COMMERCIAL TRENDS OF NAGPUR



The commercial market is dominated by public and semi-public organizations. The supply of commercial space in Nagpur is estimated to be 0.08 million sq.ft with an absorption rate of 5060 percent. On the retail front, the traditional retail areas are Sitabuldi, Sadar, Central Avenue and Gandhi Baug, along with the whole of old city area as well. Dharampeth and Itwari are new retail areas, having a high-street retailing format. The present supply of retail space in Nagpur is estimated to be 1.8 million sq ft with an absorption rate of about 20-30 percent. Milestone Capital, the asset management company promoted by Ved Prakash Arya, former COO of Pantaloon Retail, is launching a Rs 250-crore domestic venture capital fund, which will invest in projects in cities like Nashik, Nagpur, Coimbatore, Jaipur and Mysore where entrepreneurship is thriving.

"My aim is to promote small entrepreneurs who want to be part of the global India," says Arya. The company is said to already be in the process of creating joint ventures with entrepreneurs in tier-II and tier-III cities. Investments will be made in real estate ventures in the retail, residential and hospitality verticals. Under the plan, the venture fund will invest in special purpose vehicles created for a particular project. The firm hopes to get a return of an estimated 30% from each project.

In another important development, the Mukesh Ambani-controlled Reliance Retail will shortly open a chain of Reliance Fresh stores in the city. In the first phase, 10 stores will be operational by mid-June while 25 will be opened before March 31, 2008. The locations identified for the first phase include Shewalkar Garden (Parsodi), Nandanvan, Telephone Exchange Square, Trimurti Nagar, Wardhaman Nagar, Gokulpeth, Sadar, Ayodhya Nagar, Narendra Nagar and Manewada.

According to informed sources, the company is expecting a monthly turnover of about Rs. 11.25 crores once all the 35 stores are fully operational at an investment of about Rs. 150 crores. The Cinemax India promoted Eternity Mall, located at Variety Square, is also poised to open its doors with a four-screen multiplex. Some of the prominent brands that are expected to have a presence here include Planet Fashion, Globus, Piramyd Retail and Pantaloons. Interestingly enough, local realty experts point out that some of the late entrants here have signed leases at rates which are only heard of in much larger metro cities.

SHOPPING MALL IN NAGPUR

Also on the anvil is Orange Walk, a 10-lakh sq. ft. shopping mall on the arterial Sita Buldi Main Road (MG Road) to be built by the Pune-based Goel Ganga group. "It's our first project in Nagpur and will offer an array of amenities like multiplex theatres, food court, recreation and amusement center, business center, ATMs, Internet café and a supermarket among other things," reveals Atul Goel, Director, Goel Ganga. Strategically located in the heart of Nagpur's retail market, the project also enjoys close proximity to the city's bus and railway station. Buoyant about the city's potential as a prime real estate destination, Goel adds, "Nagpur is on a growth curve in terms of realty. With traditional markets slowly getting saturated, it's the emerging cities that will be the focus of future development. Moreover, Nagpur also enjoys inherent advantages in terms of well-developed infrastructure facilities, ample scope for development and close proximity to key cities like Mumbai and Pune. With more and more corporates setting up base here, the purchasing power of people has also registered an increase, making it an attractive business proposition for the developer community"

Supporting this optimism is a recent survey carried out by ICICI Property services and Technopak which also points out that Nagpur is poised to become an important hub for organized retail. The survey estimates that the retail sector will see an investment of US$ 30 billion over the next 4-5 years of which a huge 60% will be in India's Top 25 cities, that is the five metros and smaller A-class cities such as Hyderabad, Nagpur, Baroda, Surat and Indore, among others. Interestingly enough, 70% of this infusion will come from just seven top players such as Reliance Industries, Aditya Birla Group, Bharti-Wal-Mart, and the Future Group, with global majors such as Wal-Mart, Metro, Carrefour, Auchan and TESCO accounting for the rest. Nagpur has also won the bid over other Indian cities for the US aircraft manufacturer Boeing's maintenance, repair and overhaul base pertaining to its Asia operations. This project, to be developed in the Nagpur SEZ, will have provision for setting up independent facilities for its operations and other amenities in the likes of educational institutions, healthcare and entertainment facilities.

As part of its endeavour to promote smaller cities as IT destinations, MIDC has envisioned the setting up of IT Parks across cities like Nagpur, Sangli, Kolapur, Nanded and Latur in the state at an estimated investment of about Rs. 1,300 crores, with Nagpur and Solapur alone slated to account for about Rs. 1,100 crores of the budget, with the balance Rs. 200 crores going towards the other proposed parks. IT major HCL Technologiesin fact has already announced its decision to invest Rs. 500 crores in the setting up of a 170-acre campus in the 4000-acre Mihan SEZ at Nagpur by signing a Moil with the state government. This facility is expected to generate employment or about 10,000 people within five years.

Other majors who have also been allotted land here (ranging between 50 and 150 acres) for IT parks include Satyam, HCL Technologies, DLF, Ispat Industries, Shapoorji Pallonji and L&T Infocity. Ascendas, one of Asia's leading business spaces solutions providers, has also announced its plans to develop over 4.5 million sq. ft. for IT space in the city, in tandem with the Maharashtra Airport Development Company (MADC).

This would be in addition to another IT park the company will be jointly developing with MIDC at Pune's Rajiv Gandhi Infotech Park located at Hinjewadi. Both parks are expected to create a total of seven million sq. ft. of top-end IT space providing employment opportunities for over 70,000 people in both cities.

Jones Lang LaSalle, the leading property consultants, has already forecast a healthy real estate market in Nagpur as it becomes a favourite offshoring destination for IT companies. Areas near the Butibori Industrial Estate and the Amravati and Wardha Roads have caught the investor's fancy and property rates have soared since 2005. Accelerated commercial and residential property development is expected in Nashik, which inaugurated its first IT hub in January 2007. Construction activities are on the upswing, and being undertaken on the lines of Mumbai and Bangalore.

The Way Ahead


The impact of the ongoing real estate boom at Nagpur is clearly being felt on its property prices, which were under-priced for a long time, now rising gradually to be on par with mini metros with a population of about 35-40 lakhs. The setting up of ambitious projects such as the upcoming Mutli Modal International Hub Airport (MIHAN) has come as a boon for the investor lobby which in turn has invested heavily in all the available land around MIHAN, thereby fueling the price rise further. The developer sentiment about the city is also clearly bullish, given the interest shown by majors like the Hiranandani Group, Raheja Universal and DLF, and the slew of residential and commercial projects being planned here. The trickle of commercial inquires which rarely surpassed one or two per month in the past has now turned into a flood with at least four conversions per month nothwithstanding the risiing commercial rental value which has almost doubled in the past two years.

The only possible dampner to the city's bright future could be its bleak power supply scenario, with the city currently battling the prospect of a two-day power cut for the industry while residential consumers are faced with the daunting task of surviving about eight hours of power cut in Nagpur's notorious peak summer when temperatures rarely dip below below 40'C. If not tackled urgently, this could prove to be the proverbial Achilles heel in the future of this Orange City which now stands on the threshold of a major urban transformation.

HOW TO INVEST WISELY IN AN OVERHEATED PROPERTY MARKET LONG TERM VS SHORT TERM INVESTMENT

In the overheated market, there have been times when one would invest in an apartment, pay the first installment and before the second installment was due, the prices would increase. But things have changed with the property slowdown and overnight gains are no more possible. Ambar Maheshwan, Director, Investment Advisory, DTZ India says that in the current market experiencing slowdown, speculative activity that give a boost to short-term investments is getting diminished. 'Also, with the RBI restricting credit flow to real estate sector, speculative activity is likely to get diminished further. In such a scenario, short- term bull runs will stablise and returns in the long run become more attractive, similar to what happens in stock market", he avers.

Vaibhav Dhingra of Sar Investments too advises against short-term investment, adding that speculators have been pushed on their back foot as it will become difficult for them to service large holdings at a time when market prices are not rising. "Speculative capital gains will not be sufficient to cover interest costs. Thus the demand governed by investors, brokers etc is expected to see a downward trend. So from the investors' point of view, those who are looking for organic returns rather than overnight ROR (Rate of Return) will find good opportunity in the present market", he observes.

Sumeet Mehta, AVP Capital Markets & Investment Sales. of Trammel Crow Meghraj says that an investor in real estate cannot take on quarter-on-quarter or month-on-month look to book project. He needs to take a dynamic long-term view before allocating money. Farooq Mohammad of Bangalore Realtors Association says that five year cycle is something which is minimum investment time. If one can double the time period then the returns are even greater. "For example in White Field Bangalore around 1996-97 one could get land for about Rs 250 psf. Today it is not available for less than Rs 3000 psf. So there has been more than 10 times appreciation in price. With property slowdown, these prices may have taken to some extent but still there is a substantial gain." So, if you are buying property in a downturn market, invest in fundamentally good cities and properties on long - term basis as you can ride out any market dips and build up some equity with your monthly mortgage payments.

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