Market researchers say that scheduled infrastructure projects invariably increase the value of properties in the adjoining areas.
Advertisement blurbs like Just five minutes from a proposed Metro station or Five-minute drive from the airport with an upcoming Expressway have become the unique selling points (USP) of private developers in the Delhi NCR.
According to market researchers,it is an established fact that scheduled infrastructure projects tend to increase the value of properties in the adjoining areas.This is so because the infrastructure project becomes a part of the USP for developers or property owners to tag their projects.
Saugata Maitra,senior vice-president (Strategic Consulting ) at Jones Lang LaSalle India,says: There have been instances when property prices have increased 50-70 % of the original cost with the announcement of an infrastructure initiative,until the operational phase.For example,residential sale rates in Essel Towers,Gurgaon,increased from around Rs 5,000/ sq ft in 2006 (when the Delhi Metro was announced) to nearly Rs 9,000/ sq ft towards the operational phase in 2010.In comparison,other areas displayed a more reticent increase,by 40-50 %.Likewise,property values increased almost overnight in and around Panvel,Kharghar,Ulwe and most southern parts of Navi Mumbai,as well as Mumbais eastern corridors,which are well linked to the announced international airport.
Analysts also feel there are different stages for price escalation starting from the pre-announcement of a project till the completion of the same.
Sanjay Sharma,a property analyst,says: From the time that rumours start floating about a proposed infrastructure project to the stages in between like formal announcement,commencement of work,and completion builders even use fudged factors to quote higher rates for their projects.But between these stages,prices attain a plateau.
In spite of all this,escalation in property price may not be a uniform phenomenon across all property segments,experts say.
Let us take,for example,the announcement of a new railway station,a Metro line,a bus terminus or even an airport.While the low-to-mid-income property segments would definitely be positively affected,property prices in high-end residential areas would be less likely to experience a steep rise with the announcement of these projects.The reason is simple for the high-end property owners,enhanced public transport facilities would not hold any significance, Maitra adds.
Also,infrastructure projects could have negative effect on the value of high-end residential property.With prospective infrastructure projects like an airport or a Metro corridor,demand for and profitability of high-end residential properties can take a beating owing to the increased noise and crowding.
Scheduled infrastructure projects tend to increase commercial activity and create jobs after their completion.Take for example Kundli in Sonipat district in the NCR.The very proposal to develop it as the next satellite township has escalated the property prices manifold, says Sonia Vaid a property research analyst.Infrastructure projects like airports result in increased employment opportunities in the logistics,hospitality and commercial sectors.Naturally,low-to-mid-income residential property demand increases because more people employed in these sectors will need to live in the vicinity, Maitra explains.
Even in posh areas,adverse location of a property can impact property prices.Property prices in DLF Phase II area in Gurgaon,which is near a garbage dump a few blocks away,are almost 40% lower than prices at other DLF areas due to the stench.Also,facilities like a sewage treatment plant (STP) can prove to be negative growth factors, says Ramesh Menon,a reality expert.
The blueprint of the real estate and infrastructure development of any city is prepared by the state government concerned,in their respective master plans or city development plans,on the basis of the needs and demand of a city.And once either of them is set in motion,they give fillip to the other.
A spokesman of Omaxe Ltd says: Realty demand,vis-a-vis prices,increases in a city that is witnessing infrastructure development and this is true for non-metro cities as well.On the other hand,many times,real estate development creates a wave for infrastructure development.Cities like Mullanpur witnessed infrastructure development after developers launched projects which increased the demand from end users and corporate investors.Property prices also increase with the infrastructure development.
Ravi Saund,head of business development,CHD Developers Ltd,says: When a customer buys a property,he has two clear choices either pay a premium and buy in an already established locality or invest in a project under construction,which will have basic infrastructures in place by the time the unit is ready for possession.
However,analysts say that one should avoid investing in properties which announce major infrastructural growth either in their pre-launch phase or in the almost complete phase since there might be issues like shifting of location in the former case and certain clearances,completion certificates in the final stages of a project,which might completely stall the inauguration.
Also,since builders have nothing in writing about such promises,they cannot be held accountable for any changes brought in the future in these proposed projects.
Saund says: It is clearly mentioned 'subject to clearance from authorities concerned and the marketing is carried out with an approximation of the proposed infrastructure.Also,a developer is not given licence to begin work till the government has planned infrastructure.However,one cannot do much about any last-minute pullouts.
In summation,one must take a good look at the property appreciation dynamics involved before investing in property following on the heels of a major infrastructure upgrade or project-implementation announcement.A proper assessment of the demand drivers around a particular infrastructure project is of the utmost essence to establish the genuine investment potential in the vicinity on a case-to-case basis.Generally,the Real Estate Zone is already packaged within large infrastructure projects to increase the viability.
Investing in such zones,maybe as a co-developer,is a good idea.
Factors to consider
Likely implementation time frame,including the phasing of significant modules Value drivers in terms of logistic convenience,employment generation,an increase in trade and business,etc The development and land-use plan of the city or region,and how the particular project fits into the larger development plan,earmarked growth zones,etc. Intending property buyers are invariably confronted with a sudden rise in property rates because of the announcement of an infrastructure project.All in all,one should develop a specific projection with regard to demand,supply and financial viability in order to assess whether the premium is justified.
