RENT ON THE RISE
Indian cities part of increasing property prices in Asian market
BY CHRIS NELSON
India may be a developing economy, yet it is home to some of the most expensive cities in the world, according to a pair of surveys issued in recent months by Employment Conditions Abroad Ltd., an international human-resources membership organization.
The group, which has corporate offices in London, New York, Sydney and Hong Kong, ranked Mumbai the seventh-costliest city for rental accommodations in a survey released last May. The findings mirror a general upward trend in the cost of living in Asian cities, as the continent accounts for five of the world’s top-10 most expensive municipalities. Employment Conditions Abroad – better known as ECA International – ranked Hong Kong and Tokyo at the top of the list, Seoul at five, Mumbai in the seventh spot, and Shanghai at eight. New York City (three), Moscow (four), London (six), Caracas (nine) and Paris (10) make up the rest of the list.
“Comparing the cost of renting an unfurnished three bedroom apartment, ECA’s data shows that Hong Kong is by far the most expensive city, with an apartment in a popular expatriate area costing approximately $8,592 per month on average," Lee Quane, general manager of ECA in Hong Kong, said. “That’s 17 percent more expensive than the average rental price in Tokyo, which ranked second in the survey, and 150 percent more expensive than 15th-placed Singapore."
Quane attributed the runaway cost of renting an apartment or home in Asia to a number of factors, such as the lack of developable land, which has put a premium on open space and necessitated government intervention in many cities; as well as rising demand for high-end developments, as many global financial firms are strengthening their presence in Asia’s largest cities.
Undertaken annually, ECA International’s Accommodation Survey compares rental costs in 92 cities around the world. The data is incorporated into the organization’s Accommodation Reports, which ECA International member companies use to calculate housing policy and allowances for their internationally mobile staff.
Separately, Jones Lang LaSalle Meghraj – the Indian operation of Chicago-based real-estate and money-management-services firm Jones Lang LaSalle – identified five major obstacles that threaten the long-term growth of the Indian real-estate sector. Those bottlenecks, published in a report in early January, are:
* An absence of title insurance against defective titles
* Difficulty for foreign investors in finding suitable Indian partners for foreign direct investment
* Varying rules regarding land in different states
* Difficulty in executing projects due to a shortage of skilled workers
* Overheated land prices and inflated land valuations
The Associated Chambers of Commerce and Industry of India predicts that foreign direct investment in India’s real-estate market will reach $30 billion within a decade, pushing the sector’s total value to $102 billion.
Over the last decade, rental prices have increased an average of 22 percent in 57 cities, according to ECA International. Yet in other large Asian cities, such as Hong Kong, average rental prices for a three-bedroom apartment actually declined some 10 percent between 1996 and 2006. Quane attributes this trend to the Hong Kong government’s attempts to cool the local housing market during its height in the late 1990s by increasing the supply of dwellings.
This is not the case in India, where torrid economic growth has pushed up the cost of many goods and services. When coupled with the appreciation of the rupee against most major currencies, Indian cities have become substantially more expensive in recent years for expatriates, according to ECA International. The organization issued its Cost of Living 2007 survey of 300 locations worldwide last November, ranking four Indian cities in the top-200 most expensive places to live. In the rankings, Mumbai came in at number 177, up 14 spots from the year before; New Delhi rose 16 places to 178, Chennai settled at the 186th spot, followed by Hyderabad, which climbed 21 spots to number 189 on the survey. The survey ranked Bangalore the 205th most expensive city in the world – an increase of 15 places and the first time the city has fallen out of the bottom five spots in the survey.
Despite the higher cost of living for expatriate workers in Asia, ECA International projects that salaries continent-wide will outpace the global average by several percentage points, with India and Vietnam leading the way. According to ECA International’s Salary Trends Survey for 2007 and 2008, average salaries across Asia will rise approximately 7.5 percent – well above the expected global average of 5.9 percent.
India and Vietnam are expected to register the largest increases over 2006-2007 figures. ECA International projects that Indian workers will take home an average 14 percent more pay this year than in 2007, when salaries rose 12.6 percent, while in Vietnam, salaries should climb a solid 10 percent between 2007 and 2008. By contrast, salary creep among Vietnamese workers was 8.5 percent last year.
“These high increments are mainly the result of fast economic growth and widespread skills shortages, which are prompting companies to pay more for talent while keeping pace with the inevitable inflation that comes with economic development,” Quane said in the report.
