The right time to buy is now
Real estate
By Vasu

IT is no longer news that real estate values are picking up and investment by individual owners and corporate houses, both Indian and multinationals is increasing. While experts are cautious about being too upbeat by predicting an astronomical increase in land and property prices, the rules that governed the market have changed. "The variables are different than what they were two years ago when prices were sliding", says Vikram Chopra, a leading developer and realtor of the Capital.

"After the market had bottomed out and reached a level where the values were unlikely to go down further, dealers are noticing a change in the buying pattern of the purchaser. The consumer is no longer willing to take up mediocre offerings of landlords, and the initial recovery and the gains have belonged to those who have upgraded their premises and provided quality estate. As the period of recovery progresses, this gap is becoming more evident with few clients even willing to consider second grade accommodation or offerings", says Chopra.

Earlier, they were evaluating property with the intention of renting it. The rock bottom rentals of office accommodation have turned and today corporates have begun to reconsider purchase as a better option. "Thus, the corporate sector is leading the positive market sentiment", says Chopra. Here, too, a clear division exists. Those who are picking up a place on the outskirts of the Capital, Noida and Gurgaon being the hot favour-ites, are taking more space than they need immediately. Such transactions are usually in the range of 10,000 sq. feet to 125,000 sq. feet. Corporate buyers in the Chief Business Districts tend to go in for smaller holdings, less than 10,000 sq. feet, and in the event of excess space they are immediately renting it out. Here, too, quality and technology savvy buildings are stealing a march. Only a few of the older buildings are being picked up and those too in which the owners have undertaken massive restructuring.

India has also been rated as the best Asian destination for real estate investment by global reality research firm Richard Ellis. The country now offers the highest returns on rentals for both commercial and residential property, according to the firm. The projections are pegged between 13 and 15 per cent annual return, excluding the capital appreciation and are higher by 4 to 5 per cent when compared to other Asian countries.

The yield from commercial property in Mumbai and Delhi during 1999 stood at 13.60 and 13.30 per cent, respectively, while Hong Kong and Bangkok yielded only 10.6 and 11.1 per cent. However, despite the fact that Non Resident Indians and overseas corporate bodies are free to invest in the real estate sector, not even one per cent of the projected foreign investment has come into India. The Ellis report says that the yields have withstood property value erosion that occurred in the mid-90s with returns showing an upward trend of 9/10 per cent in 1995 and 13.3/13.9 per cent in 1998. A similar trend prevailed for yields from residential premises with Delhi leading at a 15.11 per cent return. It was exceeded only by the Jakarta market at 19.20 percent in 1999.

This positive assessment will have another impact on Indian real estate, says Chopra. The market will now be globally driven and probably achieve a uniform growth rate of 5 to 10 percent. The growth will however need reforms and uniform policies, duties and transparent processing.

Another trend is surfacing is Delhi. The trend is of retail malls and shopping plazas. Interestingly, they are moving away from the conventional posh limits of South and Central Delhi. The bulk of the real estate investment in commercial marketing and consumer- driven establishments is taking place in the eastern and the western parts of the city. Multiplexes and malls are already in place and if the Greater Noida International Airport comes up, the unequal growth towards Gurgaon side is likely to be neutralised.

Gurgaon on the whole is expanding fast and is being picked up by corporate houses having large space requirements for expansion. However, the rates are not expected to rise in the near future owing to the huge number of commercial and residential offerings. Thus, in an appreciating market, it remains a wise place to invest money though no immediate returns are available in either the commercial, residential or industrial plots here. Immediate appreciation is also not possible in the Central Connaught Place, Nehru Place and Bhikaji Cama commercial areas since availability is high here. This is partially due to the renovated and refurbished buildings.

The immediate and first gainer will be residential property in South Delhi where rentals will see a positive rise in the next six months. However, industrial plots in the area are unlikely to show much appreciation. "The time is right for buying now," says Chopra. "It will stay that way for the next couple of months," he adds.