A Comparison with Michigan


I met one of my classmates from old times yesterday.

We spent sometime discussing the current economic situation in India and what is happening in the U.S. My friend runs a specialized software company in Michigan, U.S.A.

It was very surprising when he pointed out that he pays a real estate rental cost of just USD 1,600 per month for some 6,000 Sq Ft of decent office space in the U.S. That works out to something like INR 15 per Sq Ft per month, which is an incredibly low figure, compared to anywhere between INR 60 and INR 125 in Mumbai or Chennai. Even if I take a figure of INR 25 for the Michigan real estate, India is more than twice that figure for comparable buildings with good facilities.

My friend did say that while the costs in the U.S. are going up by some 2 to 3% per annum (I thought it would be higher), the reason for the big difference is that the Indian costs have risen rapidly over the past few years. I know for sure that high quality real estate for office buildings in Mumbai cost around INR 200 or more per Sq Ft per month. So things do seem to be out of control in terms of costing in India.

The reasons could be manifold, but it is really the matter of supply and demand. Demand for high quality real estate in India has far outstripped the supply for quite a long time now, though the supply is catching up. But costs should have come down by now. Though the market is really “soft” now, the costs are not coming down. This shows the artificial nature of real estate market in India.

I was further surprised when my friend said that he hardly purchases anything in India these days, despite the fact that the USD is ruling high at more than INR 52 per dollar. I asked him why, as I thought it would be the most appropriate time for non-resident Indians to spend their dollars in India.

But he said that even a simple good quality office shirt costs something like USD 40 in India (from Zodiac), whereas he can get a decent one in the U.S. for somewhere between USD 10 to 15. Even a better quality shirt in the U.S. costs half of what unsuspecting folks pay in a “poor” country like India.

He felt that prices of most items in shopping malls in India are ridiculously high, and he would not spend his money here but rather reserve the same for spending in the U.S.

That is not encouraging for India.

We should look at the U.S. for buying our textiles (!) but we can do nothing about real estate !!

Wishing You all a Merry Christmas (we are approaching 25th December in just about an hour from now in India),

Cheers,

Vijay Srinivasan
24th December 2011
Mumbai

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