A lot of stories about saturation and dip in the real estate market of hubs like Mumbai, New Delhi, Bangalore & Chennai has been going around. While it is true that there is saturation to an extent, we do not think that it is a cause for concern. Migration still plays a big role in these markets. There is enough movement of populace to these regions because of better paying jobs and lifestyle giving a boost to real estate. The capital appreciation is much more in these districts compared to the rest of the country. There is an unwritten law that if you invest in Mumbai today, your money will double in the next two years. While, there is oversupply in some pockets of Gurgaon and Noida once certain infrastructure developments like the Dwarka Expressway come through, the demands are bound to surge as we anticipate heavy migration from surrounding areas.
Bangalore is growing especially in the North and the North-eastern belt since the past 3-4 years. Thanks to the IT companies shifting there from Whitefield and the new Airport that has come up. It is evident that the economics of these regions are still run by actual demand and supply rather than speculation. Mumbai and Delhi are also the two major hot spots for people to plow their cash into. Real estate in the only asset class left, thanks to the stringent government rules these days, where liquid cash can be parked.
Markets like Pune, Bangalore and Chennai are also evolving because there is enough land supply around these areas. The dimension of these cities are circular, unlike Mumbai which is straight. So even if one expands 5 km away from the main city, the travel time isnt much, giving these areas much more scope for expansion. Because the market conditions are tough, interest rates high and economy not growing at the pace it was expected to grow, builders have come out with innovative ideas to lure investors. With schemes like subvention, buy-back, etc., the builders are making India a very lucrative market. As an NRI doesnt necessarily want to stay in the country, such schemes seem highly attractive from an investment point of view.
Another way to look at this entire story has been presented by Hans Rosling, a Swedish public health professor and data visualization pioneer. According to a recent report in Financial Times, Mr. Rosling has been quoted as saying that all of the worlds forecast 3bn population growth through to 2100 will be urban, of which, a third will be in Asia, while two-thirds will be in Africa. In economic terms the developed west will grow at 1 to 2 per cent a year through until 2100, while the rest of the world will grow at 4 to 6 per cent. This amounts to a startling global shift in the pattern of trade.
Rightly titled as Why real estate investors should follow global population trends, the reports goes on to predict that India will be the worlds biggest consumer, with its middle class spending $12.8tn a year, according to the Brookings Institution forecasts. The same report rightly puts forth the point that it is not just numbers but incomes that matter as well. The Brookings Institution also claims that the greatest growth in the middle classes is taking place in Asia. By 2030 there will be more than 3bn middle-class people in Asia.
A strong middle class, growing economy and foreign interest will lead to an improvement in the real estate market of the country.
