Infra Effect On Realty Values

Saugata Maitra writes on the connect between announcement of infrastructure projects and value appreciation of properties 
 
It is an established fact that announcement of infrastructure projects will tend to increase the value of properties, in the adjoining areas. This occurs because the infrastructure project becomes a part of USP for the developers or property owners. There have been instances, where property prices have increased 50-70% from the announcement of an infrastructure initiative, to the operational phase.
 
For example, residential sale rates in Essel Towers, Gurgaon, increased from around Rs. 5000 per sq ft levels in 2006 (at a time, when the Delhi metro was announced), to around Rs. 9000 per sq ft range towards the operational phase in 2010. In comparison, other areas displayed a more reticent increase of 40-50%. Likewise, property values increased almost overnight in and around Panvel, Kharghar, Ulwe and most southern parts of Navi Mumbai as well as Mumbai’s eastern corridors, on the announcement of the international airport.
 
The increase in property prices may not be a unanimous phenomenon across all property segments. Let us take, for example, the announcement of a new railway station, metro, bus terminus or even an airport. While the low-to-mid income property segments would definitely be positively affected, such projects are unlikely to shoot up the property prices in high-end residential areas. The reason is simple – the high-end segment will not consider enhanced public transport facility as a major development. On the other hand, such developments may affect the high-end segment negatively, as they may result in increased noise and crowd. So, such developments may have a negative bearing on the demand for the high-end housing units. 
 
However, infrastructure projects like airports create increased employment opportunities in the logistics, hospitality and commercial sectors. Naturally, demand for low-to-mid income residential property increases, as more people come in search of employment opportunities and settle down in the immediate vicinity.
 
Therefore, one should take a good look at the property appreciation dynamics involved, before investing in a certain property, on the heels of a major infrastructure announcement. A proper assessment of the demand drivers around a particular infrastructure project is good, to establish the genuine investment potential in the vicinity, on a case-to-case basis. Generally, the ‘real estate zone’ is planned within large infrastructure projects to increase the viability. Investing in such zones, maybe as a co-developer, is a good idea.
 
There are certain factors to be considered, before investing in a property that falls in the vicinity of a major infrastructure project. They include:
•      Likely implementation time-frame, including the phasing of significant modules
•      Value drivers, in terms of logistic convenience, employment generation, increase in trade and business, etc
•      The development and land-use plan of the city or region and how the particular project fits into the larger development plan, earmarked growth zones, etc
•      Property buyers are invariably confronted with a sudden rise in property rates because of the announcement of an infrastructure project. All in all, one should develop a specific projection with regards to demand, supply and financial viability, in order to assess whether the premium is justified.
 
(The author is Senior Vice President – Strategic Consulting with Jones Lang LaSalle India)

10