Thursday, 26 March 2015

Lansel D'Souza, Senior Vice President, Expat Properties, on Invest in outskirts of city for supernormal returns

If there were a non-renewable product that commands a fair amount of demand but only has limited supply and cannot be replicated, economic principles would dictate that its value would only appreciate. Of all investment options available in the current day, land checks all the right boxes.

If you’ve made the decision to invest in land, you’re on the right track. You need to ask the right questions to make the best of this opportunity in land investment. There are some indicators to identify the best land options. The key determinant in this equation as in most real estate investments is location.

Land in urban areas is typically scarce and it generally means lack of options for the mid-income buyers. Suburban areas have a relatively better outlook where there are a fair number of choices; options in the nature of land you want to purchase and a diverse pool of developers from which to choose. Most importantly, as an investor, suburban land has potential. Purchasing land in the suburbs is the right choice if you want to reap high returns on low volume of investment. If you’re looking at a low entry investment with high benefits over the long term then areas in the outskirts of cities is the place to be. 

If the plan is to save for your retirement in keeping with the lifestyle you desire, a long term investment in areas that show promise of development would provide ideal returns over approximately a 10-year horizon. It is largely a myth that good land investments are only found in urban areas. The areas outside of cities have shown huge profit margins in the past 10 to 14 years.

From 2000 to 2011, the value of land in suburban areas around major cities such as Kolkata, Bengaluru, Mumbai, Chennai and Delhi has grown by over 1000 percent and more in some cases. The diminishing nature of land puts it in a prime position to gather returns of this nature over a long period.

The Koramangala area of Bengaluru exemplifies this growth. In the 1990s, it was considered the outskirts of Bengaluru and land would have been available at the price of Rs. 300 per sq. ft. Today, the same land owner could charge over Rs. 6,500 per sq. ft. owing to Koramangala becoming one of the central business districts in the city. Areas around modern day Bengaluru such as Chandapura, Bidadi and others today show the same promise.

If you’re willing to do some scouting and research on the upcoming suburban areas or rural sectors, it usually offers a low entry rate and could provide massive returns over the long-term. Of course, all investments do not see growth of 2000 to 4000 percent, but it’s still a safe bet to say that the investment will keep you ahead of the inflation rate and hence, profitable. 

It’s a good idea to avoid ignorance in any aspect of the transaction to ensure that it remains transparent and legal. If you’re unsure of any decisions while deciding to buy land, it is wise to approach an expert. Find a real estate developer or land investment expert you can trust and through them you could get a better idea of where the best scope of investment in land may lie.

The complex nature of investing in land has often been a primary deterrent for investors to shy away from the sector. However, with the benefits of investing in suburban land, doing your due diligence can put you in a great position to reap the dividends. Investing in suburban areas could make for a more robust and diversified portfolio.

Investing in suburban land
Area (Suburb)
Bangalore witnessed notable residential growth in 2014. The outskirts of Bangalore has seen some infrastructural growth and a fair share of realty has popped up in the past few years owing to a growing demand in Chandapura and the areas around it. It is a location that’s easily drivable from industrial areas such as Electronic City and Bommasandra among others and can offer relatively low prices

Mumbai’s rail and road network has greatly expanded beyond Greater Mumbai. This growth has seen the rise in stature of some areas around Mumbai such as Karjat. The proximity to the upcoming International Airport in Panvel is an added dimension of connectivity

Properties in central Mumbai have been priced out of reach, Taloja is one of the upcoming suburban areas that can offer properties at a lower price with the social infrastructure and connectivity to go with it. It is also ideally located near a CBD of Navi Mumbai – Kharghar

In 2014, Union Finance Minister Arun Jaitley proposed that Ponneri, an area slightly north of Chennai be developed as a smart city for the Chennai-Bangalore corridor. With the government keen on developing the area, infrastructure development and connectivity in and around Ponneri has been stepped up, making it a candidate that has potential to profitably invest in land

SOURCE: MoneyControl