COMMERCIAL TRENDS OF NAGPUR


It is a dilemma whether one should invest in metros, metro suburbs or tier-II & tier-III cities particularly so in a falling market. Generally metros and their suburbs offer ample opportunities for good return as compared to tier ll & III cities. "These are characterized by fundamentally strong factors with a sequential progression of industrialization, corporatisation followed by residential and retail services development, offering great scope for end users", says Vaibhav Dhingra of Sar Investment. He cautions that though capital values in tier-II and III cities are low, one should not invest in cities devoid of commercial activity and fundamental aspects of growth. He advocates investing in fundamentally strong tier-II and III cities.

Farooq Mohammad, President Bangalore Realtors Association of India too, opts for metros and suburbs for investment in the present scenario, as the negative impact of slowdown may not be high. "There may be a plateau for a while but eventually the graph will move up. " Amber Maheswan of DTZ says that as of today investment in action-packed suburbs like Gurgaon in NCR. OMR in Chennai, BKC in Mumbai and Madhapur/Gachibowli in Hyderabad will be more lucrative if these get liquidated in next 2-3 years i.e. projects get developed and sold in the near future.

But it is not that investment in tier- II and III cities is not advisable. The parameters for investing in these cities, according to Maj-Gen (Retd) Jayant Varma of Knight Frank, depend on general attractiveness of the city including real estate cost, cost of living index physical and social infrastructure. But the possibility of earning appreciation is determined by the economic activities and business environment of that city. He says that the possibility of earning appreciation would be considered higher in the developing markets rather than in futuristic markets.

Investment expert Subhash Lakhotia bets on investing in tier-III cities in the current situations. "Even today prices in tier-III cities are quite affordable. The concept of ownership apartment is picking up in these cities. In mature metro markets, appreciations may not be as high and in some overheated pockets, prices may even slide down." He advises to invest in fundamentally strong tier-III cities, where buyers can also take advantage of cheaper home loans for buying homes below Rs 20 Lakhs.

So whether you invest in metros suburbs or tier-II & Ill cities, as an investor the key determinant is the value at which one is able to purchase property and the scope of capital appreciation over that value.

COMMERCIAL PROPERTY VS RESIDENTIAL PROPERTY


Investment in commercial property makes sense, as despite property depression in some areas, commercial property has by and large remained unaffected by price fluctuations. In fact commercial property (both office and retail) rentals are still rising, primarily because of the shortage of quality space. In the last six months, there has been 15-20 percent increase in the rentals. As per Cushman & Wakefield report, Delhi Mumbai, Bangalore and Hyderabad figure among top 12 global cities with high rental increases. A CBRE report says that potential demand for office space is expected to remain strong in the short to medium term. Vaibhav Dhingra of SAR Investments affirms that in terms of assets, commercial real estate, both office and retail sector (selective retail formats ) should be investor'

choice for short-term investment. For a time horizon of three and beyond. both commercial and residential real estate are attractive for investment. Lakhotia adds that it is wise to invest in office property in suburbs adjoining towns of metros, besides investing in upcoming malls. His advice is to invest in the bigger sized malls. Bigger the mall, the higher the appreciation of investment. Leading Kolkata developer Pradip Chopra sees good prospects for investing in IT Parks which are already being leased out to well known tenants with a good lock-in period.

According to Dhingra, both land and apartments are assets, equally attractive and contigent upon the city basis. An investor should invest in land and commercial property in developing cities, and land and apartments provide good opportunities in cities where there is a strong presence of MNCs providing the right target segment to stay in apartments. Chopra recommends investing in apartments which are better located in terms of choice of floor, view etc. His advice is to invest in three-bedroom flats, which are most in demand.

But Lakhotia believes that the better option would be to invest in land that will give better yield and mobility of investment. Ambar Maheshwari agrees adding that land is always a good investment and likely to generate more consistent capital appreciation than built-up property, though basic fundamentals of investment need to be taken care of. Chopra predicts fall in land prices in next few months, particularly in areas of cities where these high prices do not make any sense (like South Kolkata), compared to the prices of apartments, thereby providing good opportunity for investment. Farooq Mohammad of Bangalore's Silverline Realty opines that a lot depends on what kind of capital basket one has. For the bigger basket one can invest one-third of allocated fund in residential and two-third in commercial property.

Investment experts caution that fundamentals of risk vs return have to be taken into account for each real estate segment. They warn against investing in places where there is oversupply. Bangalore is already witnessing oversupply in residential segment resulting in fall in prices which is expected to became more pronounced in the coming months. DTZ India has predicted oversupply situations in commercial real estate over the next year with Pune & Chennai leading the pack.

HIGH-END VS MODERATE PROPERTIES


In a slowdown market, is it advisable to go for high-end or moderate properties? Ambar Maheshwari says that slowdown is more pronounced in middle to upper middle segment of residential properties. The high-end properties, according to him, are still holding on to their price points. Jayant Varma of Knight Frank endorses Maheshwari's views, saying, "Recovery rate for invested capital in high-end properties is usually higher than in moderate properties. This is so because market upswings hit the moderate segment first and high end properties are last to have an impact of the correction in the market."

According to Dhingra, high-end properties are generally less affected by the fluctuations in the market as the target segment for the same would always have good cushion to absorb the highs and lows of the market. He avers that investments in high-end properties with long-term horizon even in a slow market will always yield better return.

But then investing in a moderate project has its own advantages. Lakhotia puts it this way: "If one goes for moderate size property, the risk is minimized and also liquidity may not cause a big problem specially in view of moderate payment schedule. So those who have limited funds for investing in a moderate property, they should look for such fundamentally good properties in various locations which have been hit by the market slowdown and are experiencing price dips."

LOCATION/AREA

The cardinal rule in real estate is to choose right location and right builder. Specialtists caution against investing in overheated area/ location. Says Maheshwari, "In real estate, like in any other asset class, significant returns are expected from capital appreciation than yield. Thus if a market gets overheated, the possibility of significant appreciation diminishes. Rather, there is a risk of capital depreciation."

Vaibhav Dhingra, while cautioning against investing in markets where the prices have peaked, advises property buyers to look at the macro picture to judge the potential of a city/ area in terms of business potential, employment opportunities, commercial office activity, infrastructure, supply-demand scenario and cosmopolitan culture to asses the real estate growth potential.

In the opinion of Lakhotia, one should invest in land in areas, which are not heated up. He finds tourist destinations hot for investment purposes. Location contributes significantly to appreciation potential of any property. Pradip Chopra recommends investment in areas or projects where there is a demand by actual buyers such as locations near IT corridors or IT hubs. According to him, one can invest in land in areas where much of construction activity is happening for IT and other related activities or upcoming suburbs connected by Metro Rail or through good public transport. He also favours investment in areas where the supplies are restricted due to non-availability of land and where there is a great demand for apartments from the existing local residents. He cautions against investing in areas where a lot of advance booking done by investors or speculators in anticipation of a price rise.

Chopra observes that in Kolkata, most of the areas except Rajarhat are good for investment as most of the apartments there are booked by actual users. The demand is substantial but thereis a great demand of apartments whereas the supplies are small. " Since in Rajarhat, 80 percent of bookings are done by speculators therefore this area should be avoided for the time being for investments in land or apartments", he adds. Farooq Mohammad prescribes investment in Bangalore North, suburbs and Bangalore Central because according to him, these are the potential destinations to invest now. .











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