What Makes A Real Estate Investment Location Lucrative?

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

A simple Google search on real estate investment locations will throw up hundreds of results. Finding genuine online advice – the kind that can lead you to a truly lucrative real estate investment decision – is like finding the proverbial needle in the haystack.

The Internet’s usefulness as a tool to guide your property investment decisions depends upon the individual’s capacity to read between the lines of a mammoth amount of information which may or may not lead to house one is looking for.

Year 2017 should be a year for residential real estate investment, as the Government is ensuring low interest rates and a slew of incentives via schemes such as the Prime Minister’s Awas Yojana (PMAY).

So, interest in and appetite for real estate investment is back in force – but where should one invest? After all, successful real estate investment is proverbially driven by ‘location, location, location.’

When you are trying to identify the right location to invest in, you are obviously ready to put up a lot of saved or leveraged capital. This is no time to rely on sponsored advice and blanket generalizations.

What must come into play here is some basic knowledge of what makes the real estate market tick, and more specifically what drives demand in any location. The viability of a location is what will result in the hoped-for returns on investment.

So, how does real estate location viability actually work? From a residential property investment perspective, every city – especially if it is a tier 1 city – has its hot investment corridors, and other micro-markets which are simply not working currently.

Some of the important real estate drivers to look for are employment generation, infrastructure creation and historic price growth.

Mumbai, being the country’s financial capital, has been attracting massive investments over the years despite its astronomically high ticket sizes.

Bangalore has become India’s prominent Information Technology capital and been attracting consummate investments.

However, Pune has begun stealing Bangalore’s thunder as a preferred InfoTech destination, owing to:

  • Better real estate affordability
  • Global reputation for Business Process Outsourcing (BPO) services, and
  • Massive wealth of trained workforce.

The third factor is a very important one, and plays a big role in the city’s viability as a real estate investment destination.

Pune Mumbai Bengaluru

Pune – the veritable ‘Oxford of the East’ – has numerous high-quality educational institutes which regularly churn out graduates who are directly absorbed not only into the city’s IT firms but also into its manufacturing belt and services sector.

This directly translates into housing demand across a broad budget band, and in various locations of the city.

All such cities have micro-markets which are suitable for either commercial or residential investment, and others that are probably avoidable right now.

Because of the amount of business Mumbai, Bangalore and Pune generate – and the fact that they are in the cross-sights of many large commercial players – these cities are excellent choices for commercial space investments as long as:

  • One picks one’s location and property size wisely
  • Achieves a reasonable entry point in terms of ticket size

Commercial real estate investment calls for larger capital and longer investment horizons, and ROI is generally derived from rental income.

Areas which are close to relatively affordable residential catchments or at least provide good connectivity to them should be favoured.

When it comes to residential real estate investment, it pays to remember that speculative investments may have played a role in escalating prices beyond affordability in some areas.

Several factors have now combined to drive out speculators from most Indian cities, and price corrections have occurred. If the prices have bottomed out or the location is still in growth mode, it is a good time to invest in it.

One should look for factors like proximity to workplace hubs, infrastructure availability – especially in terms of connectivity and public transport – and a decent saturation of social infrastructure such as shopping outlets, healthcare and schools.

About The Author

Kishor Pate, Chairman & Managing Director of Amit Enterprises Housing Ltd. is the driving force behind one of the most successful real estate development firms in Pune and beyond. Apart from its signature luxury projects like Montecito in Sahakar Nagar and other premium gated townships, AEHL has also launched highly successful affordable housing projects like Astonia Classic and Colori in Undri and the Mediterranean-style township Astonia Royale in Ambegaon.

As Mumbai Saturates And Stagnates, Pune Takes Over

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

Mumbai has for long held the title of being the most desirable city in India to live in. This had nothing to do with ease of living and everything to do with its economy. Despite the fact that life in Mumbai is hard for everyone but the richest of the rich, it trumped all other cities in the quality and availability of jobs.

However, this perception has now changed forever. Just 200 kilometers away, Pune has emerged as the more preferred destination on every count – lifestyle, job opportunities and real estate investment.

It all began with the Mumbai-Pune expressway, which reduced the distance between the two cities. Today, people can actually work in Mumbai and live in Pune.

Pune is still seeing a very healthy demand for property. While neighbouring Mumbai is now being seen a largely unaffordable, real estate investors are now flocking to Pune in order to participate in the real estate boom in this city.

According to Magicbricks’ Housing Sentiment Index, Pune saw only a marginal correction in sentiment while Mumbai, which was already looking at subdued sentiments for over a year now, is still in the grips of a prolonged slowdown in its real estate markets.

Thanks to the massive growth in Information Technology industry and rapidly improving connectivity, West and East Pune are now the most preferred real estate destinations.

Consistent Growth

Pune property market has been even more noticeable over the last two years. The steady momentum has been the key to healthy growth in real estate demand in Pune.

In terms of appreciation too, investment in the Pune market is far superior when compared to Mumbai. According to real estate property consultancy Cushman & Wakefield, Mumbai saw only 16% appreciation in 2014 while Pune recorded the highest national increase in capital values at 39%.

Cost Of Real Estate

Real estate in Mumbai is getting more and more expensive every day. For someone looking to buy a small apartment (600 sq. ft. of space) in Mumbai, the minimum required corpus should be nothing short of INR 1 crore.

As a result, more and more Mumbaikars are moving to the outskirts and fringes of the city including places like Thane and Navi Mumbai, where property prices are lower. On the other hand, Pune provides a variety of options within the city at prices between Rs. 30-70 lakh.

Mumbai Skyline

An Easier Lifestyle

More and more Mumbaikars finding it hard to maintain any kind of lifestyle at all in their parent city within their incomes are moving to Pune. Though Pune is not yet a metro, it offers property choices and a lifestyle that completely matches that of any metropolitan city in India, with a cosmopolitan lifestyle which is still very much affordable.

According to the data aggregator site Numbeo.com, the cost of living in Pune is decidedly lower than in Mumbai.

According to Numbeo.com:

  • Consumer Prices in Pune are 6.91% lower than in Mumbai
  • Rent Prices in Pune are 59.70% lower than in Mumbai
  • Restaurant Prices in Pune are 16.48% lower than in Mumbai, and
  • Local Purchasing Power in Pune is 4.25% higher than in Mumbai

The higher purchasing power in Pune is not without reason. Apart from the fact that almost everything is cheaper in Pune, the city is also the fastest-growing IT hub in India, which means that it is generating several thousands of well-paid jobs every year. This fact is drawing people from all parts of the country to Pune.

Today, even celebrities are moving to Pune – not because of the cheaper residential rates but because it is a less crowded and far more pleasant city with much better weather than Mumbai. Also, Pune’s property market offers larger and better-planned homes.

About The Author

Kishor Pate, Chairman & Managing Director of Amit Enterprises Housing Ltd. is the driving force behind one of the most successful real estate development firms in Pune and beyond. Apart from its signature luxury homes towers and premium gated townships, AEHL has also launched highly successful affordable housing projects like Astonia Classic and Colori in Undri and the Mediterrenean-style township Astonia Royale in Ambegaon.

Pune Real Estate: Changing Demographics, Steady Demand

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

We already know that Pune is no longer just a Pensioner’s Paradise (though it still is the #1 city of choice for retiring people in Maharashtra). At least three other factors now define Pune – the growth of the Information Technology, the massive spread of organized retail and the city’s changing demographics.

The last factor has had a significant impact on the demand for real estate in Pune, both in terms of sizes and types of homes. Until the late 1980s, residential real estate demand in Pune was driven largely by people who were working in a rather laid-back services industry.

The modus operandi for home purchase in those years predominantly revolved around saving up a sizeable financial corpus and purchasing whatever home was affordable in that budget, preferably with little or no leverage.

Pay scales were moderate to low, and a comparison with the far more favourable pay scales prevalent in Mumbai was inevitable. As a result, there was a more or less constant flight of talent and capital from Pune to Mumbai. At the same time, lack of international employment opportunities prevented Pune’s qualified youth from exploring their fortunes abroad.

As a result, the city’s residential real estate market catered to a very basic level of requirements. There was little incentive for developers to be adventurous in unit sizes, specifications and locations. Property rates – and therefore property investment potential – remained low as the city awaited new market triggers.

Then, in 1990, Pune began to emerge as a destination for Information Technology companies. At first, this was limited to BPOs who sought to capitalize on Pune’s considerable English-speaking manpower and its low property rates.

Astonia Classic in Undri
Amit’s Astonia Classic in Undri

Nevertheless, the economic impact was visible almost immediately. Young people who, in the previously existing scenario, would not have reached any kind of impressive earning capacity before their mid-thirties began earning hitherto unheard-of salaries at the ages of 20-24.

This, coupled with the traditional desire for home ownership and ready availability of home loans, had a 360-degree effect on the requirement for homes in Pune. It also had an impact in terms of locations.

IT/ITES companies prefer to set up shop in the less expensive outskirts of a city, and people who work in these industries prefer to live close to their workplaces. With the emergence of Hinjewadi, areas around it suddenly sprang into sharp focus and demand for more central areas began slowing down.

The effect of the It revolution on Pune’s real estate market has indeed been tremendous. Today, Pune’s developers are catering to an entirely different set of demographics than they did 15-20 years ago.

The onus is now large flats with ultra-modern amenities, and on locations which offer fast access to the city’s IT hubs. Simultaneously, the MIDC in Pimpri-Chinchwad is boosting demand for homes in its vicinity, driven by well-paid employees from those industries.

Today, the annual demand for homes in Pune is close to 46000 units, where it was less than 20000 units per annum just 15-20 years ago. While Mumbai is staggering under the weight of unsold units all across the city, supply and absorption of homes in Pune continues to make both property development and property investment eminently viable.

Even in such a vibrant market environment, Pune’s property rates remain relatively rational….home ownership in this city is a dream which can be translated into reality.

Despite their proximity to each other, Mumbai and Pune are two very different markets. Mumbai’s legendary space crunch has made residential property there exorbitantly costly, driving more and more aspiring middle-income home buyers to the outer fringes.

Meanwhile, Mumbai continues to grapple with its notorious infrastructure deadlock. Prices in most areas of Mumbai have stagnated and there is considerable pressure from the market to bring them down. If Mumbai does see a correction in prices – which is very likely in the near future – its residential real estate market will pick up pace again.

On the other hand, Pune’s residential property market has maintained its momentum even in a challenging economic environment. Various research agencies have confirmed that Pune has prevailed as one of the best-performing residential real estate markets over the past two years.

Residential sales have remained healthy enough to sustain the viability of the city’s real estate market, encouraging Pune’s developers continue to launch fresh residential projects in all budget categories – affordable housing, mid-income housing and even in the super-luxury category.

Oversupply Of Homes In Pune? Look Again

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

Oversupply seems to have become a fashionable word with real estate market watchers these days. Unfortunately, like anything that has become fashionable, it is being used far too much, and often without real understanding of the market.

Definition Of Oversupply

In real estate, an oversupply situation is one where an overly large surplus of residential or commercial properties has been created. The surplus happens when there are not enough buyers for these products on the market.

An oversupply situation can happen for various reasons. Usually, the term is used when real estate developers have been launching too many projects, thereby putting more housing or office units on the market than buyers are willing to pick up.

An oversupply is also created when the pricing for units is higher than consumers are willing to pay, or when buyers and investors have reason to believe that prices are going to come down. In other words, they are waiting for a correction. When such a perception exists on the market, even reasonably-priced homes and offices may not sell well.

Oversupply In Pune?

First of all, let us examine what a normal real estate market looks like. It is certainly not one where supply and demand are perfectly matched. In a healthy market, there will always be a good supply of homes, because such a supply allows buyers the freedom to choose.

Also, a healthy supply ensures that developers have to price their offerings competitively. Without enough supply on the market, there would be a monopolistic situation wherein developers as well as investors can charge whatever they wish.

Some recent reports have indicated that Pune’s real estate market is witnessing an oversupply situation. Pune is, in fact, a market that displays a standard rate of supply and absorption which is normal and required in a growing city which is constantly adding new areas for development into its borders.

Sahakar Nagar, Pune
Sahakar Nagar, Pune

A good supply pipeline is, in fact, one of the reasons why Pune’s market has remained more competitive and rational that Mumbai. It has also been an integral factor in keeping property prices in this city rational.

It is not clear why any report should attempt to attribute negative connotations to this. Demand for residential properties is very healthy in Pune, and has been picking up even more pace after the last general elections.

In fact, Pune’s property market has further distinguished itself by the fact that, unlike in other cities like Mumbai, Delhi and Bangalore, even luxury homes continue to sell well.

Premium housing in Pune is amply supported by increasing wealth creation, escalating aspirations among the city’s HNIs and the growing desire of existing home owners to upgrade to a better lifestyle.

Thanks to rational pricing and the good quality of homes being turned out by Pune’s reputed developers, most of the new residential supply coming on the Pune real estate market will be absorbed within the next two years. However, this is not to say that there are absolutely no problems in sight for Pune’s real estate market.

Red Signals On The Outskirts

If there is one reason for concern, it is over the opportunistic supply of housing that is hitting the market on some of the city’s peripheral areas.

In these locations, many fly-by-night developers have been actively churning out sub-standard projects which do not comply with standard construction norms and often lack all the required legal approvals.

Because of the negative media that these inferior offerings have been attracting, they are unlikely to sell at the rate which their developers have been hoping for.

The Statistics Driving Pune’s Real Estate Market

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

Like any other city’s Pune’s real estate development pattern is driven by its demand profile. The demand profile is defined by the type of buyers who are on the market for buying real estate. Residential real estate demand in Pune is driven by two broad categories of buyers, namely end users and investors.

Approximately 25% of buyers in Pune are pure investors, meaning that they purchase properties solely for the purpose of benefiting from rental income and capital appreciation. Speculation, which is the opportunistic buying and selling of real estate in short periods of time, is actively discouraged by Pune’s developer community. Long-term investors tend to stay invested for at least 5-6 years. The remaining 75% of buyers are the end users who purchase homes for their personal use.

If we take a cumulative look at the geographic origins of both end users and investors, it turns out that 60% originate from Pune itself, while as much as 30% are from neighbouring Mumbai. Pune is a very attractive market for property buyers from Mumbai, both as investments and for personal use, as this city presents a very attractive counterpoint to the very expensive Mumbai real estate market.

The reason for this high interest from Mumbai is that real estate investments in Pune show a much better growth than what is seen in the financial capital, and many Mumbaikars are also intent on relocating to Pune. The remaining 10% of buyers for Pune real estate is comprised of NRIs living abroad who invest in Pune properties either for the use of their families, their own eventual self-use upon return to India or as investments.

AEHL-proectApart from the demand pattern, developers who are catering to the demand for homes in Pune also take their cue from the city’s economic profile. If we look at Pune’ economic profile as it stands today, the city can be roughly stratified into the primary, secondary and tertiary sectors.

The primary sector, which is comprised of agriculture, or income generation based solely on agricultural land ownership, and other forms of base goods supply such as mining, accounts for only about 5%. This segment does not influence Pune’s real estate development pattern significantly, except in terms of low-cost housing in the rural and semi-urban areas.

The secondary sector, encompassing manufacturing industries such as automobiles, electronics and machine tools, accounts for about 40% of Pune’s economic activity. This sector is very influential on Pune’s real estate market, as it gives rise to the bulk of demand for mid-range homes priced between Rs. 30-40 lakh. The MIDC belt in the Pimpri-Chinchwad Municipal Corporation is the predominant influence zone for such housing.

The tertiary or services sector, which includes but is not limited to IT/ITeS, BPO, KPO, banking and retail services, accounts for roughly 55%. The services sector, particularly the IT/ITeS segment, drives the demand for homes in the more developed urban areas.

These homes tend to be in the price bracket of Rs. 50 lakh to 1.5 crore, and around 65% of the housing projects in Pune are currently aimed at this sector. The resultant projects see a balanced demand from both end users and investors.