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Residential real estate sector a favorable asset class going forward

November 26, 2010 Leave a comment

 

Residential Sector: The residential sector has proven to be the most resilient through the ups and downs of the previous financial crisis and the slowdown thereafter. Most of the demand drivers for real estate in India eluded to in the above paragraph such as rise in income levels, nuclearization of families, penetration of cheap home financing (yet no where near sub-prime conditions as was witnessed in parts of the western world) etc. are actually playing out in reality across various Tier I and Tier II cities in India. According to market data from PropEquity, almost 90% of all residential product that is built across major Tier I and Tier II cities in India (including Mumbai, NCR region, Chennai, Bangalore, Calcutta, Hyderabad, Pune and Ahemdabad) is sold. Furthermore almost 65% of all residential product that is currently under construction has also been sold (pre-sales)! Such high levels of sales and absorption bear testimony to the fact that the investment opportunity in the Indian residential real estate sector is actually quite real and will most likely continue as long as the demand drivers remain intact. Ofcourse, pricing does tend to be cyclical in nature as typically whenever sale volumes increase, developers leave no stone unturned in raising their prices. Subsequently, a noticeable increase in price then deters the home buyer from making purchase decisions leading to a decrease in sale volumes. And finally once developers realize that their sale volumes have dried up, they reluctantly drop their prices or offer clever financing schemes to lure the aspirant home buyer thereby once again kick starting the buying frenzy. While such cyclical movements in prices will continue to play out in the future as well, structurally atleast, the residential real estate sector in India will remain a favorable asset class going forward.

Excerpt from : Reality Check and Assets Classes for the future (25/11/2010) - VCCircle
http://www.vccircle.com/500/news/reality-check-asset-classes-future

GST Road vs. OMR

February 14, 2010 1 comment

GST road vs. OMR   

The two roads that are most talked about by developers and investors alike seem to be GST Road and Old Mahabalipuram Road. What if you pit them against each other KALPANA MURTHY provides a general perspective on what to expect from both roads.   

The two roads that have gained prominence over the previous few years for the real estate investors and end-users in Chennai are, without doubt, GST Road (NH45) and Rajiv Gandhi Salai (OMR). The locations saw a spurt in activity once corporate tenants began to show interest in the available commercial properties. From there, both these roads have, over the past few years, seen significant construction and infrastructural activity and now have multiple residential apartments in various stages of development ; some are currently offered for possession too. Both these corridors were touted as the future growth corridors of Chennai and saw the rise of large developments although both of them have their unique characteristics and growth factors .
   

A comparison of the two roads indicates significant commercial development. Rajiv Gandhi Salai (OMR) is the IT corridor, what with its significant supply of IT. Major IT/ ITES companies have their presence on this stretch, which is expected to cater specifically to the IT segments needs. GST Road, on the other hand, has SEZ developments such as Mahindra, L&T , Shriram, etc, along with multiple industrial units being set up in the vicinity. This consequently allows for mixed developments to be witnessed along the stretch which caters to a larger strata of society . Presently, Rajiv Gandhi Salai is faced with an oversupply situation with vacancy levels greater than 45% while GST doesnt suffer from that problem.
   

Physical infrastructure is strong in both the locations with the recent upgradation of roads, although connectivity in GST is stronger owing to the Southern Railway line and its proximity to the airport. As State-run buses use the East Coast Road instead of Rajiv Gandhi Salai, lack of public transport continues to plague most stretches of the latter. GST Road also boasts of stronger social infrastructure such as schools, higher education institutions, retail space, hospitals , etc, in comparison with Rajiv Gandhi Salai. However, social infrastructure in Rajiv Gandhi Salai is presently being established and as time progresses, is expected to strengthen further with more schools, hospitals, entertainment and retail centres. Both locations over the long term have the capability to be self-sustaining micro markets in Chennai, although the pace of the growth may vary.
   

Further infrastructural developments can be expected on Rajiv Gandhi Salai with Phase I – Madhya kailash junction to Siruseri being completed in the first half of 2010, and Phase II – Siruseri and Mahabalipuram, expected to begin in 2011. With the recent completion of the fourlane GST Road, additional infrastructure (such as rail and road over-bridges ) is expected in the near future. 
In the present scenario, GST has an advantage as compared to Rajiv Gandhi Salai in terms of wholistic sustainable growth coupled with the presence of manufacturing and IT companies. Further, the development in this region is more spread out as compared to Rajiv Gandhi Salai as the latter is developed only on either side on the corridor. That said, Rajiv Gandhi Salai has the potential to develop and may emerge as a hotspot , depending on the pace of infrastructure developments in the region.

Where should you invest ?
As they say, it always pays to do your homework before investing. Here are a few details about both destinations that will go a long way in helping you make the right decision … 

Proximity to Educational Institutions  

GST Road – The location enjoys great proximity to schools, hotels and other facilities, what with schools like Vidya Mandir and Mahindra World School being set up here.
  

Rajiv Gandhi Salai – One of the most significant problems of this stretch, in comparison with GST Road, is its infrastructural development . The Expressway has been under construction for the past seven years, without seeing much progress. However, the stretch has a few educational institutions like the PSBB Millennium school and EuroKids. 

 Rental values for a 1,000 sqft apartment  

 GST Road – As can be seen in the tabulated column, one can expect to receive a rent anywhere between Rs6,500 to Rs10,000 for low-end apartments; Rs12,000 to Rs20,000 for middle-end apartments and Rs18,000 to Rs35,000 for luxury apartments. The hiked rentals result in the good connectivity of this road to the city, thanks to the suburban trains. Its proximity to the airport also plays a huge part in the spiked rental value of apartments here.
  

Rajiv Gandhi Salai – Quality amenities in apartments play a pivotal role in perking up the rentals in this stretch. Often, the location of the apartment and its proximity to the city are factors that decide the value of the rent. Residents of this stretch are mostly BPO (Business Process Outsourcing) employees, essentially bachelors and spinsters on a transferable job. Students from across the country studying in colleges along this stretch also hold a share of the resident profile as do corporate guests. The lack of public transport on this stretch is also a major cause of worry for potential investors who wish to rent out their apartments. It is all these factors that reduce the rental value of an apartment on this stretch, in comparison with that on GST Road.  

  

Property Time, 13th February, 2010