But prudent investors will find plenty of opportunities in premium and redevelopment projects
In late November, soon after environment minister Jairam Ramesh gave the green signal for Mumbai’s second airport, property prices around its location shot up by 20 percent. This was the same area that, even six months ago, real estate consultants and analysts were advising investors to stay away from. They reasoned that the prices had run up way too quickly. Today, the same professionals are recommending buying select properties in the same area at higher prices.
If these professionals had got it wrong once, what is the guarantee they will not get it wrong again? There are so many unanswered questions about the part of Navi Mumbai where the airport will come up. Where will the proposed Metro station be? Which areas will be most affected by aircraft noise? Where will commercial development happen?
The airport example is illustrative of the shape of things to come in 2011 for real estate buyers, both residential and commercial. As metros like Mumbai, Delhi and Chennai are retrofitting old buildings and seeing an infrastructure upgrade, a lot of real estate action is becoming visible.
While the investor can put money in stocks of real estate companies or invest in a private equity fund to play the property market, these still remain niche opportunities. For the vast majority, investment in land and concrete is the preferred option. So, what should be their strategy in 2011?
To begin with, initial signals are mixed. After a long while, Housing Development Finance Corp. (HDFC), the king of mortgages, is offering to pay a 9 percent annual interest to fixed deposit holders. This could mean that the company will eventually lend at 11 percent upwards. In short, borrowing to buy a property is going to become a costlier affair. This means only a two-digit percentage appreciation will yield a return rivaling fixed deposit rates for the investor.
(This story appears in the 14 January, 2011 issue of Forbes India. To visit our Archives, click here.)