Economic activity is now shifting to tier II and tier III cities. Companies in the IT sector, the main growth driver, know that the workforce comes from smaller cities, and so are now going to those cities. The driver is not just real estate cost (which accounts for around 11-12% of their overall cost) but more important, the salary cost.
There are still opportunities in big cities, of course—in terms of emerging growth corridors. Many of these have seen significant investments in infrastructure and the real growth will happen now.
The reason you might notice a slower pick-up rate in the market is because every year around March-April, affordability in the key markets goes up especially for the service sector (because of increments). While the pace of the price rise has slowed down in the past six to nine months, income continues to rise, so potential demand is still being created.
While this slowdown is limited to real estate, people are making money in other sectors, which will have a spillover effect. High job confidence continues to lead to consumption. Also, till the next elections, inflation will be kept in control.
While this is still a good time to buy for first-time buyers, one would expect people to do enough research and take into account factors like accessibility to the property. For example, Lower Parel in Mumbai is a sought after location and people are willing to pay huge premiums for property there. But there are certain locations there where access areas and arterial roads remain narrow and encroached upon.
In some markets, there are early signs of oversupply and therefore investors need to be cautious. On the other hand some markets have not seen too much supply. Price in these cities will continue to go up. We will get definite signs of the trend around March 2009 when the impact of the supply will be felt.
For investors in property, I would like to emphasise that real estate goes through boom and bust cycles and it is very rare for a boom to go on for more than six years at a time. For investors, the entry price point should be the starting point. If you are looking for property in established cities, focus on emerging growth corridors and not on the established locations.
However, this doesn’t mean just the suburbs or the peripheral locations. The gap (in terms of capital values) between Delhi and Gurgaon is reducing every day. However, within Delhi there are locations like Rajinder Nagar and Kirti Nagar, which have a very good social infrastructure. So, even if it is slightly more expensive, it might be the right decision to buy a property there rather than in Gurgaon.
It sometimes makes sense to look outside your city for investments. For example, capital values in Gurgaon today have hit around Rs 7,000 per sq ft, while it is Rs 6,000 per sq ft in Goregaon. If you look at the rental returns, there’s a huge gap between the two places with demand in Goregaon being much higher.
It is also important that investors should not enter speculative markets. Also, don’t be emotionally attached to the property. It may not be in an exotic location, but if it makes for a sound investment, go ahead and buy.
