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Should You Invest In Property In Another City?
by Mr. Kishor Pate, CMD – Amit Enterprises Housing Ltd.
The understandable tendency of most property investors in India is to focus on the cities that they actually live in.
This is because they are already familiar with which locations see the highest demand and who the reliable and reputed developers are.
Also, most people will have a fairly broad network of others people within their city who can advise them on potential property investments.
Yet, the Internet has opened the larger real estate playing field in India up more than ever before.
A simple online search involving the keywords 'buy home' or 'buy property' will yield thousands of results from across the country.
And the trend is no longer limited to people who own computers - rapid smartphone penetration has opened up the Internet to a staggering number of people today.
According to a survey by Indiaproperty.com, the availability of user-friendly app's and improved website designs have led to mobile-based property searches growing three times faster than PC-based searches.
This survey also established that real estate searches in Tier II cities, which have seen very fast smart phone penetration over the last few years, have grown 1.3 times over the national average.
The real estate data available for these cities is obviously available to all ‘netizens’. In other words, a larger number of geographies than ever before are drawing the attention of property investors.
For instance, Pune is a high focus area for real estate investors from Mumbai and Bangalore because of its amenable property prices, favourable appreciation statistics and the fact that properties in all budget ranges are available.
But how advisable or even safe is it for a non-resident to make a real estate investment in a city that he or she is not familiar with? This question becomes even more important when one considers that the best prospects in terms of lower property prices and better appreciation are in such a city's emerging corridors rather than its established real estate precincts.
The first thing such a prospective investor needs to do is establish what kind of demand is driving such a location.
The primary driver for residential demand is job creation - if an identified city, town or periphery is seeing a lot of demand for homes from people who are attracted by a good job market, then it can be said to be a good residential property investment bet.
The other important variable is affordability. Quite a few non-metros as well as peripheral areas of larger cities currently qualify on these parameters.
Again taking the example of Pune - this city is classified as Tier II, but has a remarkable configuration as far as economic drivers are concerned.
Pune's economy and job market are driven by Information Technology and BPO firms, its vast manufacturing belt and a thriving services sector.
The steadily increasing demand for budget homes from employees working in all these sectors has resulted in a veritable real estate boom in fast-developing locations like Undri, Ambegaon, Wagholi and Bhugaon.
However, these areas are being developed by both large organized builders with a strong market reputation and unknown small-time players with no verifiable track record. The question that any investor needs to ask in such a scenario is who to trust.
This brings up the second important factor for an investor to focus on - namely which projects to invest in.
One of the aspects to be fully investigated is the reliability and market standing of developers active in such a market. Though the recently announced Real Estate Regulation bill will eventually weed out all fly-by-night operators, the fact is that many unscrupulous developers have historically been active in emerging locations.
Such developers may not have obtained all necessary clearances for their projects or even have clear ownership of their plots. They may also engage in shoddy construction, and often lack the capitalization to see their projects to timely completion.
Buyers are attracted by the lower property rates they offer in order to attract demand.
However, due to the high demand driving the real estate market in such locations, many reputed developers who have been delivering quality projects on time for a long time are invariably also active there.
Investors should only patronize such developers so that they can avoid unforeseen risks to their investments.
It definitely makes sense to consider cities other than one's cities of residence for property investment, especially if one's own city does not yield very attractive returns on investment.
Investors from Mumbai are so active on the Pune real estate market because while property price appreciation all over the financial capital has been next to flat for over three years, neighbouring Pune has been seeing property price growth of at least 15-18% in many of its emerging areas, and rental demand in the city is also very high and increasing constantly.
Property investments in other cities should be done after a lot of research and preparation, but they can definitely be extremely profitable for those who do their homework.