Capturing opportunities in the complex real estate terrain of India
Apr 15, 2014
Source : The Times of India


HYDERABAD: Real estate is an asset class that demands specialised skills and the complexity surrounding this sector, increases in the Indian context. Compared to the mature real estate markets in the developed nations, buyers in India need a higher degree of diligence before entering into property agreements. Issues pertain to ownership rights of the property, understanding the difference between usable area and saleable area in the absence of standardised definitions, completion of the project and receipt of the completion certificate, and so on.

Further, when evaluating multiple investment opportunities, the absence of industry standards in developer ratings, building structure comparison, price distinction across different projects and other factors, create difficulties in arriving at a direct comparative approach. In brief, information asymmetries and laxity in disclosure norms, need to bead dressed for the sector to achieve optimum potential in development and investments.

Here, we highlight a few investment hotspots across India. At JLL India, a location/submarket is categorised as a hotspot in a city, when it is emerging as a self-sustained ecosystem with development at all levels. A location focused on residential segment and low/no commercial and entertainment options, is not likely to sustain for a long time. Similarly, a commercial hub with low/no residential development is likely to cause problems for the employees, who may seek alternate residential districts in the vicinity, which can reduce the commuting time to work and therefore, is not sustainable.

In addition to the overall real estate development, infrastructure, also, plays a pivotal role in developing a location. Though all-round development requires considerable time, it lends maturity to the real estate market in the location while ensuring that, price growth is sustained over a longer time period. To put the above in context of individual Indian cities and specific locations, Powai in Mumbai, which has emerged as a well-developed suburb, has seen a steady increase in prices across all asset classes. As against this, there have been a few locations where speculative activity resulted in increased price volatility, which was later marked down considerably when real activity on ground failed to take off.

Kharghar, a suburban location near Mumbai, has witnessed such a trend in a relatively short time span. With the intent of developing it as a luxury residential hub, the local authorities announced various projects including a golf course and Millennium Business Park. Infrastructure initiatives, also, attracted investment by developers and investors in this location, which initially resulted in a sharp price uptick. Prices rose further when the international airport was announced near Ulwe, an area adjacent to Kharghar. However, with physical activity at a standstill and airport development slowing down, investor activity has seen a decline, which in turn, has led to a price correction.

Considering all the aspects, the writer has identified eight submarkets as investment hotspots, across the top seven cities in India. Notable absentees in the selection are the prime business districts, as they have achieved near-saturation levels in terms of development and hence, are not expected to either support meaningful price increments or provide a large selection of investable assets. The destinations have been selected, which are classified as either emerging or growing submarkets and are likely to be well-supported by excellent infrastructural development.

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