Light At The End of The Tunnel

Light At The End of The Tunnel

The crisis of this scale has not been seen by anyone living today. The economic hit to some sectors is more like the real estate as compared to the F.M.C.G. sector. In economic stress people spend only on necessities. According to Credit ratings agency Moody’s, it has revised its forecast.  As per the agency in 2020-21 the Indian economy will now grow at 2.5% instead of 5.3%. Even in this there’s great disparity between sectors, Real Estate is on the fringe. In India the sector is also smitten by the Giffen Paradox, demand increases when price increases.

However, in these dark clouds there are bright spots too. First of all, the market was already being driven by the end consumers. The investors were not more than 5-10% varying from city to city. Hence it is not that the current sales will dip by huge percentage, effect will be quite less, only for two to three months after the lock-down is lifted. The two most important factors which drive the real estate apart from the sentiments are: i) the rate of interest of the home loans and ii) the agriculture production.

The average housing rate of interest approximately 7.5% now, is the cheapest in the last decade. If we factor in the inflation then the interest amount to be paid by the buyer will even be less. This is a motivator for young and educated professionals who get less influenced by the market negativity as they are always looking for an opportunity to turn their monthly rent in to their EMI. This is a sizeable population, government of India should target them by encouraging the banks to disburse housing loans with less formalities. This will slowly start oiling the currently jarred wheels of the real estate.

The second push will be given by the agriculture sector. The rice production during 2019-20 was a record high at 117.47 million tonnes. This year also saw good produce of wheat as yield was quite high. Ours being an agrarian economy, this will give push to the economy, the results though will be slow. This will lead to spare money being invested in the real estate. Having your own home and stacking gold are the two big weaknesses of Asians, Indians in particular. In some states like Gujarat, Maharashtra stock investments are at par or even more preferred than the above two mentioned investments.

Thirdly the buyers will be encouraged to move towards investing in real estate because of the bad hit taken by the stock market since February 2020. In one go prices crashed to the 2016 prices. Billions of rupees of investors got wiped out. The old saying “that no matter how much slowdown is there you still have your property in hand” has been proved correct. In stock market it is not the case, in some cases you may be left with a bunch of papers only.

In this scenario commercial properties where developers are giving assured rentals with a lock in period are a good option for investors. Even though they are doing so to allure buyers, it’s a win-win situation for both developers and investors. Buyers are getting much better return, 4-5% more than what they will get in fixed deposits. Also, when the scenario improves, which cannot go down further, they will get the appreciation as well.

Considering the prevailing prices particularly in built up residential, it will not see much correction. The buyers have to understand that unlike a decade ago, now the cost of construction is substantially high vis-à-vis the land cost. In B-towns the percentage ratio is almost 30:70, 70% is cost of construction. The cost of construction cannot come down as cement prices, sand and gravel prices, power cost and labor cost can only increase and not decrease. The best developers will do to boost sales and cut losses is by giving better value addition but are not in a position to give substantial discounts. More discounts mean compromising on quality and losing out the race in the long term in this fierce competitive battle.

Whatever the forecasting agencies might be predicting, they are not taking into account the indomitable Indian spirit, the spirit to forget and move ahead. In times like these it’s good to have a short memory rather than mourn for a long time. We bore partition, emergency, four wars and terrorism but forgot and moved on within a span of few months. We are a nation of 1.3 billion and has only 34% urban population, the disparity in education and health sectors make the cities sought after. Real estate in India is and will remain a sunshine sector with little troughs and more crests.

Current Collector Rates of Apartments & Built up Commercial in Mohali (2020)

S.NoDetails of The CompanyResidential (R)Present Rate per sqftProposed Rate per sqft
1JLPL sector 90,91,66AR17001700
2TDI sector 117,118,119R15001500
3Country colonisers sector 85R15001500
4PACL India sector 109R15001500
5Emaar sector 108R15001500
6 sector 107R15001500
7Preet Land promotersR15001500
8MK Technology ParkR12001200
9J.V.C. apartments sector68R11001100
10Sukham Infrastructures sector 66R11001100
11Unitech sector 107R14001400
12Mohali Infrastructure ltdR14001400
13RKM HousingR11001100
14Ansal sector114R15001500
15Bajwa Developers sector125R15001500
16AWHO sector 68-114R16001600
17Rishi Apartments sector 70R16001600
18Mayfair sector 70R16001600
19Jalvayu sector 67,68R16001600
20Ivory Tower sector 70R16001600
21Pancham society sector 68R16001600
22Mohali Coop society sector 68R16001600
23Army flats sector 67,68R16001600
24Darshan Vihar sector 68R16001600
25Mundi Coop society sector 70R16001600
26Golden towers sector 68R15001500
27Multitech Towers -2 sector 90-91R16001600

Please Note: These rates are for Ground, First & Second Floor. For Third, Fourth and Fifth Floor rates are 10% less and for Sixth Floor and above rates are 20% less.

S.NoCommercial from sector 98 till Central Plaza in sector 105Present Rate per sqftProposed Rate per sqft
1Ground Floor80008000
2First Floor60006000
3Second Floor50005000
4Third Floor40004000
5Above third Floor30003000

Note: Collector rates for plots for all sectors will be posted shortly.

Be A Wise Real Estate Investor

Be A Wise Real Estate Investor

Location is important, no it is extremely important but if you are an investor or an end user the parameters to look for are different. Location is just one part of it.

Property buyer can be further divided:

                          Investor          End User
Commercial Residential Residential Commercial

We will deal them one by one. In this article we will take up only Investor.

Investor in Commercial

While investing in Commercial don’t invest for a short duration. The thumb rule for any commercial’s viability is 1. Visibility and 2. Footfall.

 Visibility depends on the location of the commercial plot. If it is visible on wide road it has good chances of exponential growth in the time to come. However visibility is clubbed with footfall as well. Ultimately it is the retail business that will give push to the prices of the commercial property. Higher the footfall higher is the percentage revenue earned by the commercial site and it spirals the prices of the commercial.

 I would like to explain by an example. The prices of showrooms in Chandigarh of inner markets is much less than the showrooms facing the sector dividing road. The prices of showrooms facing the Madhya Marg are almost double than the prices of showrooms inside the markets. This is related to both visibility and footfall. The inner market showrooms generally cater to that particular sector whereas major road facing showrooms does not have that constraint. However, the case of brands is different, they have their own pull.  

Hence while investing in a commercial property keep these things in mind:

  1. Stay invested for a long-time horizon 2. Visibility of both commercial site and the unit that you are investing in. 3. Residential area in the vicinity. If the site has high rise apartments near it, all the better. 4.Open car parking (Not basement car parking).  The site having big open car parking space is better. Example a middle block in the internal market of Sector 35 D Chandigarh has more space compared to other blocks as it has Showrooms on one side and booths to the other. The units around it has maximum footfall.

Practical scenario: as the density of sectors has increased and foot fall from other cities like Patiala, Sangrur, Ambala, Ludhiana, Ropar, Nawashahar, Gobindgarh has increased due to business, education or because of International Airport the demand of commercial has also increased Although due to online portals certain segments like clothes, shoes has taken a hit but still there will be strong demand of retail commercial and office spaces. Good commercial properties with all the points keeping in mind are HLP Galleria, District One, Jubilee Junction. Their individual strengths and weaknesses will be discussed soon.

Investor in Residential

The price of commercial is an entry barrier for most of the investors. They generally park their money in residential plots/flats.

We will take both Plots and Flats separately.

  Investing in plots:

If you are a pure investor don’t invest in a bigger plot. Actually, we are mapping Demand and Supply. Supply of small plots is quite high and so is the demand. Generally small plots are not given a good place in the layout, they are side-lined. Don’t put your money in already inhabited sector as the prices have already seen revision. Generally, first three buyers in a plot are investors, after this comes the end user.

Hence while investing in a Plot property keep these things in mind:

  1. In fresh booking case invest only till you can make quick buck or else stay invested till minimum 2 years after possession. After 3 years as per GMADA, PDA, etc; you will have to construct minimum 25% of the plot which is sheer wastage. Move out if you are making around 10-15% profit year on year basis. For plots by Government agencies/departments like GMADA, Patiala Development Authority, Improvement trusts etc I shall be writing separately as exit plan for them is quite different.
  2. Location is important in residential plots as well. First of all location of Sector should be such that inhabitation has reached within a diameter of 1 Km. Now let’s talk about the location of the plot. The premium locations like Park facing, wide road facing or corner plots come expensive but also fetch better profits as supply of such plots is less. If across the road are also plots of same size as yours (i.e. plots up to 300 Syds.) go for wide road or Park facing as it will not lead to parking chaos. But choose a plot which is only East, North or North East facing as most of the developers including GMADA does not charge direction premium related charges. These are easily saleable as people are increasingly Vaastu conscious these days. If you are buying a small plot and facing your chosen plot is a block of bigger plots it is good investment but vice versa is also true. Let me explain it with an example. Suppose you have chosen a plot of size 200 Syds and facing your plot is a block of 300 Syd plots it’s a good investment for you but not for somebody who is buying a 300 Syd plot in the same block.

Practical scenario: IT City will see further growth but percentage appreciation will be less as number of buyers beyond 30000/- per Syd shrink up to 80% (a rough estimate). The Aerocity has almost reached pinnacle further only meagre appreciation will happen in near future. The better sectors for investors are 97,99, 105,106,107,108,109. Emaar sectors are better as their planning is much better.

Investing in Flats…….in the next Blog

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