Investing in Real Estate? These Micro Markets can Give Good Returns

There is an uncanny similarity between the stock market and the real estate market today. Though the overall equity market is looking weak, there are several stocks worth investing right now. Similarly, though the broader real estate market is flat, action is happening at the micro level. There are several pockets across metros and large cities where property prices are reasonable and investors can expect Good Returns.


However, don’t expect prices to shoot up like they were between 2005 and 2008. “Rental yield can be a good yardstick for residential real estate. Investors should get in only when the rental yield is more than 3%,” says Pankaj Kapoor, MD, Liases Foras. The introduction of the Real Estate Regulation Act helps buyers but has removed the information asymmetry that helped generate High Returns from property. “Real estate, especially New Launches, used to double in value in 3-4 years; that phase is n ..

Second, the focus has shifted from premium properties to the affordable and mid-priced segments. Due diligence by home buyers has also improved. “Home buyers are taking time and doing indepth research like visiting property sites several times before buying,” says Jayashree Kurup, Head – Content & Research, MagicBricks. “Three main factors to check is the credible developer, right-sized house and good price. Unlike earlier, home buyers now insist that all three are in place,” says Sharad Mit ..

This week’s cover story looks at micro markets that are doing well and could offer value to buyers. We examine the factors that have worked for these pockets and tell you why you should consider buying property in these hotspots.

Improving connectivity and quality of space are plus points.

Gurugram Strong Showing

Improving connectivity and quality of space are plus points. 

Office-Space small

Availability of high quality office space at reasonable rates has helped Gurugram score over more expensive Delhi. “Gurugram remained the preferred office destination in NCR with about 57% share in overall leasing in 2017,” says Sachdev of Colliers International India. In addition to the cost advantage, proximity to the airport is another attraction. The price performance in Gurugram has been unlike other cities. A similar trend is expected in the coming year as well. “Premium office occupiers will continue to prefer Cyber City, Golf Course Road and NH 8 owing to their enhanced connectivity,” says Sachdev. Similarly, the state government’s efforts to decongest the Gurugram-Alwar highway should make commuting easier from Sector 48.

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Gurgaon most preferred office market in NCR with 51% leasing share in 2016


NEW DELHI: Gurgaon remained the preferred choice for opening offices in the National Capital Region (NCR) among companies, grabbing 51% share or 3.88 million square feet of the total office space leased in the region in 2016, according to property consultancy Colliers International.

Noida and Delhi accounted for about 36% and 13% share, respectively, out of the total 7.6 million sq ft office space absorbed in the NCR in 2016, at par with 2015 numbers.

While the technology sector remained the key driver of office leasing activity in Gurgaon with a 32% share, the share reduced from the last year’s number of 64%.

In Noida, also the technology sector remained the key demand driver with 60% share.

A total of 41.6 million sq ft of office space was leased last year across the top cities in India, with Bengaluru maintaining its leading position with a 31% share or 12.8 million sq ft of office space leased.

Delhi-NCR took the secnd spot with 18% share of the total occupier demand, followed by Mumbai with 14%, Hyderabad and Chennai with 13% each, and Pune and Kolkata with 9% and 2%, respectively, showed the report.

“In the technology driven markets such as Hyderabad, Bangalore, Pune the demand-supply gap is likely to remain a concern in short term. Tenant appetite for higher quality offices has been reflected in new leases being executed at above market rates in select grade A buildings in all the cities,” said Surabhi Arora, Senior Associate Director, Research at Colliers International.

Just 27.2 million sq ft of Grade A office space was released into the market in 2016. “This was insufficient to cope with the very strong demand especially in markets such as Bengaluru, Hyderabad, and Pune and resulted in a significant fall in vacancy levels and an increase in office rents in most of the micromarkets in these cities,” she said.

Colliers expects a similar trend in 2017 as well, with an upward pressure on rents at least in the first half of the year in most of the preferred markets for grade A buildings.

However, due to a dearth of quality office space in other technology-driven markets like Pune and Bengaluru, NCR may see increased absorption volumes in the coming quarters due to supply-led demand, feels Arora.


Office rentals in Delhi NCR remain static in H1; Gurgaon sees marginal rise

Average office rentals in Delhi-NCR have remained static at Rs 77 per sq ft per month in the first half of 2016, compared to the year-ago period, according to property consultancy JLL India.

Submarkets of Gurgaon and Noida, however, witnessed a marginal rise, with average year-on-year rents increasing 1% and 5%, respectively, to Rs 75 and Rs 43.

Office rentals in Gurgaon’s Cyber City is inching closer to triple digits. “The profile of tenants has changed in recent years. From being back offices with strict dependence on cost arbitrage, the tenant profile now includes consulting, high-tech engineering and design firms,” said Santhosh Kumar, chief executive officer, operations & international director, JLL India.

“Presence of non-IT companies in such traditional IT holdouts has also increased,” he added.

Delhi-NCR also had the highest vacancy rate of almost 32% in the June quarter this year, mainly due to inventory pile up at peripheral locations such as Manesar, Greater Noida and the extended parts of NH-8.

Bengaluru leads the way in vacancy rates, with only 3% of office space vacant as of the second quarter of 2016, followed by Pune and Hyderabad, with vacancy levels of 6% and 9%, respectively. Chennai comes next at around 12%, followed by Kolkata and Mumbai at around 19%, each.

In terms of having the most grade-A office stock, Gurgaon micro-market leads the way followed by Noida and SBD. Delhi city has limited grade-A supply, according to JLL.

Source: CredaiNCR.Org


Builders target office-goers, shift focus to office-retail complexes

The combination of retail and office complexes may not be entirely new to metro cities, but the trend of setting up such combined projects is fast catching on. Developers are now looking at experimenting more with a mixed-use format rather than standalone retail formats, allowing for quality retail on the lower floors and commercial spaces on the upper floors.

Even today, key portions of several office buildings in property markets are occupied by food & beverages and retail BFSI outlets. Such mixed-use retail developments have opened up a new format that will attract select categories of retailers. “Of the total retail presence in office buildings across major tier-I cities, 26% is occupied by food & beverages and a significant 23% is occupied by retail BFSI outlets.

While retailers get the dual advantage of paying lower rents compared to premium spaces in Grade A malls and closer access to their main target segment of office-goers, developers are also open to experimenting more with a mixed-use format rather than a standalone retail format,” said Anuj Puri, country head, JLL India. Such office-retail complexes (ORCs) are emerging as alternatives to high streets, and even malls, for some categories of retailers.

“It is very important to bring in an optimum mix of retail spaces, which are best suited within that setting. Essentially food, BFSI related outfits bring life into these business districts and should be planned more to optimize the commercial user and not just retail space to maximize rental revenues,” said Vinod Rohira, managing director, K Raheja Corp.

Source: CredaiNCR.Org


HNI investors switching to commercial property

India’s rich investors have switched to buying commercial property in place of housing over the last 15-18 months following a tapering down of property price appreciation in the residential real estate in top Indian cities.

Commercial property serves as a lucrative investment option with investors gaining from rental income as well as capital appreciation. Grade A commercial properties give 8-10% rental returns on the capital value depending upon interest rates. Investors have been buying properties ranging from 1,300 sq ft to 20,000 sq ft. Investors and buyers from destinations like Indore, Belgaum and Noida have been flocking to prohibitively priced office space in the financial capital of Mumbai, an unheard of phenomenon till now, says Vipul Shah, MD of Mumbai-based Parinee Group.

“Investors are looking to pick up even under-construction properties unlike before when only ready properties were being acquired. We have been able to conclude four outright transactions at our 0.5 million sq ft commercial project at Andheri (suburb of Mumbai) in the last two months, which is a much better pace than usual,” said Shah.

Major residential markets in the country saw average residential property prices in the city and suburbs appreciate by only 3.3% in 2015 as against an average of 7% in 2014, a study by property consultancy JLL India revealed.

In the Delhi-National Capital Region, a big investor market, Bengaluru and Chennai have seen prices appreciating around 2% in the last quarter of 2015. The trend is similar in peninsular India too. Prestige Estates Projects has also seen more HNI investments in commercial property.

“We have sold 0.5 million sq ft in the last three months to HNIs as they are looking to build annuity portfolio as returns are better than residential projects,” said Nanda Kumar OP, vice president and head of leasing at Prestige Constructions. In Bengaluru, micro markets like Whitefield, outer ring road and central business district has already reached its peak in terms of rental appreciation too, he said. “We will continue to see rental appreciating by around 7% annually.”

“In the last year or so, investors have been keen on good commercial spaces, especially where infrastructure and quality of the building are sorted,” says Aakash Ohri, executive director at builder DLF Home Developers, who sold around 600,000 sq ft of space in its new office building Two Horizon Center in the last one year for close to Rs 1,000 crore. Strong absorption across major cities in the country has seen rentals moving up in the last one year. According to data from property consultancy CBRE Asia, rentals in Gurgaon’s Cyber City area rose 13% while those in Bengaluru’s Whitefield and Electronic City rose 12%. Rentals in Hyderabad’s IT corridor and areas such as HITEC City, Madhapur and Gachibowli rose by 14-20% in the last one year. However, rentals have stagnated in most parts of Mumbai and Chennai.

Abhay Khemka of Gurgaon-based brokerage Khemka Investments and Properties says whatever investor interest is left in the real estate market today is only for commercial property. “They have no interest in residential today as they are already stuck with apartments. It is a lot easier to exit a commercial property, especially if it is leased out, while it is very difficult to exit a residential investment today,” said Khemka.

Builders too are scrambling to build more commercial space. House of Hiranandani is looking to foray into commercial real estate and firming up plans to increase its footprint in Bengaluru & Chennai. “We are looking at an inorganic expansion strategy to expand the commercial portfolio and is on the lookout for projects which have already kicked off but are stuck due to lack of funding or expertise,” said Surendra Hiranandani, CMD, House of Hiranandani.

Commercial real estate witnessed a turnaround in 2015 after being sluggish for over three years. Cushman & Wakefield predicts absorption is likely to gain momentum with current pre-commitment levels across eight cities seen at 11.80 msf in 2015, which would give a fillip to the trend of large deals in 2016 amidst frenzied consolidation activity in the market. Most of the pre-commitments are likely to be absorbed in 2016, with the some of them spilling over to 2017.

Source: Content.Magicbricks.Com