Myth No. 1: There is a ‘bubble’ in the Indian real estate market, and it will burst soon
Fact: There is no evidence of a ‘bubble’. When a bubble develops in any market, it is because prices for that particular commodity or asset have gone through the roof and beyond affordability. This is far from the case in Indian real estate. The residential sector is led by end-users and it is they who dictate the state of the market. Neither is there a significant correlation between the state of the stock market and that of the property market. There are no indications that investor activity has overtaken genuine buyer activity. In residential, the proportion is approximately 80% end users and 20% investors. In the commercial sector, the proportion is almost 100% end users who are taking property on lease. There are instances of overheating but these are localised.
Myth No. 2: Indians do not figure very large as property buyers on the international property market.
Fact: Residential rates at Mumbai’s Nariman Point or Cuffe Parade are priced anywhere between Rs 25,000-55,000 per sq feet. For the price of a 2-BHK flat in these areas, one can buy a villa in Dubai or London’s suburbs, a luxury flat or a standalone house in New Jersey. Many Indian buyers have woken up to this fact and are buying homes abroad.
Myth No. 3: Thanks to India’s booming economy, higher salaries, higher aspirations and easier home loans, most Indians are buying high-end homes now.
Fact: The accent is still very much on affordable housing. As before, the Great Indian Middle Class is not motivated by its need for greater convenience, but by the ability to pay for a home. In that context, the greater demand will always be towards affordable housing options.
Myth No. 4: Major Indian developers are abandoning the MIG sector and concentrating on high-end residential projects because it makes better business sense
Fact: Most big-banner developers still see sense in constructing mid-income housing projects, since they can construct more volumes. The demand in terms of units is phenomenal and developers getting into this segment can build for years to come. They have the assurance of sure-shot absorption, as well. Most major Indian developers are not shifting from affordable to high-end housing - only branching out. While they get into middle-segment housing, they continue to build high-end projects.
Myth No. 5: The metros are still the best places to invest in real estate
Fact: The real estate boom is causing many of our metros and even some of the previously popular Tier II towns to saturate at an incredible pace. Property prices there skyrocket beyond the reach of middle-income homebuyers, causing them to look a little further each year. Investors observe these migration trends, analyse the magnitude and scope of activity, and identify one or the other new town as the next coming thing. A fundamental real estate investment mantra is that emerging localities are preferable to established and often saturated ones. Established areas eventually reach a peak in terms of appreciation potential, after which the growth rate either slows down or stagnates. Moreover, there is little scope for new market drivers such as malls to find a place in saturated localities - meanwhile, prices remain high. This is not the best of scenarios from an investment point of view, since optimal investment requires low entry levels and appreciable growth within a realistic time-frame. Therefore, as one or the other destination reaches its peak potential on all these counts, new ones come into the limelight.
Pune specific
Myth No. 1: Pune’s real estate boom is driven entirely by IT / ITeS
Fact: It is certainly true that this sector’s increasing presence in areas like Hinjewadi, Kharadi, Phursungi and Hadapsar has caused Pune to emerge as the new IT/ITeS Mecca. However, Pune’s real estate market will also continue to benefit from its growing manufacturing sector. The immediate future will bring considerable growth in the traditional industrial locations of Chakan, Pimpri-Chinchwad and Bhosari and the decisive emergence of new hotbeds like Talegaon. Chakan will see the entry of the German automotive giant Volkswagen, and New Chakan is the proposed site of Pune’s new international airport. Meanwhile, General Motors has selected Talegaon for its new manufacturing plant.
Myth No. 2: The scrapping of ULCRA will cause prices to crash in Pune.
Fact: Central Pune will not see a fall in rates, since no land will be released there, the release of land in the outskirt areas of Sus, Lohegaon, Baner, and Wadgaon Sheri will definitely bring prices down in the more developed adjoining areas to some extent. Since Pune’s outskirts are currently the hotbeds of real estate action, this is significant.
Myth No. 3: Apart from Mumbai, Pune is and will remain the primary hotbed of real estate activity in Maharashtra - thanks to IT / ITeS.
Fact: One cannot discount the competition presented by cities such as Nagpur and Nasik in terms of lower living cost and property rates, as well as their better infrastructure. In fact, Nagpur is now a major contender in the commercial sector by virtue of the upcoming MIHAN SEZ. This project, which includes residential areas, hotels, open spaces, entertainment facilities, an international residential school and advanced infrastructure, has attracted the attention of IT majors such as Tata Consultancy Services and Patni Computer Services.
As far as Pune’s continued IT/ITeS boom goes — a lot depends on the outcome of NASSCOM’s request for a 10-year extension of tax concessions under the STPI (Software Technology Parks of India) scheme.
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