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Investing in Real Estate in India: Great Time to Seal the Deal
Every real estate expert says that there are three things to be considered before making a decision to invest in real estate in India. Location, Location and Location. What makes location the most important feature? A good location translates to better connectivity, proximity to schools, offices and recreational facilities, as well as its significance to the region or city.
Would Gurgaon have had the same growth and valuation if the Delhi Airport was closer to Noida instead of Gurgaon? It makes for an interesting discussion, especially as the proximity to the Delhi Airport was a given before DLF and others started looking at Gurgaon. Also, would prices at Chembur in Mumbai have gone up without the Santacruz Chembur Link Road, Monorail or the Eastern Freeway?
Being from Chembur myself, I recall how it used to take 60-75 minutes to travel to my workplace in Fort. Today, the same distance can be covered in about 20 minutes. Chembur, which used to be regarded as North East Mumbai, is now considered Central Mumbai.
The Impact of Infrastructure Projects
In light of how India’s government plans to undertake a number of large infrastructure projects (I am being optimistic), it makes sense to understand the impact they may have on property prices in the area that you plan to invest in.
Projects undertaken will encourage business growth in a 10-15 km radius around them, especially with a CBD, and as a result adds more value in the future. Yes, some of the pricing may have already taken these into account; however, there is always room for growth in valuation after the projects are completed.
Dealing with the Apprehensions of Investing in India
Currently, there are a lot of apprehensions about buying property in India. These discussions largely revolve around unfinished projects or projects that are not selling well. In my view, this is a great time to get a good deal on the property you want to purchase.
India is now a buyer’s market. The buyer can negotiate a good price or a good payment scheme before acquiring a property. The chances of prices falling in the future are slim, as current oversupply calculations are not based on habitable properties, but on projects which have been launched in the last year and will be completed over the next 2-3 years.
Amongst the tier 1 cities, Mumbai Metropolitan Region constitutes 21% of sales in the country in terms of units sold, with 32% in terms of value sold. It currently has about 23% of unsold stock (Source: Liases Foras Report). This stock is available simply because there are currently 2,666 projects across 1,454 developers in the Mumbai Metropolitan Region (Source: Liases Foras Report).
Most of the unsold inventory belongs to the ‘Under Construction’ category, rather than the ‘Ready to Occupy’ category. For instance, in the Thane micromarket, only 2% of unsold stock represents ready apartments, while the rest are from ‘under construction’ apartments (Source: Liases Foras Report).
Properties today are either being sold pre-launch, or when they are nearing completion. Even though some of the projects are not selling well while they are being developed, they sell well when they near completion.
The real statistic that would indicate a downturn in real estate would be the non-absorption of fully constructed units in good locations, i.e. with good connectivity. I don’t think we have reached that point yet, as demand still exists for these properties.
Another aspect that people often talk about is the lack of affordable housing. However, housing that is unaffordable today may not remain unaffordable tomorrow. With expected rises in income, loans at cheaper rates of interest and infrastructure development, real estate can become more affordable over the next 2-3 years.
Given the current state of affairs, how can developers make housing more affordable for the average man? Firstly, they can remove unnecessary facilities, such as swimming pools or balconies. In addition, they can also reduce the size of the unit, such as by building smaller units sans club and other facilities. Such projects can be built quickly, which will result in quicker revenues for developers and higher price appreciation for homeowners – as compared to projects that are launched in the far future.
The Government’s Role
Interest on home loans have recently come down due to the interest rate cut by RBI. Most of the banks have reacted positively by decreasing their home loan interest rates. This is bound to have a positive effect on sentiment.
Although the government’s Black Money Scheme was not hugely successful in getting money back into India, it’s inevitable that most of the money will find its way back into the property market.
My recommendation would be to select a location that will observe increased connectivity in the future, or which will have schools and colleges nearby and is located near a developing CBD. Find a good builder in the location and snap up property while the current market situation still offers opportunities.