Indian Trade Winds Blow Across The Pacific
For people of India’s richly complex culture, entrepreneurship has long been an important facet of upward mobility. Traditionally India’s tiny middle class was rooted in small business, solo or family operations in the trades or markets. Savings were scraped together to send family members to other parts of the globe where they often restarted their lives as entrepreneurs.
Indian immigrants have flourished in the U.S. and Canada. Today they are the youngest, fastest growing, most highly educated and highly paid ethnic group. Meanwhile, back in India, the newly booming middle class have been saving at a staggering average rate of 35 percent of household income. Increasingly they invest abroad, and U.S. properties are attracting their attention.
Targeting the U.S.
As Indian investors flex their financial muscle globally, U.S. properties are coming into their headlights for a number of reasons:
ROI: Prices have bottomed out in certain markets and offer a good probable return over the next five to seven years.
Safety: U.S. properties tend to have stable yields that should provide a hedge against inflation during global economic uncertainty.
Value: Residential and commercial properties in major U.S. cities are much less expensive than leading cities around the globe.
Interest Spans all Sectors
Regardless of where they now live, Indian investors are purchasing residential and commercial properties in the U.S., Canada and elsewhere with an eye for appreciation. “Indian investors are motivated to buy in the U.S. because properties are more affordable than in India and the security of U.S. regulations makes it a safer investment,” says Baro Shalizi, CIPS, founder and broker of Shalizi Real Estate in Santa Fe, New Mexico, and NAR President’s Liaison to India.
India’s ultra-wealthy, like the top one percent everywhere, are eyeing luxury properties as second homes in other countries. These properties aren’t just status symbols. They’re also great values compared to similar Indian homes. For example, the average price per square meter of a home in Mumbai’s Cuff Parade area is about 40 percent higher than a comparable property in New York City.
Ease of travel is a factor in choice of cities. “Direct flights are very important,” says Shalizi. “They want convenient transportation and tend to look for second homes in New York, Chicago and Los Angeles, as well as London, Singapore and Dubai.” This group also tends to buy homes and condos for their children completing their higher education or working abroad.
Action in Residential Property
Individual investors of all budgets are interested in condos and apartment buildings. Entry-level investors with budgets around $100,000 are finding attractively priced condominiums with strong rental demand in Arizona, Southern California and Florida. Those who have less savings are pooling funds with others to buy into these markets. When an initial property starts generating cash, more purchases follow.
Wealthier investors are buying apartment complexes. Comparable properties in major Indian cities have skyrocketed in the last decade and tend to generate much lower yields. “In India, laws favor tenants which affects yields. Evictions are especially difficult,” says Shalizi.
Office and retail space is a big draw for individual investors and Indian companies looking abroad. Individuals looking for commercial space often gravitate toward retail storefronts. Lessees tend to be small retail businesses, sometimes with Indian owners.
Larger investors may be attracted to property in the $3 to $5 million range. Single tenant buildings with long leases generate fairly stable cash flows over the term of the lease. Through funds and real estate investment trusts, they also invest in substantial commercial properties.
Over the last decade, many U.S. companies have relied on outsourcing certain business functions to India. The latest business trend is “near sourcing.” Indian companies are trying to bring their services physically closer to their customers. Some Indian call centers and firms specializing in back-office operations are placing as much as a third of their workforce in U.S. locations. So far, most U.S.-based employees have relocated from India.
Mumbai-based Aegis Communications has set up call center operations close to clients on Wall Street and in Dallas. Tata Consultancy Services is ramping up its North American presence in data centers and plans an employee base of 10,000 in the U.S. The new jobs will create residential and commercial sales opportunities for global agents.
Other types of Indian businesses, particularly in the service and information technology sectors, are expanding into North American markets and looking for space. If your local market includes a high-tech corridor, consider investigating this segment.
Niche Markets: One Example
Most Americans probably don’t know that the U.S. hotel and motel industry is dominated by Indians. In the 1940s Indian immigrants began buying small motels and running them as family businesses. Today, Indian immigrants and Indian Americans own over 40 percent of the hotels and motels in the country, accounting for nearly two million rooms and property values in excess of $100 billion. Most are in the budget segment.
Small beginnings have grown into some very large companies. Indians are among the largest franchisees of major chains like Hilton, Sheraton and Marriott Hotels. Indian conglomerate Sahara India Pariwar Ltd. recently made an unsolicited $600 million offer to acquire the New York Plaza Hotel, but was not successful.
Areas attracting a large number of tourists tend to have many motels and budget hotels. If your market is in one of these areas, be aware that lodging properties might be a good fit for Indian buyers.
Traveling to India is one of the best ways to reach out to buyers and real estate professionals there. Here are two efficient ways to go about it.
Attend NAR-India’s Annual Conference.
NAR-India (NARI) was formed five years ago to bring professionalism, education and a code of ethics to agents operating in India. Though still in its formative years, the organization sponsors an annual expo which has grown from a handful of people to over 1,000 attendees. It’s a great venue for learning about the Indian market, its business practices, making connections with Indian real estate professionals and meeting prospective buyers. To get a jump on the event, contact Accredited Buyers Representatives (ABR®s) and International REALTOR® Members (IRMs) in India to prearrange meetings. (See page 6 for more details.)
Go on a trade mission to India.
Many U.S. states are courting Indian companies and investors. For example, Virginia’s Governor and economic development officials recently conducted a major trade mission to tout its educated workforce, large Indian community and quality of life. The state is establishing representative offices in Mumbai, New Delhi and Bangalore. In place of tax benefits, Virginia will offer cash incentives to Indian businesses based on capital investment and number of jobs created in the state. Find out if your city, state or province is promoting itself or already has offices in major Indian cities and join the effort.
There’s a world of difference between Indian and American social customs and business practices. Shalizi believes agents who adapt themselves to Indian customs and go with the flow will be more successful than those who don’t. “Your Indian buyers are the customer, so strive to show yourself in the best possible light from their point of view.”
Stay professional. In meetings, hierarchical social relationships are observed. Don’t be overly casual or too friendly. High status individuals speak first and those of lower status show deference and listen. Disagreements may not be expressed, but are dealt with later.
Don’t talk business too soon. In this high context culture, there are socially standardized patterns for getting to know clients. A relationship will start with establishing common ground socially. This could be done through conversations about sports, movies and family. Trust and comfort must be established before business is done. Also, do not discuss business during meals unless the client initiates it.
Be accepting when your clients are late. Indians operate on a different concept of business time. Though meetings are scheduled, it is common for participants to be late. You should always be on time and not show irritation when your Indian clients are late.
Understand that family and friends take priority. Social and family obligations override business commitments. If a client has to miss a meeting because a family friend has an emergency, gracefully express your understanding of the situation. Do not view it as a comment on your abilities or your relationship with the client.
When it’s time to show your Indian clients properties on your home turf, be cognizant of differences in real estate business practices. The more your clients know what to expect, the better you can manage the process. For instance, listings are not exclusive in India. Indian clients expect to have to work with many agents to see properties. “You can’t just tell your Indian buyers that it works differently here,” says Shalizi. “You have to prove it. Show them the MLS, let them pick out properties and then take them on showings of other agents’ listings.” Do not be surprised if they still try to shop around.
Also understand that in India, transactions and agreements are often done verbally. You will need to educate your clients about the importance of real estate contracts and how purchase offers and counteroffers are used to complete negotiations. Explain that in the U.S. and Canada, real estate contracts fall under the Statute of Fraud and must be in writing to be enforceable.
If you work with Indian agents you may find them very hesitant to disclose any information about their clients. “I got a call from an agent in India who had a client interested in buying commercial property anywhere in the U.S. remembers Shalizi. “However, I wasn’t able to work with him because he wouldn’t tell me anything about his client or his needs.” Remember that the lack of exclusivity in agency relationships in Indian real estate transactions fosters this type of behavior. Still, if the agent will not reveal enough client information to allow you to proceed, feel free to step away.
Working with Indian clients will introduce you to a fascinating culture that is both ancient and fast-moving. Interactions can become warm and rewarding and earn you many referrals. Developing strong relationships and cultivating one or more niche opportunities can lead to substantial growth in both inbound and outbound transactions.
Quick Facts about Indians in North America
- Indians are the fastest growing major ethnic group in the U.S. and Canada.
- In the U.S., Indians are the most highly educated ethnic group; in 2010, 67 percent of adults had Bachelor’s degrees.
- Indians are the youngest ethnic group in the U.S. with a median age of 31.7 years.
- In the 2010 U.S. census, Indians had the highest average household income at $90,711 versus $50,046 for the total population.
- In Canada, over 70 percent of Indians live in the Toronto and Vancouver areas.
- In the U.S., nearly half of the Indian population lives in California, New Jersey, New York and Texas.