Which city to invest in Real Estate market?

I concluded in my last blog NRI investors benefit from Rupee depreciation on a note that it’s a real challenge to identify the right property to invest. I am a proponent of end user more than an investor in physical real estate market. Still, even the end user dreams that his money gets multiplied wherever it is parked, be it in form of stocks or an apartment. So, the question is where to invest. Which market will give higher capital gains and rental value as compared to other markets in India? Which city will give a steady return in real estate market? And why? 

Well as per numbers or otherwise, we have seen in my last blog that Mumbai has favored the best in terms of capital gains of about 66% between during 2Q09-1Q13. Gurgaon has shown a return of 55%, whereas Bangalore has shown a gain of a little less than 50%.

I personally feel that Bangalore is well positioned to benefit in the real estate market. South India constitutes 20% of country’s population, and 22% of GDP. 45% of country’s office space comprising of 140 mn sq ft. lies here. The Indian Real Estate Transparency Index 2011 ranks Karnataka 6^th in terms of sectoral transparency (Source: Jones Long LaSalle). Bangalore stands well in place to benefit from this. There are several other reasons that act as demand drivers for Bangalore Real Estate.

       

      Real Demand: Bangalore is a stable organic market as 70% of its real estate demand is driven by end users, resulting in relative price stability which is unlike Delhi or Mumbai where investors overpower the end users.

   

    Employment Scenario: Bangalore is driven by middle-class, job-oriented families and immigrant salaried employees in the IT sector. Job scenario strengthened, evident from strong office absorption.

     Affordability: The residential real estate prices in the city grew steadily from their peak 2008 levels when compared with significant growth in NCR and Mumbai. Mid-segment housing prices in Bangalore were up by 4.1% while the high segment was 6.3% away from 2008 peak whereas NCR mid-segment was 29.1%, NCR high segment 27.1%, Mumbai mid segment 12% and Mumbai high-segment was 1.3% above their 2008 peaks.

     Financial City: The state-run IFCI Infrastructure Development Ltd. Plans to develop India’s first financial city at the Hardware park (30 km from Bangalore) across 50 acres in 3 years.

     Urbanization: According to United Nations, 40% of India’s population will be living in the urban areas by 2030, which is likely to strengthen urban residential demand.

     Tourism: The direct contribution of the travel and tourism sector to GDP is expected to increase from 1.9% (Rs. 1,689.8 bn) in 2011 to 7.7% (Rs. 3,805.2 bn) in 2022. The tourist arrival in India is expected to grow 3.5% to 65 lakh in 2012 and by 5.2% per annum to 112.76 lakhs in 2022 (Source: World Travel and Tourism Council). In the next five years in India, an additional 150,000 hotel rooms will be built to accommodate tourists (Source: CARE).

       Metro railways: The Union Budget 2012-13 allocated Rs. 9000 mn to Bangalore’s metro rail projects, which is likely to boost real estate demand.