Has the Indian real estate industry finally reached the threshold of a revival? Will an improved macroeconomic scenario help revive demand for real estate? Can investors now look at buying properties in key destinations across Indian cities?
As a real estate investor, you may have raised these questions several times over the past few years; the answers may sound a tad different and more reassuring now. Investors may now have a reason to rejoice as recovery in the domestic realty sector seems underway with India’s gross domestic product (GDP) growth likely to average 6.5% by 2018-19. Improved buyer sentiment and pent up demand resurfacing would gradually prop absorption of residential properties. We believe that certain key micro markets could see faster appreciation in capital values as compared with others in major cities and deliver higher returns to investors.
Bird’s eye view: spotting the right micro market Real estate investors have several opportunities to look out for, over the medium term. After witnessing stagnation during the past 10-12 months, residential property prices are likely to appreciate by a moderate 3% in 2015 and by 5% in 2016, across the top seven cities—Mumbai, National Capital Region, Hyderabad, Bangalore, Pune, Kolkata and Chennai—tracked by Crisil Research. Prices would be mainly driven up by a slew of infrastructural developments and commercial projects.
Like in the case of Mumbai, while most of the micro markets are likely to see capital value appreciation of 4% on an annual basis during 2015 and 2016, micro markets such as Thane and Kurla-Ghatkopar could witness a higher annual rise in prices in the range of 6-8%. The faster increase in prices in Kurla-Ghatkopar will be mainly be driven by improved connectivity with the completion of large infrastructure projects (Eastern Freeway, Metro Rail VAG Line, Santacruz-Chembur Link Road and Monorail Phase 1). And, in Thane, good socio-economic development will push up prices. Construction of new flyovers has improved connectivity to the main Mumbai city, both on the central and western lines. In fact, commercial development has also led to rise in demand for rented properties in and around the micro market.
In case of Pune, micro markets such as Kalyani Nagar, comprising locations such as Kharadi and Wagholi, will see a faster annual increase in prices at 6-8% in 2015 and 2016 as compared with 5% for the other micro markets. This will be driven by expected growth in the information technology (IT)/IT-enabled services (ITeS) sectors and the resultant healthy end-user demand for residential units.
Similarly, in Bangalore, micro markets such Hebbal and Whitefield are expected to witness annual increase of 5-7% in prices led by end-user preference, more participation by investors and improvement in social and physical infrastructure.
Residential demand to surge; Mumbai to lead revival
Residential real estate absorption has remained southbound since 2010, with the top seven cities seeing an aggregate demand decrease. Demand for residential properties is likely to take a hit by 4-5% in 2014. Weak macroeconomic conditions, soaring residential capital values and uncertainties on the job front and future income growth deterred property buyers. Further, rising inflation and interest rates, a wobbly political situation and stringent lending norms kept buyers and investors on a cautious mode.
With India now on the right trajectory for growth, residential property demand in the top seven cities is likely to revive by 6% in 2015 and further, by 8% in 2016. Mumbai is expected to witness the sharpest growth in demand (by 11% compounded annual growth rate between 2014 and 2016) as the pent up demand from past few years is met. While Mumbai has been one of the most favoured destinations for non-speculative investors, affordability has played a dampener of sorts, in recent times. As uncertainty on the macroeconomic outlook diminishes, buyers could anticipate better income prospects and improved affordability. Hyderabad, which saw the greatest slump in demand (by 12% during 2008-12) due to the long-drawn Telangana issue, will also see demand revive significantly (by 11% over 2014-16). Pune and Bangalore—the two popular IT hubs—could continue to see a steady rise in end-user demand, mainly led by growth in IT/ITeS industries.
Timing and location is key
Both timing and location could be in your favour now. At a time when the new government is expected to announce effective policy measures and speed up completion of infrastructure projects, investors can eye properties in key micro markets and look forward to positive gains. Having a medium- to long-term investment horizon and a keen eye for detail across micro markets could help you lay your hands on the best possible deal.