MUMBAI: A big garments exporter in Mumbai wants to invest his kitty of Rs 50 crore somewhere, but neither does the stock market have appetite, nor is gold cheap. His only other option is real estate, but in Maximum City, yields are falling sharply. So, his wealth manager has now advised him to invest in properties in Adayar — some 1,300 km away. Adayar, in south Chennai, is one of the southern city's most expensive neighbourhoods.
It has given a return on real estate investment of a whopping 110% in the last five years. If you had invested Rs 1 crore in an apartment in 2008, it would now fetch you over Rs 2.2 crore.
But hold your breath, analysts say prices haven't peaked yet — houses in Adayar will become even pricier over the next few years. "Chennai has overtaken Mumbai in our portfolio this year," says Deepak Parekh, chairman of India's biggest housing lender HDFC Ltd BSE 5.41 %. He adds that the city has not only been a consistent performer in recent years but is also expected to boom further.
"Chennai has fast developed into a manufacturing hub. Carmakers like Ford, Hyundai and Renault-Nissan and as well as several other industries have set up factories here. But now, we are seeing large telecom and IT industries also making big investments creating more opportunities in the city.
All these will lead to high growth in home demand and prices will shoot," he points out. Adayar is among several such micro markets around the country, where investors could chose to invest their money now and rake in the moolah when the tide turns.
Analysts say that if one has the money, he or she should look at options like Adayar, Baroda, Surat, Gandhinagar, Rajarhat in Kolkata, micro markets in Pune like Kharadi and Hinjewadi and new emerging locations in NCR to invest as they are now available at lower prices but will boom once the economy settles. "Buy properties between Diwali and Gudi Parwa when the markets will bottom out.
There will be a big pick-up possibly after elections," says Sanjay Dutt, executive managing director of South Asia at Cushman & Wakefield, a real estate consultant, which advises large builders and real estate investors. Some of these micro markets such as Adayar and Velachery in Chennai logged the best returns of around 100% over the last five years. Places in south-central Delhi have seen prices going up by 114%. Pune's Koregaon Park and Aundh, where prices have risen 75%, still offer options for value investors.
"Though they have been growing very fast, prices here have still not yet peaked," Dutt adds. In many of these markets, ET had reported on Monday, prices have softened by around 10% in the past six months. Dutt says that correction in few markets has already started in northern cities. "In Mumbai, we see a possibility of correction in Lower Parel, Sewri, Kurla-Mulund belt and Goregaon.
But these will be short windows of opportunities and may last for a few months." Those who invested in real estate in these micro markets in 2008 made more money compared to investing in stocks or gold. Bombay Stock Exchange's 30-share benchmark index, Sensex, rose a mere 16% during this period. Gold may have given over 155% returns over these five years, but performance over the last two years stands at 17% against an average 20-50% jump in property prices. "These property markets, particularly Chennai, NCR and Pune were under-priced and had to catch up with rest of the markets that had already moved up.
Residential market across the country has seen a steady rise in prices in the last five years as demand-supply equation continued to be in favour of demand," says Anuj Puri, chairman of property consultancy Jones Lang LaSalle India.
Puri believes that the story of tier II and III markets such as Indore, Kochi, Chandigarh has not panned out well and, therefore, one should continue to consider safer markets like Bangalore, Mumbai and National Capital Region where there is fair amount of economic activity playing out.
"Investors and buyers will now start dissecting the inventory data further by looking at ready and under-construction apartments. Under-construction properties are now available at 15-25% discount as the risk is being priced in and this is a good opportunity that needs to be looked at," Puri says. New projects are likely to be launched at a discount, according to experts, and a correction induced by these launches, is likely to offer a good opportunity for buyers. "A 10-15% correction in certain pockets of Mumbai in 3-6 months from now on, which is a possibility, will be a big opportunity for buyers.
Such a correction in a high-value market will be very large. This window of opportunity should be grabbed immediately as it may not last for more than three months," said Cushman & Wakefield's Dutt. According to Sandeep Madan, a New Delhi-based high net worth individual who invests in real estate projects, locations around Yamuna Expressway and the stretch from Delhi airport to Najafgarh will offer best returns over the next 5-7 years.
Local factors like growth in infrastructure, employment opportunities, saturation levels and affordability will continue to dominate the demand scenario and this applies to markets that have performed nicely so far as well.
According to experts, Chennai property markets has gained on account of Telangana issue that saw many IT companies moving from Hyderabad and thereby pushing residential demand and prices higher. Locations like Adyar have seen the emergence of an IT corridor and the efforts of the state government for a special economic zone there. Pune, on the other hand, is high on investors' mind in the backdrop of ever-expensive and unaffordable Mumbai market.
Realistic property prices in these markets have helped in fuelling demand from both endusers and investors alike. "If you compare Chennai with Mumbai, prices are much more realistic which has contributed to the consistent demand. Add to it the rise in infrastructure facilities, which has prompted many companies setting up their base here, " says Ganesh Vasudevan, chief executive officer at India Property Online.