Budget homes hold potential for investors in Bangalore
Properties considered must be in a location where there is occupier demand either now or in the foreseeable future
Aug 09, 2013
Source : The Times of India


BNAGALORE: With Bangalore registering a significant growth in terms of the area of the city and its population, the residential segment has expanded to include more offerings for endusers and investors. Budget homes are slowly coming into the limelight with their reasonable pricing and ideal location – in areas where commercial and industrial development is taking off.

Alexander Moore, Chief Executive Officer – India, LJ Hooker, says, “Budget homes work as a good option to invest in as with buyers there are generally more tenants available at this end and of course there is a greater capacity for a larger percentage increase in capital value (because of the low ticket price). So, a better internal rate of return (IRR) for those looking at a buy/sell option. Properties considered must be in a location where there is occupier demand either now or in the foreseeable future”.

Budget homes — a perspective 
Research by Cushman & Wakefield shows that majority of affordable housing options are located in the peripheral areas. Affordable options in Bangalore north are predominantly two and three bedroom apartments with areas ranging from 700 to 1,200 sqft and an average price of Rs 3,000-3,300 per sqft.

Bangalore south offers budget options with one, two and three bedroom apartments having an area ranging from 695 to 1,210 sqft and average price of Rs 2,500-3,000 per sqft. Bangalore east has budget options with one, two and three bedroom apartments with ticket sizes in the range of 500 to 1,230 sqft in an average price bracket of Rs 2,800-3,200 per sqft. Bangalore west has two and three bedroom apartments having areas between 880 and 1,240 sqft with an average price band of Rs 2,800-3,100 per sqft.

Kalpana Murthy, Associate Director – Residential Services, India, Cushman & Wakefield, explains, “Owing to the city’s fast-expanding limits, the affordable projects located in peripheral areas are expected to register double-digit growth in the next two to three years. However, since some of these locations are still in a nascent stage of infrastructure development, the average rental values are anticipated to remain lower in the mid-term. Nevertheless, over a period of time, with the development of these areas, the properties will fetch better rentals.”

Dynamics of investing 
The general consensus is that better connectivity, infrastructure development and quality of construction are factors to consider. Irshad Ahmed, President, Bangalore Association of Realtors – India (BRAI), says, “The first factor that an investor looks at is appreciation potential. Unless there is good road connectivity, development of infrastructure and a range of options with credible labels, there are lower chances of strong appreciation.”

Moore adds, “The appreciation potential that an investor can expect from a budget home in the long term is probably at around 120-150 percent of the general residential market. If it is a smart buy in an area of good growth, it could be much higher than this. Cash returns from rent would generally be more than 20 percent higher than the standard residential rental market and the long-term growth percentage is normally much better due to the low base point.”

Areas with potential 
 According to Irshad, “A good price band for an investor to look at is around Rs 2,500 per sqft in the budget homes category, with chances of 20-25 percent appreciation. Areas to look at investing in budget homes are Whitefield and Bangalore north, Hoskote Road/Old Madras Road and Hennur Road.”

“The prime take-up areas are still the south-east and north-east, so either of these areas can be considered by an investor. In the short term, the south-east will probably perform better, but in the longer haul the north-east will work out well. This is due to the fact that the majority of employment hubs are still in the south-east and it is the employment here that drives the residential demand. The closer to connectivity and employment hubs the property is, the better it will sell and the better the investment value will be,” Moore states.

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