Mumbai’s residential real estate hotspots

There is no getting around it – Mumbai’s property market is legendary. However, the focus of real estate investors has been constantly shifting in tandem with the changing dynamics in India’s most glamorous super metropolis. Three factors drive the property investment pattern in Mumbai – demand, price points and growth prospects. From the point of view of these three factors, some of the hottest investment destinations in Mumbai today deliver to varying degrees.

Wadala

Infrastructure projects have always had significant positive implications for the real estate market, especially in an infrastructure-challenged city like Mumbai. Wadala is one example of multiple infrastructure initiatives driving an areas’ real estate market. Initially, Wadala gained prominence as a residential destination because of its proximity to Bandra Kurla Complex (BKC). However, with several infrastructure initiatives such as the Chembur-Wadala monorail and the Eastern Freeway, Wadala saw a rapid increase in residential demand, resulting in the doubling of property values over the last three 
years.

Ajmera i-Land at Wadala

Proximity to BKC and the development of the locality into a major commercial area have been the main demand magnets at Wadala, which has seen massive spill-over demand from the more expensive central locations around it. Improved connectivity through the Kurla-Santacruz Flyover, Anik-PanjarpolLink Road, Byculla Bridge and Masjid Bridge are added advantages for the residents of Wadala.
 
The mono rail project has improved much-needed accessibility to the Eastern and South-Eastern regions of Mumbai. Until recently, only the western region of Mumbai had attracted significant infrastructure and real estate development. However, the commencement of mono rail coupled with the Eastern Freeway have now put paid to this limited trend. The planned roll out of phase II of Monorail will help in improving connectivity of this area with Lower Parel, the other emerging CBD of Mumbai. This phase, which should become operational in 2016, will provide very effective connectivity between Wadala and Lower Parel, Jacob Circle and Mahalaxmi and will play a big role in price appreciation.
 
Apart from being excellently connected with key localities of Mumbai, the presence of numerous quality educational institutes such as Veermata Jijabai Technological Institute, Khalsa College, The University Institute of Chemical Technology, Dr. Ambedkar Commerce & Law College and SNDT Women’s University around Wadala drives demand for residential properties to this region. Wadala also houses some renowned hospitals like BPT Hospital and Aditya Jyoti Eye Hospital. On the retail and entertainment front, IMAX, Star Mall, Inox and Manish Mall are very close at hand.
 
For investors and developers, Wadala has become one of the most lucrative locations in Mumbai.  Over the past five years, the property market here has been increasingly on property buyer’s radar. A decade ago, property prices at Wadala were as low as Rs. 2,800/sq. ft. and rose to Rs. 14,000 a few years ago. With the announcement of development projects for this region, many people from South Mumbai started relocating to Wadala. Families expanding in or seeking to relocate from South Mumbai find Wadala the perfect destination. Today, property prices here range between Rs. 19000-21000/sq.ft., which means that residential property prices at Wadala have appreciated by 133% over the last half decade.
 
With the announcement of various infrastructural initiatives, Wadala witnessed increased interest from reputed developers. Developers such as DostiGroup, Lodha Group and Ajmera Developers have large land banks in this region, and are now rolling out residential projects catering primarily to the premium segment. Wadala is no longer a destination that scores only on its proximity to civic amenities; today, Wadala is providing a lifestyle shift to Mumbai’s aspirant property buyers with many premium high-rise buildings featuring all the accoutrements.

Bandra

Bandrar Worli Sea Link

Bandra, especially Bandra West, is a popular residential destination since it holds high lifestyle value, despite the fact that it faces a significant degree of traffic congestion.  This area is always a preferred destination for prime property seekers because of its elite profile, and because of the high level of available shopping, healthcare, education and recreation facilities. Developers there are offering products in redevelopment schemes.
 
Bandra East is also an upcoming residential property destination, especially for investors, since there is considerable rental demand from an enormous number of people who have come from outside Mumbai and are working in Bandra Kurla Complex. Both capital and rental values are going to increase in Bandra East, which it is benefiting from the overflow of demand that Bandra West can no longer support.
 
With the city’s CBD having, for all practical purposes, shifted from Nariman Point to BKC, Bandra has become the new and preferred destination by the business owners, the upper managerial cadre and expatriates. In the recent past, with many large corporate houses moving their headquarters to BKC, and many consulates as well as India’s largest diamond market also moving there, BKC has made Bandra the heart of Mumbai.
 
With these dynamics, people working in BKC are looking for homes that allow for no more than 30 minutes’ travel to home. Bandra West has already seen the upswing in demand. With no land supply in Bandra West and limited residential supply, the prices have moved up considerably. The price appreciation that has surprised many pundits in the industry is now making developers look at redevelopment of existing buildings.
 
Redevelopment activity in Bandra has, in fact, picked up considerably in the last 2-3 years - though with existing apartment owners’ expectations being high, developers are cautious about taking on projects where the viability in terms of returns in question. We expect that wherever apartment owners are more realistic, redevelopment projects will further pick up and the skyline of Bandra will completely change in the next 4-5 years. 
 
Since it is next to the country’s most prominent CBD, Bandra’s real estate potential remains very high. It is a matter of prestige for every reputed developer to have a signature product in this micro-market. Recently, Rahul Saraf of Forum - one of the most reputed developers in Kolkata – took up a large SRA project in Bandra East for development. This signifies that the area is going to witness dramatic interest levels in the years to come.
 
Currently, residential prices in Bandra East quote on par with commercial properties there, and can go up almost 100-150% up from the current levels. Supply is a big challenge in both Bandra West and East today. With the upswing in the economy, demand will rise further in the coming months. Infrastructure in Lower Parel is collapsing, and many residential projects are yet to get occupied there; the situation in Lower Parel will only worsen in the coming years, driving corporate houses to re-locate to BKC. This will further fuel the demand in the residential pockets of Bandra West and East.

Chembur

Chembur, the central suburb of Mumbai, is one of the prime residential destinations in Maximum City. Chembur has very desirable profiling on the Mumbai real estate map as it connects the central Mumbai to Navi Mumbai. Its close proximity to Eastern and Western Express Highways makes commuting easy to Bandra-Kurla Complex and the other business districts of Mumbai.

Santacruz Chembur Link Road

Known for prominent landmarks such as Tata Institute of Social Science, the famous Golf Club, RK Studios, Sadhu Garden, Dr. Ambedkar Garden and Diamond Garden, Chembur is also one of the greenest localities of the city. It is rated as one of the fastest growing suburb of central Mumbai and with rapid infrastructural development, Chembur has witnessed large-scale residential development over the last few years.

 
Recent infrastructure initiatives such as the Santacruz-Chembur link road, Chembur-Wadala monorail and the Eastern Freeway have connected Chemburto various prime office areas of Mumbai. The social infrastructure is well developed with numerous malls, restaurants, hospitals and quality educational institutes. Chembur is seen as one of the most desirable residential locations in Mumbai. Its traditional tree-lined bungalows are slowly giving way to multi-storied apartments. Many reputed builders have their residential projects in Chembur. With prices ranging between Rs.16800–17500/sq.ft. and an annualized appreciation to the tune of 15-18%, Chembur remains an important investment hotspot.

Mulund

Mulund Skyline

Mulund is a well-planned suburb of Mumbai. Located close to the boundary of Navi Mumbai and Thane, this suburb has seen synchronized growth in both residential as well as commercial sectors. Mulund once catered mainly to buyers from mid-income segment, but now offers various prime residential options as well. Despite rapid growth in its residential and commercial sectors, it continues to retain a serene atmosphere that appeals to home buyers. The most developed area here is LBS Marg in Mulund West.
 
Mulund is very well connected to other suburbs and even other cities with a good network of trains, BEST buses and roads - including a national highway. The fast-improving infrastructure is one of the prime growth drivers for the burgeoning commercial sector here. Additionally, Mulund has good recreational and entertainment facilities and quality social and civic infrastructures such as educational institutes and hospitals. It has well-defined industrial presence as well, though many of the industries there are redeveloping their excess land for residential and commercial use.
 
Sometimes referred to as The Prince of Suburbs, Mulund has a host of large and small residential projects in progress. As compared to the more affluent property destinations of Mumbai, Mulund’s residential market is still quite reasonable and is therefore seeing considerable demand. Residential property prices in Mulund range between Rs.14000-18800/sq.ft. and annualized appreciation is at around 12-15%.

Ghodbunder Road, Thane

Over the last decade, Thane has grown from a small suburban town on the outskirts of Mumbai to a self-sustaining metropolis. Previously a town with narrow roads and low-rise residential developments, it is today to a city with sprawling flyovers, uninterrupted highways and wide roads. The Thane suburb now has integrated townships and high-rise towers, and its commercial real estate sector has progressed in tandem.
 
With the property price surge seen in all locations in and around Mumbai between 2010 and 2012, Ghodbunder Road in Thane held its own as a preferred residential destination for price-sensitive home seekers due to the relatively lower rates when viewed against core Thane city. Today, Ghodbunder Road is seeing rapid appreciation, as well.
 
This location has a lot of fresh inventory driven by several infrastructure initiatives and good connectivity in the pipeline. The development authorities have planned a monorail network in this region to serve as a feeder system to a Metro project planned in Thane. The MMRDA has finalized a Metro corridor extending from Wadala to Kasarvadavali on Ghodbunder Road in Thane.
 
In addition, the road provides quick accessibility to Mira Road from Thane, and to other micro-markets such as Mulund, Bhandup and Ghatkopar. Ghodbunder Road is approximately 20 km long and links the two main arterial roads of Mumbai - the Eastern Express Highway which starts at Sion and terminates at Thane, while the Western Express Highway, which starts at Bandra (East), becomes the National Highway leading to Gujarat.
 
Due to the rapid development in this region, the area has attracted many reputed developers. This has led to a surge in the launch of many affordable and premium housing projects. Ghodbunder Road is interesting to developers primarily due to the easy availability of large land parcels. From affordable apartments to premium properties, the area offers a wide assortment of housing options.
 
Capital values of newly-launched multi-storey apartments vary between Rs 40 lakh to Rs 2.5 crore, depending upon unit configurations and the amenities offered. Some of the reputed developers present on this stretch are Runwal Group, Puraniks Builders, Harmony Lifestyles Group, Vijay Group, Rosa Group and DS Group. The average property prices of this region range between Rs. 8000-10000/sq.ft., and annual appreciation has been to the tune of 7-10% depending on the specifications of the project and amenities offered.
 
Ghodbunder Road is seeing a lot of commercial development. Apart from the upcoming MGM IT Park, new corporate offices and other commercial establishments such as retail outlets, malls, showrooms and banks are mushrooming all over. The area has well-developed social and general infrastructure. Also, the Kapurbawdi Flyover has become operational and considerably reduced traffic congestion in this region. The proposed monorail, which will connect Thane to the Western suburbs in its next phase, is yet another major draw for this location.

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Thane – Mumbai Metropolitan Region (MMR)

THANE CONNECTIVITY

Situated to the north-east of Mumbai, Thane was the host to India’s first ever train connectivity route. Thane has undergone a makeover from being an industrial town with affordable residential housing to a now-favoured IT and relatively upmarket residential destination. Various infrastructural initiatives by the government executed under the aegis of the nodal development authority, Thane Municipal Corporation (TMC), have greatly enhanced the connectivity of Thane to the prime business hubs of Mumbai and Navi Mumbai. 

Office Market
In 1990s, Thane was largely an industry-intensive zone. However, post mid-1990s; with conversion of Wagle Industrial Estate into an IT zone, it started witnessing IT related developments. Ghodbundar Road, currently a well-established office location, started developing post mid-2000s when focus on infrastructure building gained prominence in Thane. Currently, IT/ITeS companies constitute a major portion of the occupiers of commercial office spaces here. Grade A developments include G Corp Tech Park, Kalpataru Prime, Dosti Pinnacle and Neptune Element developed by G Corp Group, Kalpataru, Dosti Group and Neptune Group respectively, while a large portion of the commercial real estate is also in the form of Grade B buildings. With there being a limited number of large office occupiers, demand is seen in the form of full or partially occupied floors in the buildings. Thane has about 4.5 million sq ft of Grade A office space which constitutes about 5.3% of the total stock of the city. Good rail connectivity allowing ease of commuting of workforce and well established infrastructure drives the office space demand of this submarket. Ample supply has kept rents in this submarket stable, attracting occupiers to lease large volume of office space.

Residential Market

Thane is well-connected with other parts of Mumbai Metropolitan Region via rail and road. Majority of the residential properties in this location were low rises prior to 2000s. However, with a gradual improvement in infrastructure, a host of reputed developers took an active interest in developing projects here. Currently, developers like Sheth Developers, Dosti Group, Rustomjee, Hiranandani and Kalpataru are focusing on large-scale development with high-rise structures. Few of their prominent projects are Sheth Vasant Lawns, Dosti Vihar, Rustomjee Urbania, Hiranandani Estates and Kalpataru Siddhachal. These developments have resulted in reduction of price gap between Thane and Western Suburbs of Mumbai. Thane offers housing for high-income and middle-income groups. It is witnessing increased interest from investors due to its good infrastructure and connectivity. Ghodbunder Road in Thane witnesses high residential sales on the back of availability of land parcels and also as it is wellconnected to the Eastern & Western Express Highway in Mumbai. In addition to this other precincts witnessing residential developments are Old Thane, Pokhran Road and Pune Highway. Mumbai- Thane Capital Value Change (1H09 = 100) 2H13 184 1H14 188 2H14 201 Thane now offers good leisure and entertainment options with operational malls such as Korum Mall, Eternity Mall and R Mall. These malls house large national retailers like Star Bazaar, Westside, Shoppers Stop, Pantaloons, Reliance Trends and Globus along with various international brands. With the opening of Viva City Mall (by Sheth Developers), which will be the largest mall in Thane, residents will have a wider range of options for shopping and entertainment.

Infrastructure

Thane is well connected with the Andheri and Bori via road and rail. The eastern express highway and LBS Marg connect it with eastern suburbs while the western express highway and Thane Belapur Road connect it to western suburbs and Navi Mumbai respectively. Two mono railway lines are also proposed which will connect Thane with Dahisar and Kalyan respectively. Currently work is in progress for seven flyovers connecting Thane with Dahisar, Ghodbunder and Bhiwandi. Internal transportation system is very good and with government initiative like SATIS (Station Area Traffic Improvement Scheme), commuting has improved. Social infrastructure is also in place with existence of hospitals, education institutes and hotels. While Jupiter Hospital, Bethany Hospital and Hiranandani Hospital are the prominent hospitals, Dr VN Bedekar Institute of Management Studies and KC College of Engineering are some of the reputed education institutions in Thane. The Fortune Park and United 21 are the star hotels located in Thane.


OUTLOOK 

Thane has witnessed strong development in the past two decades. From an industrial zone, it has changed to a commercial zone with strong IT/ITeS presence. The government has taken many initiatives to improve the infrastructure in the region and that has attracted a host of developers to Thane. With the improved connectivity with western and eastern suburbs and Navi Mumbai, Thane is fast becoming a sought-after residential and commercial destination. Growing demand from cost conscious occupiers, Thane will eventually emerge as one of the prime business districts of Mumbai. In such a scenario, rental and capital values are expected to increase by almost 50% in next five years from the last trough in 2009. While the residential property prices have surged in past few years, we expect it to continue its northward movement on the back of healthy demand. Thane is expected to witness strong residential demand due to increasing workforce in the sub-market.

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Real Estate Investment: Current scenario & what's new in 2015 for you?

The year 2014 was a bag full of mixed emotions and there was nothing much to excite the buyers, investors or the realtors, as a whole. However, the last quarters of the ‘about-to-end’ year 2014 brought in some sigh of relief for all. There were many political changes that led to the amendments into otherwise hard and stringent policies. Apart from this, the sudden growth of Tier 2 cities and progressive evolution of the understated metropolitan cities. Here are some of the developments that were visible in the gone-by quarters:

Visible Signs of the Real Estate Success

Talking about the recognition, the real estate sector of India is highly acclaimed on a global platform and is also the second largest employer after agriculture. The sector is flourishing and is expected to grow at a steep rate of 30% over the next decade. Let’s have a look at some of the positivity that actually improved and beautified the cracked face of the sector.

1. Foreign Capital Inflows

The capital coming in directly into the Indian realty sector from the foreign land is no more than a boon for both buyers as well as the realtors. The industry analysts predicted that there will be a surge of 35% in the number of enquiries with property dealers. In the race to win, the foreign investment is likely to route towards Bengaluru. The dynamic city will be followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.

After a long wait and a series of predictions made by industry leaders, the government has finally eased up the FDI policy rule. This has not only turned the dreams of realtors come true but has also widened the path for other foreign companies to come in and contribute in the construction industry. The researches done on the same proved few points that associates with both, builders and buyers:

1. Benefit for Builders

Foreign capital is huge in terms of value and amount. According to industry experts, the new eased up foreign capital will help more and more money to enter the Indian realty market and help the builders get the required huge first down payment for starting a project. Moreover, the builders can think about planning high-end homes and lavish commercial zone now as the capital inflows will be abundant.

2. The Surprise Benefit For Customers

The eased up FDI policy will reduce the cost of funds for the realtors and thus will lead to lower prices for the end consumers. Apart from this, the easing of the FDI policy will pave path for cheaper capital for smaller projects, resulting into improved quality and delivery of low cost, affordable housing projects.

3. Other Advantages

Apart from the above mentioned important aspects of real estate arena, there are other advantages that will be introduced into the market watch. Here’s a snapshot:

• The eased FDI policy will affect the projects that will be slotted or turned out be joint ventures. The newer clauses will ensure overall higher development and activity levels in the Indian real estate sector. Apart from this, there will be visible reductionin delaying of project completion and there will be improvement in project management jobs. This will translate into reduced pricing and better quality standards for the customer.
• Another benefit visible here is the reduction of the minimum built-up area required to attract FDI. The area has gone down from 50,000 sq. meters to 20,000 sq. meters. Another factor that has seen decrement is the capital requirement that has drooped down to $5 million from $10 million. This ultimately makes investing in the Indian real estate and construction sector extremely lucrative for foreign investors
• Industry expertsare of the view that the exemption of projects which pledges a whopping 30 percent of their total cost to affordable housing is a measure that will give the much required boost to the affordable and mid-income segments

Here’s an illustration of the study done over a period of time:

Source: (India Brand Equity Foundation)

2. Union Budget 2014-15 for India Real Estate

This time the Union Budget 2014-15 has brought in the much-needed relief for the Indian realty sector that will not only bring in positivity for the domain but will also help investments, extremely hassle-free. Here’s what Union Budget had this time for the sector:

• India’s Finance Minister declared that autonomous organization, Real Estate Investment Trusts (REITs) is expected to enter the India’s real estate arena very soon. With this, the internationally acclaimed organization would get a status of being tax pass-through. The Infrastructure Investment Trusts would get tax benefits as well.
• It will help in easingliquidity requirement for the builders, which in turn will pave the way to raise easy capital and also offer access to retail investors. All these entities will be benefitted from regular income and appreciation benefits from real estate
• A huge amount of about Rs 4,000 crore has been apportioned for low-cost housing and another whopping amount of Rs 50,000 crore has been allocated for urban housing. Another interesting clause added to the fact that an Infrastructure Investment Trust will also be developedfor giving a good boost to the Indian realty sector.
• In order to lessen the burden on the head of given bigger cities, Rs 7,060 crore has been kept aside for the development of 100 smart cities
• Housing loan rebate on self-occupied property has been given a surge from Rs. 150,000 to Rs. 200,000. An increase in disposable income in the hand of the buyer will intern give rise to the spending power and thus boost domestic investment.The positive surge will promote home ownership and give the much needed thrust to the housing sector and other related industries like steel, cement, brick wood and glass.

3. A Positive Outlook for Commercial Zone

Much has been done for the residential sector and the builders who are focusing on the same. However, the builders eyeing the commercial sector and business people foreseeing capturing the space can now have a happy time. There is a lot of positivity induced and here’s a snapshot of the same:

• Cities like Bengaluru, Mumbai and Chennai will see a sudden surge in the stature of their residential market. Amongst the lot, Chennai is the one that will witness the maximum real estate activity. Owing to a high migration rate, stationing of flats in Chennai and other metropolitan cities will witness a positive boost.
• Another globally acclaimed organization Goldman Sachs has planned to invest a whopping Rs 1,200 crore (US$ 194.1 million) to build a new campus in Bengaluru that will be accommodatinga good 9,000 people. The new campus is being developed in collaboration with Kalyani Developers on the Sarjapur Outer Ring Road, Bengaluru.
• The much acclaimed tie-up between Assotech Realty and Lemon Tree Hotels to will enable effective management and operation of its serviced residences. The first project, 210 apartments under the branding of Sandal Suites, will be launched in Noida in 2015. The companies will launch 8-10 similar projects in a phased manner over the next seven years with an investment of Rs 800-900 crore (US$ 129.37-145.57 million) approximately.
• Snapdeal has partnered with Tata Value Homes to sell the latter’s ready-to-move apartments on its e-commerce platform. This will be the first time that an e-commerce company will be joining hands with a real estate venture.
• Another surprise element is going to be Blackstone Group LP that will be soon to become the largest owner of commercial office real estate in India after a three-year acquisition drive. The amount incurred is expected to be about US$ 900 million to buy prime assets.

With all the positivity and goodness heard and declared, the life of a common man as well as builders will definitely be affected. The year 2014 is about to end and the New Year is definitely going to be a boon for the Indian realty market. Here are some of the anticipations that can turn into facts, may be in the upcoming year:

The Growth Boosters

Here are some of the expected things that will surely happen owing to new policies and reforms held in the ‘soon-to-end’ year:

1. Rise in the Commissioning of Affordable Housing

Owing to high FDI inflow and high migration rate witnessed by metropolitan as well as connected cities, realtors will soon be entering into full-fledged into affordable housing section. The apartments constructed within the scope of projects will be intact with all the necessary amenities and offered at a very good price.

2. Increased Market Size

The Indian real estate market size is expected to reach a good US$ 180 billion by 2020. The housing sector itself contributes to about 5-6 per cent to the country’s gross domestic product (GDP). Domains such as Retail, hospitality and commercial real estate are also mushrooming at a significant rate, which will be providing the much-needed infrastructure for India’s growing needs.

3. Surging Foreign Tourist Arrivals (FTA)

As the foreign tourist arrivals (FTA) surges every year, there will be a subsequent demand for real estate in the tourism and hospitality sector as well. Moreover, with the entry of major private players in the education sector, major cities such as Hyderabad, Bengaluru, Mumbai, Delhi, Pune, Chennai and Kolkata are likely to account for 70 per cent of total demand for real estate in the education arena. Apart from this, the demand for better healthcare facilities is also expected to provide a thrust to the construction sector in the country.

4.Positivity Expected Owing to Government Initiatives

There are government initiatives that will definitely throw a positive light on the Indian real estate market. Here are some of the government initiatives that are read\y to illuminate the year 2015:

• The Securities and Exchange Board of India (SEBI) has publicized regulations that will govern (REITs) and infrastructure investment trusts (InvITs), respectively. This action will enable easier access to funds for developers who are facing cash crunch. This will also be beneficial for creating a new investment avenue for institutions and high net worth individuals, and finally ordinary investors.
• The Telangana Real Estate Developers’ Association (Treda) plans to commence the Fifth Treda Property Show 2014 at Hitex Centre, Hyderabad. The show will be open to a mixed population. This will include prospective property purchasers, investors, and architects.
• The State Government of Kerala has planned to make the process of safeguarding permits from local bodies for construction. This will make sure that a more standardized procedure is there and there is more transparency, and less corruption and bribery.

Conclusion

Indian realty sector is one of the most important industrial sectors in the country. Be it employment, activities or the contribution towards the GDP, the real estate sector in India gives away a good part to the government as well as the individual housing as well as the commercial sector. The new government as well as the relaxed policies pertaining to foreign investment or the entire construction industry will definitely be able to pull in more investors and buyers too will have a good range of options to choose from.

Why to Invest in Real Estate in India

Are the rising real estate prices sowing seeds of doubt in your mind about the future of your proposed investment in residential property? Do you wonder whether the bubble is set to burst and if it is better to wait for prices to fall a little before taking the plunge?

Given the trend of rising property prices over the last few years, the price of the property you have shortlisted will most likely keep going up as you wait.

Residential real estate has one asset class whose prices have been steadily rising in most markets. Though analysts have been saying the residential property market in locations such as the Delhi-National Capital Region and Mumbai is ripe for a price correction, developers have been able to hold on to prices even as buyers wait for a fall. Given the demand-supply imbalance, the trend is likely to continue and your investment will in all possibility stand you in good stead even when other assets take a beating.

Data for the past few years show that real estate has been a rewarding asset class. For example, in 2011, one of the worst years for equities when the Sensex fell nearly 25%, prices of homes in most Indian cities remained firm despite the overall economic uncertainty, both in global and domestic markets.

During the year, prices in nine out of 15 cities covered by the National Housing Bank's residential index, called Residex (see chart), rose, except in Ahmedabad, where prices remained flat. In comparison, if you had invested in real estate stocks, the value of your investment would have fallen by nearly 50% between December 2010 and December 2011.


Even if one considers the period from end-2008 till March 2012, which saw a widespread slump in equity and property markets worldwide due to the global financial crisis, real estate in India gave positive returns in most instances. As many as 11 out of 15 Residex cities gave positive returns during the period, the only exceptions being Hyderabad, Jaipur, Kochi and Bengaluru.

Commodities such as gold and silver, however, were the other winners, beating real estate.

DEMAND-SUPPLY PLAY

Experts believe that the wide gap between demand and supply in residential real estate will keep prices firm over the long run. "NHB data itself show shortage of more than 20 million homes. There is an acute shortage of homes, especially in and around the main cities due to population migration that is happening due to growth opportunities. As a result, prices have generally tended to increase over the medium to long term," says Balaji Raghavan, CEO & CIO, Real Estate Fund, IIFL.

Om Chaudhry, Founder & CEO, FIRE Capital and Chairman, Astrum Homes, agrees. "The shortage in many markets and the sticky nature of realty prices in India contributed to the firm trend," he says.

Chaudhry says real estate and commodities provide safety from stock market uncertainty. "When the stock market was going down, investors shifted towards commodities such as gold and silver (as shown by the data) and real estate as they are safer options. Real estate prices do not fluctuate as much as stock prices, keeping the money of investors safe, and gives good returns."

RED-TAPE PUSH

Ashwinder Raj Singh, executive vice president and head, sales and distribution, India Homes, says there is another reason real estate prices in India have been firm-red tape. "Major Indian developers are sitting on millions of square feet of land, in part because they don't want prices to plummet, but also because India makes it incredibly difficult to obtain permissions and approvals to build residential projects. The licensing process is long, cumbersome and often arbitrary, not to mention notoriously corrupt."

But amid the general positive trend, why did certain market such as Hyderabad, Jaipur, Kochi and Bengaluru failed to perform? Experts mention factors specific to the market and the resultant demand-supply dynamics. Raghavan explains that Hyderabad, Jaipur, Kochi and Bengaluru have different demand drivers. For example, Bengaluru is driven by the information technology industry, and prices there largely follow the industry's fortunes. The Residex data show that prices fell around the 2009 period and then slowly recovered from 2010. Jaipur and Kochi, on the other hand, have not developed at the same pace as other urban centres. The demand for homes in Kochi tends to be driven a lot by population working outside the country and so prices there have been subdued because of the global recession. In Hyderabad, political uncertainty and its impact on business growth may have had a role to play.

EXERCISE CAUTION

Ashwinder Singh feels there is no stopping the prices from rising. "Property prices have outperformed equities, currency and bonds by a wide margin. As long as the Indian economy continues to grow and Indians continue to gain purchasing power, prices are likely to continue to rise," he says.

Chaudhry, while he is positive on real estate as an investment option, says investors should exercise caution while taking purchase decisions. "Real estate is and will remain a good investment option as prices do not fluctuate drastically. But caution should be exercised as it is the hard earned money of customers, and there are developers out there who are working beyond what their balance sheets," he says.

Raghavan of IIFL feels that a real estate fund like the one he runs can help investors even out the risk of putting money in a single property. "Investors need not be restricted to a single property. They can invest in a real estate private equity fund. This way their money will be invested in more secure structures and risk better mitigated (as the same money will be spread over five-six underlying investments). Investors can also benefit from the expertise of professional fund managers for sourcing the best projects from across the country," he says.

Raghavan feels returns are likely to remain high in and around the urban centres, namely Mumbai, Delhi, Bangalore, Chennai and Pune. Emerging Tier-2 cities such as Ahmedabad, Baroda, Nagpur, Jaipur and Chandigarh also offer select investment opportunities.