Indian Real Estate: Perpetual Boom

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Indian Real Estate: High Yield Enticement

Real estate prices in the country have been skyrocketing for more than eight months. In various cities and different segments of the property market, prices are rising stridently, ranging from 15% at the stumpy end to 40% for high-demand properties. Real estate prices in India are looking fairly upbeat, as an investor or an end-user looking for the ideal city to call home or base a new business venture, fairly away from the reach of many except for a few of Fortunes Favourites. The last year has observed a doubling-up in the capital value of real estate in most cities, and grippingly the increase was not restrained to developing suburbs, but saturated areas as well, with their limited choice options. Real estate and property consultants continue to predict upward swinging land prices affirming the boom as a stable long-term trend. They attest there are more end users rather than speculators and short-term investors, who are snapping up deals for a room with a view. In large part, it is, also, driven by IT / ITES and foreign direct investment, as in the case of EMMAR-MGF’s ambitious project scheduled to come up in Mohali.

A brief overview of some metropolises might help discern the city that offers the optimum ot investors.

Chandigarh

Retail sector booming, Rajeev Gandhi Chandigarh Technology Park attracting IT professionals, stalwarts like Infosys, Dell, Netsolutions, Second Foundation, Seasia, Spectramind, Wipro, Convergys presenting curiosity, propinquity to the NCR, property prices in Chandigarh, Mohali and Panchkula are rising fast, a trend that maintains an upward trajectory. With a rare combination of advantages i.e. cheap and plentiful supply of labour, well-developed real estate, good environment, excellent infrastructure, adequate power supply and transport facilities, quality of life in Chandigarh is exceptional. And, excellent salary packages coupled with good quality of life will, undoubtedly, attract businesses and professionals to the city, not averse to paying a little extra for living in the city, thereby fuelling a substantial rise in Chandigarh, Mohali, Panchkula property prices in 2006. If Mohali develops along the scale of Gurgaon, one can expect a price hike of as much as 18 to 23% in the coming years. In order to exploit the cash rich pockets of young professionals working in the IT sector, several malls are being planned, which will lead to a further escalation in property prices in the region.

Tidier and exceedingly more livable than any other Indian city, the Chandigarh real estate market is peaking, while scaling new price highs every day. Escalation of land costs by almost 40% in the last few months is mostly due to high IT / ITES demand, as well as, the enforcement of the Punjab Apartment Ownership Act in Mohali this year. Despite a 100% price hike, Chandigarh remains a hot option with NRIs, making buying property in its prime sectors akin to looking at Delhi’s Jorbagh or Aurangzeb Marg. Although saturated with limited options, yet Chandigarh real estate prices continue to increase by 10% each month.

The high demand for real estate sustained by a shift towards nuclear families, has resulted in Mohali and Panchkula seeing a 25 to 40% rise in the last few months, ever since the implementation of the Punjab Apartment Ownership Act. A 500-yard plot that was going for Rs. 70-lakhs in April is now selling for Rs. 1.30-crore at Mohali.

With a promise of high returns, investors and developers have been circling like sharks snapping up large chunks of land in the peripheral regions of Chandigarh, Mohali and Panchkula. It remains to be seen whether an excess of supply works towards lowering the costs. In the end, real estate prices in the Tri-city area will ultimately hinge on the quality of development and infrastructure.

NCR

Saturated with virtually no land space available for building, Delhi is experiencing a rising demand for flats, and prices in Rohini, Pitampura and Mayur Vihar have doubled within the span of a year.

Gurgaon, part of the NCR is undergoing a severe supply crunch as present and future development supplies are drying out with most of them already committed. Some of the recent acquisitions of office space have been transacted by Ciena, Dell, Regus, ESPN, new players in Gurgaon real estate.

Greater Noida is experiencing increased activity in Sectors 56 – 64 due to the finest infrastructure in the country, its IT hub. With the new expressway providing easy access to Delhi and top quality facilities ensure Greater Noida as one of the fastest emerging preferred destinations for HCL and other major IT firms. An in place infrastructure i.e. roads, housing, water, electricity, relatively low real estate costs, large tracts of land available for built-to-requirement, campus style developments, Greater Noida is the new IT destination.

In Delhi, though, retailers are opting more for high-street locations as a majority of the mall space is under planning, the Colliers Jardine survey reported. The concentration of malls is mainly seen in Gurgaon, Ghaziabad, Indirapuram, Vaishali and Kausambhi. By end ’07, the NCR Region is expected to have as much as 18m sq ft of running shopping malls, the report predicted.

Bangalore

Bangalore, India’s Silicon Valley, continues to retain its popularity as the best place to set up shop for IT companies, and as more of them flood in, they are fuelling the demand for housing and retail development. Bangalore strengths include a large base of education and research institutions, telecom connectivity, quality of life, better state policy, availability of good office space, positive perception among investors and its wonderful weather! Bangalore still ranks Number One (amongst the metros) within the ITES space take-up (over 3 million square feet in the last six months alone!) The city has leveraged the prowess of its IT industry to emerge as the leading ITES-BPO destination in India. Continuing to attract investors, Bangalore has managed to lure Vancouver-based Royal Indian Raj International Corporation into investing a staggering $2.9-billion in a single real estate project appropriately called Royal Garden City. Furthermore, land prices have seen a 75 to 85% since builders shifted focus to Bellary, Surajpur and Outer Ring roads. The continuing demand for large office space by IT / ITES, off-shoring / outsourcing, financial services and banking sectors is adequate testimony of their long-term commitment to the city. It is a promise that the real estate market in Bangalore will continue to boom as long as global firms remain smitten with its charms.

Mumbai

Mumbai real estate retains its position at No. 15 of being one of the most expensive real estate in the world either in terms of both rental and capital value, more so than either Manhattan at No. 20, or Delhi at No. 32. As multinational banks, financial institutions and consulting firms flock to India’s business and financial hub. Mumbai’s real estate is likely to appreciate 5 to 8% and 7 to 11% in the suburban areas in the coming year. The present scenario of more supply than demand can be expected to change with a growing internal population due to an influx of migrants looking for employment opportunities. The Supreme Court ruling on mill lands purchased by developers ensures there will be no oversupply of developed land for next two years, and prices will continue to retain their current levels. As for commercial properties, Nariman Point is re-surfacing with prices surging more than 80% i.e. Rs. 15,000/- per sq. ft., with a further, 20% hike in 2006.

As long as India is seen as an attractive investment venue by global and domestic players, real estate in India will maintain its edge as a high return asset. The story of commercial real estate has shifted away from the big cities, as Pune, Hyderabad and Chennai have come into the limelight in the past six months, said the half-yearly property survey by Colliers Jardine. “Central Business Districts (CBDs) of most metro cities have been out-performed by suburban locations where new stock is being developed for IT/ITeS companies as per their requirements. This new stock is represented by grade ‘A’ quality buildings, larger floor plates with higher efficiencies, ample car parking with prices ranging from Rs 20-40/sq ft per month,” the report said.

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