Hot spots for residential realty

Dec 15 2012, 09:28 IST
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SummarySeveral cities are seeing high growth turning them into the next investment destination for residential realty.

Several cities are seeing high growth turning them into the next investment destination for residential realty. Even as various studies point to their emergence, an investor would do well to carry out proper due diligence

Home buyers are no longer content with a roof above their head, or a space they can call their own. They are approaching the entire purchase process with the mindset of an investor. Even as they are looking at comfort and other amenities, their sights are fixed on the appreciation potential.

The countryís real estate market is also witnessing the rise of a new class of customers: double income couples who form a significant proportion of second home investors.

Even as this new class has taken to calculating risks against returns, it is usually family elders, friends and local brokers whom they turn to for advice. Decisions are based on limited information, gut feel or some tip about possible returns. Basing oneís decision on such supposedly time-tested strategies could result in a bad investment.

As an investor, one should remember that the realty sector is no different from any other investment avenue, and professional guideposts can help one identify good investments and also give a framework to base oneís decision.

The Demand Drivers

The demand for residential units in India has surpassed the limited supply a decade ago. This continued shortfall has translated into property prices going out of reach of the average buyers in most metros. However, demand keeps increasing. As a result, two trends have surfaced over the last several months. One, due to non-affordability, significant demands have shifted to Tier-II and Tier-III cities, which has turned them into locations that could potentially yield good returns. Second, prices began to stabilise at the higher level in metros but with a strong basis for further appreciation in some pockets due to high demand.

These cities also have other demand-raising and hence price-hiking drivers such as on going and planned projects in infrastructure, a growing service sector, manufacturing base, huge business investments and employment-generating opportunities.

The heightened economic activity in these regions could make them hot-spots for for the next wave of real estate investment. Compared to the ever-ballooning demand the supply is marginal at present. This widening gap that is not being filled fast enough, explains the slow but steady rise in property prices across all segments.

According to a report by the Ministry of Housing and

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