Real estate prices may have dropped in the metros, but you could still make a killing on satellite towns
The stock market is volatile and the price of gold is falling. So where should the prudent investor put his money this year?
Well, theres always real estate. Buying land and buildings has always had its own charm. But there are problems. The megalopolises Delhi and Mumbai are already stupendously expensive. And they will stay that way even though analysts say that in Mumbai, land prices are slated to fall by about 15 per cent in the near future.
So, where should the canny investor go for a good buy? Why not check out the newly developing satellite towns and the second cities?
Rapid industrialisation is pushing these towns into a new league. The big corporations both Indian and multinational are talking about moving there. Why shouldnt you?
Says A V Goyal, managing director, Lloyds Brooke Hiller Parker: Its mainly the capital of various states which can be considered as pockets of development.
But there are a couple of difficulties that you should bear in mind. First of all, is the town really ready for a boom? Poor infrastructure is the bane of the up and coming satellite towns. No town will really grow rapidly unless it has the right roads, water and power. Nobody likes living through the eight hour power cuts which frequently hit small town India.
For an example of what not to buy, take a look at Orissa. Technically some of Orissas bigger metros should be ready for a real estate boom. But in actual fact this is unlikely to happen. The reason is that industrial development has never really taken off in the state. The bureaucracy has stalled the megaprojects. As a result there could be small increases in real estate prices. But nothing really worth writing home about.
On the other side of India theres fast-growing Gujarat. Towns like Baroda, Ahmedabad, Ankleshwar and Hallol are expanding swiftly.
In all these areas prices have fallen slightly but may show some improvement in the near future because of the new industries coming up. Those employed in the factories will expect better living conditions. This in turn will translate into infrastructural development, says Goyal.
Or, check out Hyderabad which is the new Eldorado for the multinationals. Hyderabad is burgeoning and so are its satellite areas like Madhapur and Kondapur. This is because various software companies like Microsoft are setting up shop in these areas. In fact Hyderabad is one of the few places where prices have been steadily appreciating during a slack period.
But dont expect immediate returns. The fact is that prices arent zooming even in these growth havens around the country. And that is another story altogether. In the last few years the parallel economy has taken a beating. This has taken a toll on land prices everywhere.
Says a real estate analyst: The main reason why we expect that the prices in these places will take its own due course to appreciate is the collapsing of the parallel economy where people either invested in gold or real estate. If the prices in one place crashed the speculators would immediately channelise their black money to buy land in other areas. Today with liberalization and lessening of the speculation game, the prices will not inflate artificially in any area.
Nevertheless, you are looking for an investment that will appreciate sharply in the next few years. The big question to be asked is: how ready are these areas for investment. Says Goyal: The main question to be answered before you want to invest in areas is to find out how ready are these areas for investment. The connection being, if there is investment, prices are likely to appreciate.
Take a look, for instance, at Vashi near Mumbai. There are big hopes for the satellite town because the Vashi Technology Park is expected to come up soon. However, real estate consultants are sceptical about immediate growth prospects. Ashok Kumar, Vice President, Lloyds Brooke Hillier Parker says that real estate prices wont appreciate for at least another six months.
When you start checking out the infrastructure then the best choices are probably around Mumbai. Says one real estate analyst, Mumbai is the only place where connectivity standards are much, much better than other places.
Even the rapidly-growing satellite cities around Delhi leave a lot to be desired when it comes to infrastructure. For instance, Sumit Anand, general manager, Colliers Jardine points out that Noida on Delhis outskirts has poor transportation facilities. Unless better roads and more connecting bridges come up fast, Noidas move towards boomtown status could literally find itself stuck in a rut.
Nevertheless, Delhis satellite towns are still expanding rapidly and could be a good buy. In Noida and Gurgaon the rate of settlement is high even during this slack time. However rates have been artificially hiked in these areas too.
For example in Gurgaon rampant speculation is probably behind 40 per cent of property sales. The hype has now died down but Gurgaon is still the fastest growing satellite city in the country.
In Gurgaon today there is Signature Towers, a new construction where the on going rate is at a premium of Rs 6.5 lakh a square feet. This building is a joint venture by Unitech and Signature Consortium. Other constructions cost between Rs1400 and Rs 1700 a square foot.
The hard part is often getting the timing right. Just about five years ago, for example, Goa was firmly marked down as a nice place to holiday in. Apart from a few Mumbai residents who invested in weekend cottages, real estate wasnt moving much. Now, however, land prices have shot up and seem slated to go even higher as fashion designers, young entrepreneurs and others have moved in lock, stock and barrel. The same holds true for Vadodara, which was dismissed not so long ago as just another wannabe town. Today, property dealers are making a killing and free land is no longer available.
Moving south, in Bangalore and Chennai the picture is slightly different. The big cities are stretching further out but there arent any real satellite towns yet. Land prices in places like Hosur are going up slightly because companies like Toyota are setting up shop there.
But Bangalore itself is going through a gloomy phase because of the power situation. Says Shaumik Nag, assistant manager, Godrej Properties, Many companies are on the look out to move into another state. The only advantage here is the weather, one of the reasons various companies move here.
Of course there will be changes in coming years. The infrastructure in some smaller towns is gradually improving. Says Ashok Kumar: Today the consumer industry is reaching out to the residents of the satellite cites and gradually these satellite cites will function as separate isles. You therefore have to give some gestation period to these areas before they can function as separate isles.
If you dont have a preference for a particular part of the country, take stock of the real estate and infrastructure situation in every place. If youre ready to dig up the dirt on whats happening, todays satellite town could be tomorrows goldmine for you.
