Top Cities for Budget Real Estate in India

Here are 10 cities that offer great lower-budget real estate investment prospects over mid- to long-term.India’s cities draw the most housing demand for reasons like better job opportunities, living standards and infrastructure.However, rapid urbanization and development of these cities into mega-cities have given rise to challenges such as pollution, traffic issues, high property prices, etc.

The government’s initiative to provide ‘Housing for All by 2022’ is being pursued laboriously. The simple motive is to provide affordable homes within the price budget of up to Rs 25 lakh. This vision must necessarily encompass the smaller cities near the bustling cities of India.

Though afford-ability is a relative term, it is pertinent to look destinations where residential properties within the budget range of Rs 30-50 lakh are available, and are classified either emerging or growing sub-markets supported by good infrastructural development. These towns and cities offer a wide spectrum of investable options in real estate with relatively lower price levels, providing the incentives for future capital appreciation and healthy returns.

Hyderabad, Telangana 

After a prolonged slump due to the global recession followed by political turmoil, Hyderabad’s realty market is now once again set for an upswing. Hyderabad, with its buoyant and thriving economy and a dynamic workforce, is once again trending as a buyer’s market. The IT/ITeS industry has given further impetus to the real estate consumer trend, which is evident from the growing demand for residential, commercial and retail spaces. 

Pune, Maharashtra
The perfect blend of Pune’s manufacturing and services sectors makes the city a standalone economic powerhouse in all respects, with a rate of job generation that is hard to match. The city has witnessed steady appreciation over the last few years, and is ranked as one of the best markets for real estate investment. The luxury homes segment has been burgeoning on the Pune’s real estate market, with many large players entering with excellent luxurious projects. However, Pune is now witnessing a slight shift in the development trend. Many new players on Pune’s burgeoning real estate market can be seen venturing into the affordable housing segment. This is obviously the segment where the greatest demand lies.

Navi Mumbai, Maharashtra
Over the last few years, the real estate market in Navi Mumbai and surrounding areas have shown impressive growth, largely because of the planned approach taken towards development. Now, with Navi Mumbai receiving final nod for the International Airport, its property market and that of the surrounding areas have been showing great potential. While property prices have increasingly become unaffordable in Mumbai, Navi Mumbai still provides numerous options for residential housing within the budget of Rs 30-50 lakh.

Jaipur, Rajasthan
Emerging out of its image of being a majorly tourism-led economy; Jaipur has grown beyond everyone’s expectation to become one of the top global outsourcing cities in India. The upcoming IT Parks promise a great future across all real estate asset classes. The 250-kilometer stretch between Delhi and Jaipur has become a hotbed for real estate development, with areas like Manesar, Dharuhera, Bhiwadi, Neemrana, Kotputli and Alwar becoming the new catchwords for investors.

Surat, Gujarat
Surat, known as the diamond capital of the world, is a well-developed metropolis in Gujarat. Rated as one of the fastest growing cities of the world and also recently conferred with ‘Best Urban City of India’ award, Surat has also gained prominence and recognition for being the Cleanest City in India by INTACH. Rapidly improving infrastructure initiatives have helped modernise Surat significantly.

Ghaziabad, NCR
Ghaziabad is an emerging residential neighbourhood of NCR which has a very high supply of residential properties in the budget of Rs 30-50 lakh. Well connected via Metro and roads to the job markets of Delhi-NCR, the city caters largely to the mid-segment home buyers. The city has a high supply of ready-to-move-in properties offered by renowned developers. Some of the well-established residential clusters in Ghaziabad that have gain prominence in the recent time include Indirapuram, Kaushambi and Vaishali. 

Nagpur, Maharashtra
Although a city with extreme climatic conditions, Nagpur is one of the fastest-growing cities in India. Nagpur’s main claims to fame include its MIHAN and SEZ projects. However, with the Devendra Fadnavis-led BJP government taking keen interest in turning Nagpur into the next IT hub of Maharashtra, the city is set for a major transition in its real estate profile. The already-established MIDC corridor along with the upcoming IT parks have made Nagpur one of the cities that bear close watching by real estate investors.

Kochi, Kerala
Kochi is a metropolis in the making where modern urban lifestyles are settling into antiquated old traditions. During the days of its realty boom, Kochi grew exponentially, with more people migrating to the city and consuming even the outlying catchments of Palarivattom, Vytilla, Kakkanad, Edappally and Kadavanthra. Development of IT/ITeS projects such as the Kochi Smart City and initiatives to channelise traffic and improve connectivity, such as the Mobility Hub at Vytilla, have fuelled significantly increased demand for real estate, which more and more developers are cashing in on.

Coimbatore, Tamil Nadu
Coimbatore is the major industrial centre in Tamil Nadu after Chennai — and as incentives are given to IT companies by the Tamil Nadu government, Coimbatore has gained momentum as a preferred destination for IT/ITeS. With the government in power promoting the city by enhancing infrastructure development, Coimbatore’s property market has witnessed an upward push in demand for residential units in the core areas of the city such as R S Puram, Avinashi Road and Race Course, which are considered posh areas. Nevertheless, it has no shortage of affordable housing options. Coimbatore is a market where 40 per cent of real estate investments come from investors living in cities such as Bengaluru, Cochin and Chennai. Apart from the demand from professionals engaged in IT/ITeS, Coimbatore is emerging as a retirement destination, and demand for 2 BHK homes is high from senior citizens. Demand for smaller apartments is primarily from young IT professionals, while villas and row houses see demand from NRIs, retirees and IT professionals with a preference for such properties.

Ahmedabad, Gujarat
Ahmedabad may be the last one in the list, but it is in no way the least. With the city being a prime example of organised and fast-paced development for the rest of the cities in India, Ahmedabad has come a long way. With huge investments pouring into the state, rapid infrastructural development in the form of bullet trains, GIFT Smart City, the entrepreneurial nature of the population and a supportive, stable government, everything is going right for Ahmedabad. The oil, gas and energy industries, petro-chemical industries and automobile manufacturing industries are some of the major factors driving perennial demand for real estate in the city.

RBI call to chop repo rates uplifts market sentiments

Real estate sector has been confronted with challenges like weakening demand, market volatility, lukewarm budget, high land price, high input price, among others. however finally with the reduction of fifty basis points, the important estate market has one thing to cheer regarding.

Majority of the developers foresee demand to choose up, post this call. in keeping with Ashwini Kumar, Chief Operating Officer (COO) of Bangalore-based Nitesh Estates Ltd said, “The jury continues to be out on what's an even bigger menace – inflation or slowdown of the economy. but for home patrons, the better-than-expected rate cut could be a terribly welcome event as this can improve the affordability.”

The business is looking forward to important reduction in interest rates by banks once RBI’s call to chop the repo rates by fifty basis points. in keeping with a spokesperson of Mumbai-based Hubtown cluster, “This could be a welcome step however what remains to be seen is whether or not it'll translate to important reduction of interest rate or not. For any worthwhile impact on the business, the idea points ought to be reduced by 100-150 points. With the present high value of property further of financing it, the demand is drying within the market. Unless there's a rationalization of each these factors, the comfort level of end-user won't return into the market.”

It is expected that this move can perk up the demand and indirectly facilitate the developers in disposing off the unsold stock.

According to Navin Raheja, President, NAREDCO, “This can revive the declining property, where most realtors are reporting decline in internet profits, and boost realty stocks that have eroded 80-90% from their peak. Infusion of capital to the arena can see increase in new launches and enlargement in capital expenditure plans of realtors that have declined as a result of severe liquidity crisis looming the arena. Added to the current, abolishing prepayment penalty on home loans can scale back burden of home patrons and encourage a lot of individuals to venture into property sector. Overall, there's a reason for property sector to cheer, that has been below tremendous pressure thanks to liquidity crunch and rising interest rates in last 2 years. Rate cut by RBI is predicted to enhance provide of housing and come back of home patrons within the market, however to come back to 2008 level continues to be a protracted wait.”

RBI interest rate cut positive for housing sector

Commercial Real Estate

BMC to get a year to implement new property tax model

An ordinance to grant the Brihanmumbai Municipal Corporation (BMC) a year to implement the capital value-based property tax regime was introduced in the state legislative council for approval on Tuesday.

The ordinance was approved by the state legislative assembly on Monday evening and is expected to gain a smooth passage in the council as well.

Minister of state for urban development Bhaskar Jadhav sought the ordinance’s approval in the council on Tuesday itself, but a discussion on it was deferred as some members from the Opposition benches,who wanted to participate in the discussion, were not present.

While proposing to grant the BMC a year’s time, the state urban development department made it clear that “there will not be any further extension”.

The government has permitted the BMC to issue provisional bills on the basis of rateable value fixed in 2009-10. The government has also proposed exemptions for offices of all diplomatic and foreign missions in Mumbai for payment of water benefit tax, sewerage benefit tax and tree cess.

Ghodbunder Road witnesses rapid development

Ghodbunder Road is a state highway (State Highway 42) road that runs through the Thane district. This 20 km long road, which connects the Eastern Express Highway and the Western Express Highway, is witnessing rapid pace of development.

More than 5 million sq ft is under construction, most of which is residential; besides the road is dotted by retail, commercial, institutional projects, in the pipeline. Schools, colleges, hospitals, banks are coming while some restaurants and entertainment hubs are about to start in malls.

Cosmos Group, Everest Group, Hiranandani Group of Companies, Kalpataru Group, Raheja Developers, Prescon Developers, among others are some of the reputed developers having presence in this location. These projects are not integrated townships but residential projects built on 5-10 acres. These projects are gated communities that offer amenities such as swimming pool, sports complex, children‘s play area, clubhouses and gymnasiums. Proximity to Sanjay Gandhi National Park is touted as a positive with adverts reading ‘enjoy an unrestricted view of the Wild Life Sanctuary from your apartment.’

According to market sources, the average unit capital values at Ghodbunder road is about Rs 5400 per sq ft. The values have gone up by 20% in the last one year from Rs 4,400 per sq ft in June 2011 to Rs 5,400 per sq ft. However, currently there is little investor-driven activity and the prices are stabilising.

Looking at the commercial side, Hyper City mall and R Mall are operational on Ghodbunder road. According to local broker Rakesh S. Shelke, “Retail is concentrated at Waghbil and it basically comprises of clothes, jewellers, kirana stores, sweet shops etc. Typically a 250 sq ft shop is available for Rs 30 lakh. There are some offices such as banks, call centres and the office value ranging from Rs 110-120 per sq ft, amongst these most of the offices are small in size for about 500 sq ft. Other important commercial buildings include Regalia and Hirnandani.”

Infrastructure development is also taking place at a rapid pace. This road being a state highway (which connects eastern and western corridor) has over 5000 trucks plying everyday during early morning and late evening hours. To ease the traffic considerably, flyovers which are coming up at Majiwada, Manpada, Kapurbawdi, and Waghbil. In fact, the Waghbil flyover has just been commissioned. There are buses plying every ten minutes to Borivali, Kalyan, Navi Mumbai.

Anatomy of Urban Investments in Mumbai

India’s growth story has many facets; one of the integral parts of growth – and arguably the most important one – is urbanization. In fast-growing economies, cities are significant investment and employment generators, which in turn carry the growth momentum forward. The sustainability and livability of any city depends largely on the quality of its infrastructure and real estate stocks. Needless to say, cities also require large sums of money to create urban asset stocks, including buildings and infrastructure.

Over last decade, India’s population grew by 18% while its urban population grew at almost double that rate (at 32%). Currently, about 31.2% of India’s population lives in urban areas. The country’s share of urban population has increased by almost 3.5% over the last decade. What is even more astounding is the increase in the built-up real estate stock in its cities and towns.

Data from the 2001 census shows that about 110 million ‘Census Houses’ exist in the urban areas, which indicates an increase of 39 million over the last 10 years. In other words, real estate stock shows a compounding growth of 4.5 % per annum as against the growth rate of 2.8% in urban population. Obviously, such massive growth needs adequate support from infrastructure.

However, the state of affairs with infrastructure in Indian cities is not very encouraging. Most of the cities still have to deal with issues in terms of roads, public transportation, sanitation, storm water drainage, solid waste management systems, etc. on a regular basis. With the volume of real estate stock increasing inexorably in the cities, there is an acute problem with the basic needs like energy and water in the store for urban India.

The private sector contributes most of the development of real estate stock; however, the responsibility of infrastructure development lies squarely with public sector entities such as ULBs and other utility companies – most of which are Government agencies. The investment pattern in our cities shows a similar trend – the private sector invests in the development of real estate stocks, while the public sector invests largely into infrastructure development.

The quantum of investments in most infrastructure projects is huge, and the agencies responsible for its development are seriously under-financed. They depend either on domestic grants like JNNURM or on intercalation financing involving bilateral and multilateral agencies.

In some instances, funds are mobilized from private sources in the form of Public Private Partnership. The private sector generally tends to shy away from investments into city-level infrastructure projects, as most of these projects are considered non-remunerative. They prefer to focus on investing into the development of real estate stock.

Mumbai – A Case Study

Mumbai, India’s financial capital, attracts massive investments – largely in the real estate sector. The city being the nation’s epitome of high real estate prices and land scarcity, huge sum of money keep chasing land in the city – while infrastructure augmentation lags behind. Way behind.

The opening up of FDI in real estate in 2005 opened the floodgate for investors vying for a share in the juicy pie that Mumbai real estate represents:

Prime Land Deals in Mumbai City Since 2005

Since 2005, there have been many record-breaking land transactions in Greater Mumbai – mostly from NTC mill lands and by MMRDA at Bandra Kurla Complex (BKC). Some of the aggressive land purchasers were IndiaBulls, Lodha Developers, Piramal Sunteck, Wadhwa and Peninsula Land Limited, among others.

A whopping Rs. 276 billion have been invested in land in Mumbai since 2005 – and this does not even include the confidential transactions and investments made into Slum Rehabilitation projects (SRA) and other redevelopment projects. The sum of the unaccounted transactions could possibly be another Rs. 100 billion in the same time period.

Patterns of Investment in Land Over Time

In terms of investment sizes and the total quantum of investment, South Mumbai leads the pack, followed by the Western zone – primarily because of land auctions at BKC. The East zone attracted the least investments – most of them into defunct industries along LBS Marg. Interestingly, CIDCO at Navi Mumbai has also been able to mobilize massive funds through the auction of plots at different nodes. The level of infrastructure, social amenities and economic activities has pushed up the real estate prices of Navi Mumbai – and they are still rising.

From a city-level perspective, it is important to understand whether the large volumes of investments in land have actually delivered a proportionate development of real estate stocks in the city:

Prime Residential Unit Launches

The data indicates that about 2.5 lakh dwelling units have been launched in Mumbai over the last five years. Some of this stock has been constructed and delivered, while part of it is still under construction or at the approvals stage. If, for the sake of an argument, we consider the entire stock of dwelling units and the average investment for the land component per dwelling unit, it works out to over a million rupees.

In other words, the direct beneficiaries of these real estate investments are, at best, about 2.5 lakh households (considering one family occupying one dwelling unit) or less than 10% of the city’s population.

On the other hand, if we look at the investments made in the city’s infrastructure (which aims to cater to 100% of the population) the situation is very different:

Prime Infra Projects in Mumbai since 2005

Total investment (crores)

Monorail

 2,716

36 Skywalks

 735

MUTP Phase II

 5,300

MUIP

 2,648

Extended MUIP

 1,550

Mumbai Metro – Versova-Andheri-Ghatkopar Corridor

 2,356

Total

 15,305

The data indicates that the quantum of investments in mega infrastructure projects amounts to only 60% of the investments made in prime land in the city, approximately in the same period. If we look at the present status of these infra projects, most of them are stuck in various bottlenecks and running abysmally behind schedule. One of the main reasons for this is inadequate funds arriving far too sporadically.

On a hypothetical note – had the authorities had the kind of money that the private sector invested in prime land, the city of Mumbai would have been transformed much faster.

Going forward, the funds requirement for infrastructure projects will increase further. Many mega projects which are extremely critical in terms of enhancing mobility, clearing up traffic congestion and thereby improving the overall quality of life in the city have been planned:

To be added

Total investment (crores)

MTHL

 8,800

Worli Haji Ali Sea Link

 1,120

Mumbai Metro – Charkop-Bandra-Mankhurd

 8,250

Mumbai Metro – Colaba-Bandra Corridor

 9,400

Total

 27,570

The city of Mumbai needs additional investments of about Rs. 275 billion in the infrastructure sector over the next five years if these projects are to be completed on schedule. This is equal to the amount that the city has buried in its land. The paradox of the situation is that, despite sitting on such massive money resources, Mumbai is unable to generate to fund its most essential requirements.

Much of the investments in land, particularly in South Mumbai, have actually remained non-yielding. The complexities of the Development Control rules, the approval process and policy flip-flops have virtually kept the supply side down for several months. Investors have not been able to fully monetize their investments, and the end users have faced spiraling price rises despite economic slowdowns.

This would be an apt time for the authorities and policy makers to focus on breaking this deadlock. The need of the hour is to view real estate and infrastructure development in Mumbai cohesively, not as isolated phenomena. There are enough ingredients for solutions available within the system.

Demand for office space drops in metros

Office space demand slowed down in the first quarter of 2012, with around 4.1 million sq ft getting absorbed across the leading cities in the country.

In the previous quarter (Oct-Dec 2011), almost 6.5 million sq ft was absorbed, according to the India Office report released by CBRE on Thursday. NCR (National Capital Region), Mumbai, Chennai and Bangalore were the leading cities accounting for more than 70% of the entire space getting absorbed in the country.

Supply continued to overtake demand in the first quarter of 2012, almost 5.9 million sq ft of office space was added in leading cities. The new supply was largely concentrated in NCR, Bangalore, Mumbai and Chennai, comprising almost 90% of the entire quantum of the present quarter.

The report said Mumbai witnessed decline in rental values at Nariman Point and Lower Parel, mainly due to sluggish demand levels. Average rentals in Grade A buildings in Nariman Point dropped from Rs 300 a sqft a month in December last to Rs 290 in March.In Lower Parel, it reduced from Rs 155 to Rs 150 in the period. “It is anticipated that supply dynamics will continue to dictate rental movement in coming quarters, with values in the CBD being stable and those in suburbs slipping,” it said.

Nariman Point has limited transactions with only a marginal absorption of around 10,000 sq ft. “It did not witness the addition of any fresh supply in the present quarter and vacancy remained stable. In coming few quarters, vacancy in this micro-market is slated for rise from the current estimated 6-7%,” said the report.

A marginal decline was seen in rental values during the quarter. Around 2 lakh sq ft of Grade-A office space became available in the Extended Business District (EBD) of Lower Parel. Worli and Prabhadevi saw a marginal correction of 1-3% in rental values. “The decline was largely due to low levels of transactions…,” it said.

BKC continued to remain a preferred location for corporate occupiers looking for expansion. The CBRE report also observed limited leasing activity in the Secondary Business District (SBD) of Andheri, Vile Parle and Jogeshwari.