent over the past four years, despite widespread forecasts of a correction in the city's sky-high rates in recent years, according to a report by Jones Lang LaSalle released yesterday.
Flows of foreign earnings into India have increased sharply and remittance companies have reported a surge of money into India from the UAE in the past year and a half, as expats take advantage of a weak rupee. A large portion of money sent back to India goes into property investment.
"There's a lot of investment [from Indian expats] going into the real estate sector," says Sudhesh Giriyan, the head of Xpress Money Business, a global money transfer company.
"All the big cities in India, the property rates are going up year after year. There's a still a lot of boom in the real estate sector in India. A big chunk of this money which goes into India gets into the real estate sector."
Total foreign earnings sent to India reached US$69 billion last year, up from $63bn the previous year and compared with $28.3bn in 2006, according to data from the World Bank. Almost a third of this comes from the Middle East, with the UAE being the largest contributor from the region, according to remittance firms.
Mumbai has a population of more than 20 million and, as India's financial capital and the home of Bollywood, has long attracted Indians from all over the country who flock to the city for work opportunities.
"In the Indian city which has for years carried the unwholesome reputation of being the most overpriced in terms of residential real estate valuations, there is no relief in sight for aspiring home buyers," says Ramesh Nair, a managing director at Jones Lang LaSalle in India.
"Over the last four years, property valuations in the financial capital have increased by an average of 66 per cent.
"All 'expert' predictions over the last three years of an imminent correction have proved to be wrong. There are a number of factors that have contributed to the rise in property prices in the city."
Availability of land has played a major role in the price increases, Mr Nair said.
"Other factors at play are the reduction in new launches over a one-and-a-half year period from the first quarter of 2011 to the second quarter of 2012 - caused largely by a slowdown in approvals for new projects - and the high interest rate scenario in 2010 to 2011," he added.
"In this period, the government - in its efforts to curb inflation - raised lending rates around 12 times."
Sunil Jaiswal, the chief executive of Sumansa Exhibitions, which organises the Indian Property Show Dubai, said that property investment in India was considered a more lucrative and stable option for non-resident Indians (NRIs) than other investments.
"The NRIs seem to have cashed in on the situation as many NRIs are even buying multiple units for investment purposes," he said.
A rising middle class and growing wealth in India have helped to fuel demand from for second homes.
"Through it all, the demand for investment residential properties and end-user homes in the country's financial capital has remained stable," Mr Nair said.
"The ever-increasing number of second home buyers within the city and the firmly entrenched - and admittedly vindicated - mindset that real estate prices in Mumbai will never go down will ensure that the stability of the Mumbai residential real estate market will continue."