As we can read in most news stories about the Indian residential property sector, housing has become increasingly end-user driven over the last 2-3 years. This effectively means that it is mostly people who actually intend to use homes for self-occupation who are buying them today. In other words, the pride and security vested in home ownership have not waned one bit in India. However, as an investment class, housing had certainly taken a nosedive until recent developments transpired to revive sentiment.
The return of the property investor
One factor that helped on this front was the series of property price decreases which were witnessed in almost all tier 1 cities of India. These corrections were driven by market realities – housing in cities like Mumbai, Delhi, Bangalore, Hyderabad and even to some extent in Pune was simply not selling at the quoted prices, and developers had no choice but moderate their price tags. Sensing the market bottom, residential property investors once again began making calculated plays in the sector.
In India, investor demand is driven squarely by end-user demand. In other words, investors will only pick up residential properties if they perceive that there are actual buying and renting end-users on the market. This is in sharp contrast to speculator demand, which is usually not driven by market realities at all but purely by vaguely formulated opinions of a future demand scenario. Needless to say, Indian property speculators had burnt their fingers severely in the last 4-5 years and have entirely vanished as a breed.
Not surprisingly, the segment of residential real estate that has seen the most decisive return of investor interest is affordable housing – which has indeed become as affordable as it can get in most Indian cities. It is not only price cuts which have boosted affordability – in cities where even price moderations have proved insufficient to incite demand, many developers are offering genuinely value-adding schemes and incentives which have made purchase decisions a lot more attractive to end-users. And unlike in previous years, these offers will continue well past the festive season this year.
What kind of homes make the most investment sense?
To identify the best residential investment opportunities today, one must understand two things – one, where the bulk of the existing end -user demand is coming from and two, what kind of homes this demand is for. Affordability decisively drives demand, but cheap, featureless flats in far-flung emerging locations are finding no takers. This fact was first evinced in Delhi NCR, where entire districts have turned into veritable ghost towns because of their lack of infrastructure. In other cases and in many cities, we are seeing even completed buildings standing empty because of faulty land titles, lack of water and electricity supply and absence of decent connectivity to workplace hubs.
The inherent value of location, developer’s brand and availability of decent amenities has come to the forefront of most purchase decisions today. The most active buyer segment today is that comprised of young working couples and professional individuals who are looking for well-located smaller homes in projects which they can afford, and which offer them a good lifestyle. For this reason, ‘bare shell’ flats are rapidly becoming the least favored category, as such buyers have neither the interest or bandwidth for starting from scratch on a new home.
Fully-furnished flats with all the trimmings in projects which have advanced lifestyle features are now in vogue. Such offerings are in immediate demand both as purchase and rental options, making them the immediate focus area for today’s residential property investors.
Simultaneously, buyers are giving equal weightage to location, reputation of the developer and the affordability of the quoted price. Hidden costs are out, all- inclusive rates which leave nothing to the imagination are in. Inferior project in non-performing locations are out, regardless of how attractive the price tags are, and well-connected suburban locations are in.
End-users looking at first-home purchases are obvious focusing on the cities they currently reside in or are relocating to for work. Investors, however, have a much wider playing field. The highest investor inquiries are currently emanating from cities like Navi Mumbai, Chennai, Bangalore and Pune. All these cities have a very good saturation of demand drivers, and are generating the highest number of employment opportunities.