32 townships are coming up in the four metros alone.They are spread over 30,385 acres
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The Amenities Checklist
For a township to be more than just a large housing colony, it needs to provide certain facilities. Click here to see the checklist |
When you are buying the home of your dreams, wouldn’t you just love to buy a spacious, airy apartment, set amid green acres, with excellent infrastructure, schools nearby, a hospital two streets away and a shopping complex on call? What most of us end up with is a matchbox-sized two-bedroom apartment overlooking a crowded street, in a faceless concrete monstrosity. For greenery you have a handkerchief-sized lawn if you’re really lucky. Oh, and regular power cuts, water only every second day, no buses within a threekilometre radius and the pizza place won’t deliver. It’s more than likely that we know all about the second option, because most of us are living in it. But did you know that you can possibly get the first option at a fraction of the cost, if you’ll only look beyond city limits? Suburban gated communities could be a viable option, but if you really want some bang for your buck, look at townships.
Developers across the country have re-discovered the township model and are going all out to develop little cities on the outskirts of metros. The most well-known is Pune’s Lavasa township, an entire hill station being built from scratch. If you want something a little less like a resort, developers are offering you several options. For instance, there’s the 230-acre Mahindra World City, which will cater to the residential demand of the huge and increasing workforce employed in the Mahindra SEZ in Chennai. Then, there’s Magarpatta City near Pune, which aims to be a city within a city. Purvankara and Prestige Estates have started work on their township projects close to Bengaluru. The list goes on. According to a DTZ study, townships are mushrooming in urban centres across India (see chart In the Pipeline on page 38), with Bengaluru, Mumbai and Delhi witnessing the maximum activity. But before you look at who is building where, it makes sense to see what it is that they are building. What exactly is a township? And does it make sense for you to invest in property that’s nowhere near the city centre?
WHAT IS A TOWNSHIP?Cost break-upEstimates for a typical 300-acre integrated township
Land 49.6% (Rs 450 cr)
Site development and infrastructure 17.3% (Rs 157 cr)
Other basic amenities 0.3% (Rs 3 cr)
Residential development 32.7% (Rs 297 cr)
Total Rs 907 cr |
Calculation of house cost |
Average residential land use in a township
| 45% |
Assumed average floor area ratio
| 2 |
| Estimated residential development (sq ft) | 58,80,600
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Cost of residential development (Rs per sq ft)
| 1,543
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Mark-up (assuming an IRR of 20%)
| 309
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Estimated price of residential development (Rs per sq ft)
| 1,851
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Assumed average area of a residential unit (sq ft)
| 1,200
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Price of one residential unit in township (Rs)
| 22,00,000
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| The positioning of the units in an integrated township could emerge as one of the key issues to drive the demand for such development. A back-of-the-envelope calculation (by DTZ) suggests that a developer could construct housing units in tier II/III cities at around Rs 2,000 per sq ft (compared to some Rs 3,000-3,500 a sq ft in the main city) |
| Click here to see upcoming township projects |
The township format, although it’s been around for a while, is still not a unified one across the country. This lack of common definition means that anything from a development of 25 acres to 2,500 acres is being touted as a township. However, individual state governments and planning authorities have specified key prerequisites for a project to be called a township. In Gurgaon (Haryana), Maharashtra and Bengaluru, the minimum area for a township project is 100 acres. Besides, there are other norms like minimum road width, percentage of land usage, etc specified by the authorities.
Depending on size, a township project is expected to provide certain social infrastructure and ancillary facilities as well. For example, all townships must provide schools and basic medical care facilities, while those above 1,000 acres in size must provide a college as well. Similarly, all townships must provide a community room and library, but only the mega townships need to offer a recreational club. Projects larger than 1,000 acres can, therefore, be called “integrated townships”, since they are basically selfsustaining in nature.
SHOULD YOU INVEST?
One of the biggest advantages of investing in large integrated townships is that the cost of entry is low compared to investing in the city. Most integrated townships are coming up at a distance from the city core and this gives the developer an advantage of lower land cost. Also, since most integrated townships are still at the construction stage, developers do not have a model on which to base there sales on. That tilts the market in favour of buyers.
“Due to changing preferences of customers and the expected higher demand for township homes, these become a better option for investment. Also, since integrated townships are self-sustaining, they are less vulnerable to volatility in the market,” says Prakash Gurbaxani, CEO, QVC Realty. On an average, 10-12% annualised appreciation is a reasonable expectation over a 5-7 year timeframe, the property value would double in 6-7 years, he adds. “At Magarpatta City, people who booked flats in 2000 did so at Rs 1,000 a sq ft; now the rates have gone up to Rs 3,500 a sq ft. Many people have sold their flats and upgraded to bigger ones. That is a much better return than anything within Pune city,” says Satish Magar of Magarpatta City.
Most important, townships are starting to take the concepts of walk-to-work and walk-to-school very seriously. More and more developers are trying to set up townships close to industrial estates, software parks and the like. “A good project, even if at some distance from the city centre, finds favour with self-employed professionals like architects and consultants who would prefer to live in exurban environments while serving the catchments of the city close to the township,” says Jackbastian Nazareth, executive director, Sobha Developers. Other developers are banking on the fact that townships will create their own demand. “Industry would prefer to park capital in places which have ready infrastructure including power, water and housing,” says Kabul Chawla of BPTP.
Projects like the 1,000-acre Kolkata West International City in west Howrah, primarily offer plotted development. The 230-acre Mahindra World City caters to the neighbouring SEZ’s housing requirements, while the 400-acre Magarpatta City near Pune is built on the concept of walk-to-work and walk-to-school.
The bottomline? “It’s a burgeoning market and one can look forward to it as a superior investment proposition,” says Rajgopal Nogja, president, Lavasa Corporation.
WHAT LIES AHEAD
As supply increases and the competition in the market hots up, developers are changing the way they sell township projects. For instance, QVC Realty is taking feedback from potential customers even before launching their project in order to design a product suited to meet their expectations. “About, 400 townships are expected to be developed over the next five years in around 30-35 cities in the country,” says QVC Realty’s Gurbaxani. There are problems, too. The main one being land acquisition. That is when they have to depend on the government. However, some players have come up with intelligent models to get around this problem. For instance, Magarpatta City has made farmers stakeholders in the project, easing the land acquisition problem.
The factors that will drive consumers towards townships in future are likely to be soaring real estate prices and the promise of a better lifestyle. Developers are adding facilities like pre-paid electricity, inhouse water treatment plants or even direct connectivity to existing city transport services (DLF, for instance, has offered to build a monorail linking its township in Gurgaon to the Metro line) because of the scale that townships offer. “As people get busier and have less time or energy to engage with urban chaos, private townships will be the only alternative,” says Chawla.
With foreign investment allowed in large integrated townships, foreign developers too are getting interested in such projects. According to a recent Cushman & Wakefield report, integrated townships have seen the highest attention from investors with 28% of private equity investments going to the sector last year. The report says that this is viewed as a low-risk investment due to its diversification and low entry cost with larger upside potential. And you get a great place to stay, excellent infrastructure, and more. What more can you ask of any investment?
