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Real Estate on a HIGH

How High is high in Real Estate ?

Check out this article reproduced from the November 2005 issue of Outlook Money

Highrise Growth
A preview of places where you can still buy a house in a market that is on an upswing.

Pankaj Anup Toppo

IN SEPTEMBER 2005 Asheesh Singh Parihar, 31, a Gurgaon based software professional bought a three bedroom flat (1,550sq.ft) in Gurgaon. "I had been looking for a house for the past 1-2 years and prices had been moving up like crazy," he says. It’s been just two months since Parihar bought his flat and its market value is already up 10 per cent. "Capital values for some Gurgaon properties rose as much as 50-80 per cent in the past year," says Santosh Kumar, Director & COO, Trammell CrowMeghraj. Depending on whether you’re still looking for a home or you’ve already bought one, that sounds either like a horror story or a very profitable coup. Either way, it’s spectacular, and we aren’t talking of isolated cases here.

In fact this price frenzy in the residential property market has been seen in metros across India in the past year. "In the past one year capital values, on average, moved up by 20-30 per cent across the metros," says AnuragMunshi, associate director, Jones Lang LaSalle India.

So for a prospective home buyer it’s worth asking: is this a bubble; can one still invest in a market where prices have been on an upswing for the past 2-3 years, and if so where?

Boom or Bubble. Property analysts say this boom isn’t like the preceding one in the nineties. "The first cycle in any property market is always a bubble. The Indian market was no exception. From 2003 onwards we’ve been seeing the second property cycle. It’s more mature," says AnujPuri, managing director, Trammell Crow Meghraj.

The key difference between what happened in 1995-96 and today is that earlier there was no supply to meet the artificially ramped-up demand. Now, though, there is a lot of genuine demand, thanks to good economic performance, rising incomes, cheaper home loans, tax breaks, and better quality housing.

NRIs have watched the local market with interest, too. Apart from the emotional bond of owning a property in the place of their origin, the higher returns in India have helped bring in NRI investment.

Like Prashant Chawla. This 39 year-old NRI bought a second home inPowai, Mumbai, and plans to rent it out after taking the possession. "I could foresee the shortfall in the supply of quality residential houses, especially with more MNCs investing in India," he says.

Should one invest? Don’t even think about investing for rental income. "Rental yields typically vary between 5-6 per cent and this further reduces to less than 5 per cent post-tax," says SanjayVerma, joint managing director, Cushman & Wakefield (India).

Capital appreciation has of course generated great returns, but will the party last? We believe there will still be growth. However, stay away from overheated areas. "Stay invested for a longer horizon, say 8-10 years; returns would be much higher," suggests SanjayVerma.

Given India’s traditional faith in real estate (see Outlook-C Fore Survey) and the fact that it has produced returns bettered only by the equities market, that may not be so hard to do. A far greater availability of financing options also helps, though rising interest rates could be a worry (see related feature on housing finance). As Akshaya Kumar, CEO, Colliers Int. India Property Services says, "One can still expect appreciation of 7-15 per cent in capital values." That’s why it still makes sense to buy a house even now. So where are your best options?

Delhi + NCR

Improving infrastructure, rising quality of life and strong demand, especially with a boomingIT/BPO sector, have made Delhi and its suburbs India’s hottest markets.

Where. If you plan to buy/invest in properties within Delhi one can look to invest in places like MayurVihar, Preet Vihar and Vivek Vihar. Capital values in these areas are expected to get a further boost due to improving infrastructure. There has also been demand for luxury apartments, especially in South Delhi. However, the ticket size of these apartments is typically in excess of Rs 1crore. In Gurgaon, look at Sohna road and beyond Sohna. Noida and Greater Noida are other places where one can look to invest as capital values in this region would get a boost once the proposed international airport comes up.

Outlook. "Although prices have been on an upswing one can still expect capital values to move up by 5-7 per cent in the next 1-2 years," feels T.Chakrabarti, head, India Property Research. The rental yields are however expected to be around 4 per cent. Capital values in the suburbs are expected to go up by 7-8 in the next one year. The yields in the suburbs are expected to be around 5-6 per cent.


Mumbai is by far India’s costliest city, and it looks like it will stay that way for years. Geographically limited supply, worsened by a strong north-south axis, and a never-ending flow of economic migrants will make sure of that. But opportunities exist, even if they presume a strenuous commute.

Where. Look at places like Mulund, Thane,Goregaon, Kandivali and Vashi. Prices in south Mumbai are expected to move up further due to demand from HNIs and limited supply. The widening of the western expressway will make areas likeGoregaon, Malad and Kandivli more accessible to Powai and Andheri-Kurla. The judgement of the Supreme Court with regard to mill lands is another factor that could affect prices in the central areas.

Outlook. On the whole the Mumbai property market is still buoyant. "Within the city one can still expect capital values to go up by 6-7 per cent," feelsChakrabarti. The yields however, will remain around 5-7 per cent. In the suburbs, however, one can expect capital values to rise by 8-10 per cent.


Infrastructural disaster zone in the making it may be. But try telling that to the enthusiastic buyers who are sending Bangalore realty soaring.

Where. Demand for residential space in prime areas is expected to increase in future. As a result rentals are expected to move up even further due to limited supply. The outskirts are the best bet both for investors as well as prospective homebuyers. Look at areas like Whitefield, Brookfield, Outer Ring Road, Sarjapur Road, Old Madras Road, Malleswaram and Bellary Road. Although prices here have moved up in the past year, experts believe that there is still scope for more growth as most of these areas are witnessing hectic construction activity.

Outlook. One can still expect capital values to move up by 7-10 per cent in the next one year. Yields would range between five and six per cent.


Strong demand fuelled by successful IT and related businesses on top of a core of established engineering businesses is helping Chennai property pick up fast in value.

Take the case of businessman G. Swaminathan, who bought a flat in Virugambakkam with his brother (1,050 sq. ft.) for Rs 13.5 lakh and moved there in early 2004. The value of his flat has gone up to Rs 18-19lakh. "We are happy that we entered at the right time when prices were still affordable and also the interest rate was stable," saysSwaminathan.

Add to all this the fact that Chennai is increasingly being seen as a superior option in south India toBangalore, weather permitting, and you have the makings of a boom that could only be beginning.

Where. Look at areas where new developments are taking place, as entry levels would be low with scope for appreciation–New Mahabalipuram road,Velachery, Tambaram, Perungudi, Mogappair and Aayanavaram.

Outlook. With more companies shifting base toChennai, the demand for residential units is expected to go up further. "One can expect 8-10 per cent increase in capital values in the next 1-2 years," feelsChakrabarti. Yields should be around 5-7 per cent. However, as with Bangalore, in prime areas an upward pressure on yields could be felt due to limited supply and strong demand for leased units.


Along with Chennai, it’s the one metro where property prices are still largely in the "affordable" category. It may not be for long, but Kolkata may just provide some of the best big-city investment options, since entry prices are still relatively low. That’s how AshutoshDixit, regional manager, Eastern India, DHL, Danzas Lemuir benefited when he bought a flat (1,200sq.ft) in south Kolkata. "I foresee appreciation in capital value," saysDixit. He was not wrong. In just one year the value of his flat has moved up four lakh to Rs 27lakh.

Where. Experts believe that Kolkata is the city that will experience the maximum appreciation among metros. One can look at places likeRajarhat, EM Bypass, Garia, VIP Road, Batanagar, Pailan Joka and Baruipur. The above mentioned places are witnessing hectic construction activity. In Rajarhat alone around 70,000 sq. ft. of new stock is expected to come in the next year.

Outlook. One can still expect capital values to go up by 10-12 per cent in the next one year. Yields are expected to be around 5-7 per cent.

Stars of Tomorrow

The boom has started to trickle down to Tier-II cities. Companies have started to shift there as rentals as well as wages in these cities are low. On an average, office rentals in Tier-II cities are 50 per cent less and wages are lower by approximately 20-30 per cent than in the metros. "Even foreign companies are expanding their operations in the smaller cities. When companies expand to them there will be demand for housing," feels Rohin R. Shah, managing director, Meghraj Properties.

Which cities. Just below the metros and above the tier-II cities are places like Pune andHyderabad. Apart from IT/ITES companies big developers have moved in both these cities. In fact developers in Pune were the first to give a warranty on their buildings. "In Pune one can look at places likeKondhwa, Lullanagar, Fatima Nagar, Wanowrie," says Anuj Puri. Capital values in these places could move up by 7-8 per cent in next one year. Rentals would however remain between 3-5 per cent. "In Hyderabad look at places like Banjara Hills, Jubilee Hills,Madhapur, Medchal, Alwal, Kushaiguda and Mehdipatnam," says Puri. Capital values in these places could go up by 7-8 per cent in the next one year with rentals of around 4-5 per cent.

Chandigarh is slowly becoming an IT hub and this has led to a trickle down effect on places like Mohali andPanchkula. Proximity to the NCR and interest shown by companies like Convergys, IBM,Spectramind, Dell and Wipro has given a boost to capital values in the residential property market in the city and its nearby towns.

Meanwhile Jaipur has already seen companies like GE moving in and there are reports that others are expected to follow suit. Places worthy of investment includeSitapur, Ajmer Gate, Tonk Road, Malviya Nagar, Bani Park, Jawahar Nagar and ShastriNagar. Capital values are expected to go up by 5-7 per cent in the next 1-2 years.

In Kochi, the Thrikkakara-Kakkanad belt is generating lot of interest due to the IT park. Good infrastructure, social amenities and unpolluted locations are other drivers. The Edappilly-Kalamaserry belt is also gaining from its proximity to the citycentre. Thrippunithura is one of the most sought-after residential locations due to its easy accessibility from the industrial belt. Moreover, with IT bigwigs like Wipro and Infosys moving into the city, capital values can go up even further. One can expect capital values to go up by 10-12 per cent in the next 1-2 years. Thiruvananthapuram is also within the radar of theIT/IES companies.

With improving connectivity with Bangalore and interest shown by IT bigwigs property prices in Mysore could expect a boost. Capital values have gone up by 20-30 per cent in the last 6 months. Look at places likeJayalakshmipuram, Lakshmipuram, Vontikoppal and Yadavgiri. Companies are also looking at Mangalore. Areas like GandhiNagar, Falnir and Kodialbail are witnessing lot of development. In Coimbatore, areas like Race Course, RSPuram, Peelamedu, Vadavalli and along the Tiruchi Road have seen capital values move up by 10-15 per cent in the past year. Once companies like HSBC start moving intoVishakapatnam, capital values could move up there, too.

In Ahmedabad look at areas like SG Road, Thaltej,Gota, and Bopal. Initiatives like the Sabarmati River Front Development (SRFD), will also give the city a much needed facelift and capital values could go up by8-10 per cent in the next 1-2 years. Other cities seeing activity, with strong job creation and reputed builders setting up projects, include Nasik andIndore.

The caveat. Although experts agree that the next boom is expected to be in the Tier-II cities, don’t invest blindly. "Economic growth and reforms have to continue. Infrastructure development is the key for growth, " cautions SanjayVerma. Growth will only spread if the local municipal bodies and authorities address the issue of infrastructure and issues likeconnectivity.

with Namit Gupta, Narayan Krishnamurthy and Vishal Chopra in New Delhi.

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