Property investment guideposts for 2012

Property investment guideposts for 2012



Investment into residential projects is currently the preferred route for investors, since the demand for homes in the metros and Tier II cities is virtually limitless. Commercial and retail spaces also present potentially lucrative investment propositions, especially in the larger cities.

The returns in the residential sector are significantly lower (4-6%) than those in commercial spaces (10-12%). Residential space investment is comparatively low risk/low return options, while retail is a moderate risk/returns option. However, capital values are higher in commercial and retail spaces, so they represent larger investments. Moreover, it is more difficult to exit in the case of commercial spaces.

In commercial spaces, it is best to invest in existing, fully-leased assets by reputed developers. The best cities for commercial space investment are Mumbai, Bangalore, Pune, central Delhi and Gurgaon and Noida in the NCR region. Projects in the CBD areas of the prime cities are obviously the most lucrative in terms of ROI, but office properties in these areas are extremely cost-intensive.

For investors with more moderate budgets, the secondary business districts are more realistic options. Nevertheless, it is inadvisable to invest into any commercial property without first getting at least two expert opinions. This is especially true with under-construction projects, because many developers are cash-strapped on account of the current liquidity crunch. Projected completion dates may not materialize.

In residential, the focus should be on properties that have potential for assured rental yields and capital appreciation. This includes residential projects close to workplace catchments, industrial hubs and locations with high aspirational value. The Tier I cities of Mumbai and Delhi and Tier II cities such as Bangalore, Pune and Chennai are seeing the highest demand by investors. In broad terms, the configurations in greatest demand are 1 and 2BHK flats in the central areas as well as the suburbs, while 3BHK flats in good township projects on the outskirts are also a good option.

As with commercial real estate, investors need to take informed decisions on under-construction residential projects, regardless of location and developer. The same negative financial dynamics that are compromising completion dates of many office buildings hold true for residential projects, as well. If an investor decides to avail of the lower rates of an under-construction residential project, he should ensure that at least 50% of the available units in the project are already sold and that construction has progressed according to schedule is at least at the 50% mark.

Luxury and super luxury housing should be avoided as an investment route for at least a year, since demand for such units is at low ebb at the moment. Investors can take an informed call on certain projects in high-value locations, since there is always a core group of HNI buyers who would purchase units in such projects. However, such a call must be taken only on the basis of extensive local market research.

Non Metro Property Investment

For investors looking at non-metro and emerging cities, there are quite a few options.

Ahmedabad, Surat, Vadodara in Gujarat definitely hold potential. Gujarat is among the fastest growing state economies of India, and it has achieved remarkable progress in terms of industries, finance and infrastructure. It also has the highest per-capita income among the Indian states.

Kochi and Coimbatore are good cities for property investment in South India. Kochi is the commercial capital of Kerala, a major tourist destination and a major growth nexus for medical tourism and eco-tourism, along with a boom in its local IT/ITES sector. Coimbatore is the largest industrial centre in Tamil Nadu after Chennai, and has transformed into a preferred destination for IT/ITES as a result of lucrative incentives given to IT companies by the Tamil Nadu government. It offers excellent business infrastructure, quality of life, a highly skilled work force as well as low cost of living, low pollution, a rapid pace of infrastructure development and a proactive Government that is aggressively promoting the city.

Towards the North, Jaipur and Jodhpur are good property investment destinations. These two cities form a part of the golden triangle on the tourism circuit, and are major tourist destinations. Strategically located on the Golden Quadrilateral, Jaipur has excellent connectivity to Delhi NCR, Jaipur - along with Ahmedabad and Nagpur - has been identified as a very promising emerging city for the IT/ITES and BPO industry.
Construction on the Jaipur Metro project has already begun, and this will enable rapid transit within the city.
n In the East, Visakhapatnam is a promising city. A major port, it is the second largest city in Andhra Pradesh and also a major industrial centre and hub for the petroleum, steel and fertilizer industries. The city has a biotech SEZ and industrial developments like the steel and power plants in the south. The major growth corridor is northwards, along NH-5 towards Vijayanagarm. The Government of Andhra Pradesh has also started an IT SEZ in Rushikonda hills at Vizag.

Chandigarh, the capital of Punjab and Haryana, is one of the most excellently planned cities of India and has the highest per capita income in the country. The Rajiv Gandhi Chandigarh Technology Park, spread over 400 acres, has put Chandigarh on India's IT/ITES map. Major Indian firms and multinational corporations such as Quark, Infosys, Dell, IBM and Tech Mahindra have set up bases in the city and its suburbs. In 2010, Chandigarh was ranked 8th among top Indian cities identified globally as 'emerging outsourcing and IT services destinations.' The satellite towns - Mohali and Panchkula are rapidly developing and attracting a lot of investment.