Why are the non-metro towns in India are becoming more and more attractive real estate destinations? Find out more in this Outlook Money report.

Seven months ago, Kapil Gupta, 28, business analyst with Triple Point Technology based in Pune, invested Rs 11 lakh in a 1,100 sft. 2-bedroom flat in Wakad (near the upcoming IT complex in Hinjewadi). This November he had reason to cheer. The value of his property appreciated by 11.5 per cent! Gupta is one of the many people who are flocking non-metros like Pune as a result of the interest shown by IT/ITES companies in the non-metro locations.

Besides Pune, a number of small cities spread across the country are rapidly coming up as the software and business process outsourcing (BPO) hubs, competing with established locations like Bangalore, NCR and Mumbai. So, does investing in non-metro locations for residential property makes sense right now? "With higher capital and rental yields rates in these Tier II cities, this is a good time to take long term positions in residential properties," says Sanjay Verma, joint managing director, Cushman & Wakefield India. According to estimates by the National Association of Software and Service Companies (NASSCOM), the Tier II cities will generate at least 30 per cent of India's software export revenues over the next few years. "The recent growth in these non-metros is driven by corporates, especially from the IT/ITES segment, expanding/relocating to these cities because of cost and HR availability factors," adds Verma.

Growth drivers. So what is driving the growth in the smaller cities? Low rentals compared to established locations is one of the factors. "On an average, rentals in a Tier II city is approximately 50 per cent lower than established locations," feels Abhijit Malkani, regional director (Indian operations), NAI Asia Pacific. Improving infrastructure, low cost of skilled manpower and low attrition rates, compared to established locations, has drawn many -- especially IT companies -- to these locations. Will the recent hike in interest rates dampen the investment spirit in the non-metro locations? Avers Renu Sud Karnad, executive director, HDFC Bank "Even if interest rate on home loans rise by 2 per cent from the current levels, there should not be a dent in the capital values in the non-metro locations going forward."

Outlook Money presents you a comprehensive listing presents you a comprehensive listing (See Sideshow: What's Hot?) of locations in the eight non-metros for investment in the residential segment.

AHMEDABAD

The earthquake in Gujarat January 2000 was one of the darkest chapters for the residential property market of the city. But now the property market in the city has slowly come back to life though preferences have now shifted to low rise, quake resistant properties. The Sahara Group has recently announced an integrated township project offering eight categories of flats with prices ranging between 5-37 lakh.

Growth areas. The realty action in the city is shifting towards its western side that has large tracts of land for horizontal growth. Some emerging real estate destinations include SG Road, Thaltej, Prahalad Nagar, Gota, and Bopal. These were earlier the fringes of the city where rich and famous threw farmhouse parties but now are the mainstream localities. Property prices in Bopal should get a further boost with the new four-lane road being developed from SG Road to the new Sardar Patel ring road. Thaltej is witnessing plotted developments with price ranging around Rs 800/sft. Consider this: Krishnamurthi Venkataraman, senior executive in a retailing company, invested Rs 6.5 lakh in a 2-bedroom flat on Thaltej Road in 2000. He now plans to give it out on rent for Rs 4,300 per month. "I am not an avid stock market investor and consider returns from real estate to be safer than other avenues," echoes Venkataraman. The value of his property has appreciated by around 20 per cent in the past four years.

According to Research and Consulting Group Chesterton Meghraj, average property values in the aforesaid locations went up from Rs 1000-1600/sft. in 2000 to Rs 1200-1800/sft. in 2004 and are still rising. Going forward, capital values are expected to rise by around 6-8 per cent per annum over the next two-three years. According to industry estimates total returns from these locations including lease yields should range between 10-14 per cent.

BHUBANESWAR

Interest shown by IT companies like Infosys and Satyam has given a boost to the residential property market in the city. Infosys, which has around 1,200 employees in the IT park at Bhubaneswar plans to double its staff strength by the end of the current fiscal year while Satyam that has an employee strength of 250 plans to double its head count by end of 2004-05.

Growth areas. The boom in the sector has also been fuelled by the increase in property buying by non-resident Oriyas. Consider this: Toronto-based Satya Sarangi, marketing manager with Oracle invested in a 900 sq. ft. 2 bedroom flat in Chandrashekarpur in 1999 for Rs 9.5 lakh. In the past five years, the value of his property has appreciated around 84 per cent not considering the regular rental income of Rs 6,000 per month since the past two years.

The city's clean environment and dependable law and order system have added to the rise in demand. Chandrashekarpur and Patia are places that are witnessing a boom in the residential property market. Says Anup Kumar Mohapatra, president, Real Estate Developers Association, Orissa, "These places could witness a 7-9 per cent capital in the next two-three years. The total returns including lease yields would range between 12-15 per cent."

CHANDIGARH

The new professionals' that are flocking the city have fueled the rise in property values in this city. Most of them work in places like Parwanoo and Baddi and prefer commuting from Chandigarh to these places. Further, the property prices have been fuelled by adoption of the Punjab Apartment Ownership Act that provides for ownership of an individual apartment in a building together with the undivided interest in the common areas and facilities. It also provides for setup of Societies for management of common areas and facilities. Before this Act came into force, it was not possible for different apartments in the same building to be owned by different people.

Growth areas. Retail activity in the city is also on an upswing. Besides Amritsar and Jalandhar, DLF is looking at setting up malls at Chandigarh, as part of its plans to develop 20-odd malls in northern India. Information Technology is all set to become the new buzzword among the city folk. According to industry estimates, March 2005 should see the city’s upcoming Chandigarh Technology Park (CTP) abuzz with about 2,500 IT professionals. Wipro Mastermind, Convergys and IBM have shown interest in the city considering the infrastructure and proximity to the national capital region. According to realty consultants, prices in locations like Mohali have more than doubled from Rs 700-1,100/sft in 2000 to Rs 1,600-2,200/sft in 2004. Upcoming locations include Zirakpur-Kalka Road, Khrar, Sectors 2-10, Mohali and Panchkula. According to industry watchers one can expect returns (including lease yields) between 9-11 per cent in the next 2-3 years.

HYDERABAD

The demand for housing in the Nizam’s city is on the rise due to influx of IT professionals in the city. Further the state government has also been instrumental in attracting corporates to set up base in the city. And it doesn't end here. Leading real estate developers like the Raheja Group and Shapoorji Pallonji have also shown interest in the city. According to Knight Frank India Research, capital appreciation rate for residential property in the city has been around 7 per cent in the last one year. Professionals employed in the IT sector prefer locations like Begumpet, Srinagar Colony, Cantonment and Banjara Hills. The average capital values for 2/3 bedroom flat range between Rs 1,400-2,200/sft.

Growth areas. At present, the residential property market is abuzz with a spurt in demand and willingness of homebuyers to move to the suburbs in search of swank, fully maintained apartments. The government is also offering land and other facilities to foreign construction companies to build integrated township projects. "There has been a lot of development within the city, and that’s due to genuine offtake from genuine customers. Suburban development has been propelled largely by foreign investments, especially from Singapore," says T Chakrabarti, head, India Property Research. The AP Housing Board has reportedly floated two joint ventures with Singapore-based Cesma International for a 2,000-apartment integrated township at Pocharam near Hyderabad, while Malaysia-based IJM Infrastructure is looking at another 2,200 apartments along the Mumbai highway. Upcoming locations include Pocharam, Banjara Hills, Somajiguda, Begumpet, Srinagar Colony, Jubilee Hills and Himayat Nagar. Capital values in Banjara Hills have moved up from Rs 1,600/sft in 2000 to Rs 2,200/sft in 2004. Industry watches feel that capital values could appreciate by 6-8 per cent in the next two-three years. Total returns including lease yields would be in the range of 12-15 per cent.

JAIPUR

Of late, the 'Pink City' is witnessing lot of infrastructure development. An IT park is being planned in Sitapur by RICO (Rajasthan Industrial Corporation). This is likely to increase the demand for residential space in the city. Further the existing airport is being upgraded to international standards, which will not only attract more corporates to the city but will also boost capital values in its vicinity. Jaipur's proximity to the NCR is an added advantage and with the improved road connectivity industry experts opine that it could turn out to be another Pune soon. IT companies like Infosys and Wipro are planning to set up base in Jaipur. Further developers like Parsvanath Developers and Ansal Properties have also shown interest in the city.

Growth areas. The major demand for housing according to Knight Frank India Research lies in the 7-10 lakh range apartments. The city has also witnessed demand for apartments in the price range of Rs 12-15 lakh. The residential market has not witnessed an over-supply. As a result, capital values are expected to move up further. The average capital appreciation in the past one-year was between 5-7 per cent. The places worthy of investment include Sitapur, Ajmer Gate, Tonk Road, Malviya Nagar, Bani Park, Jawahar Nagar and Shastri Nagar. Capital values are expected to appreciate between 5-7 per cent in the next two-three years. Overall returns including lease yields are expected to be in the range of 10-13 per cent in the next two-three years.

KOCHI

"The Kochi (Cochin) City centre and nearby areas like Marine Drive, Panampilly Nagar, Kadavanthra, Palarivattom and Thevara have always been in high demand, says Gokulam S. Venugopal, chairman, Kerala Builders Forum.

The Thrikkakara–Kakkanad belt is generating lot of interest/demand for real-estate investment due to the IT park. With the completion of the Airport-Seaport Road through this area, the transportation has eased up and is fuelling property prices. Cochin Special Economic Zone – CSEZ is already operational in Kakkanad. Availability of good quality infrastructure, social amenities and unpolluted locations is also encouraging people to invest in Kochi. The Edappilly–Kalamaserry belt has also seen interest being generated due to its proximity to the main city centre. Thrippunithura is one of the most sought-after residential location due to its easy accessibility from the industrial belt consisting of Kochi Refineries, FACT and BPCL. "Established and reputed builders offering good projects in Thrippunithura also has improved the demand in this area," adds Venugopal. According to Knight Frank India Research, the demand for 2/3 bedroom flats should move up in the years to come.

Growth areas. Some of the upcoming areas are Thrikkakara-Kakkanad belt, Edappilly-Kalamaserry belt and Thrippunithura. Once the IT Park becomes fully operational and the IT professionals move into the city, prices of residential units could firm up even further. The Vallarpadom trans-shipment terminal, once implemented with the ancillary industries will also push up prices of real estate in Kochi. According to experts one can expect a capital appreciation of around 12-15 per cent in the next two-three years. Overall returns including lease yields should range between 18-22 per cent.

NASHIK

Residential property rates in Nashik have firmed up in recent past and are still showing a rise. The construction and development activities are also on an upswing. Development in the city is being done on the lines of main metros like Mumbai and Bangalore. Connectivity with Mumbai and the upcoming IT hub like Pune is generating a lot of demand for residential property. A well-established defence base ensures the city's position and interaction on national level with other cities of India. The city also boasts of well-developed health, education- higher and professional education and recreational facilities.

Growth areas. Residential flats with good quality construction in localities of Sharanpur Road, Gangapur Road and in newly developing layouts on Trambak Road are available for Rs 800-900/ sft. The area emerging as new residential area where large-scale layouts’ projects are happening is towards Adgaon and towards Deolali from Honda Showroom Junction. Developed industrial estates at close vicinity, such as Ozar, Sinner, Satpur and Software Technology Park at Ambad are further fuelling demand and prices. Capital values around the Saharanpur Road have moved up from Rs 900-1,200/sft in 2000 to Rs 1,000-1,200/sft in 2004. "One can expect capital values to appreciate between 9-11 per cent in the next two-three years," says Anuj Puri, managing director, Chesterton Meghraj. Overall returns including lease yields should range between 13-17 per cent in the next two-three years.

PUNE

Erstwhile pensioner’s paradise Pune too has witnessed a boom in the residential property market. "The demand for residential units has been largely driven by the services and the IT/ITES sectors," says Chakrabarti. The new Mumbai-Pune expressway has eased connectivity, thereby boosting demand for residential units both within the city and its suburbs. "Due to IT companies setting up shop and more expected to follow, the city is being flooded with young professionals who prefer the walk-to-work concept, says Sunil Bajaj, a Mumbai based realty consultant. Residential activity has also been on the rise in areas like Aundh, Kondwa, Wanowrie, and Nagar Road, which are on the periphery of the city. With prices ranging between Rs 900/sq. ft and Rs 2,000/sq. ft, these places offer easy availability of quality housing at affordable prices.

Growth areas. The demand for residential property is expected to be high in Koregaon Park, Boat Club Road and Sopan Baug. Magarpatta City, an integrated township is being developed that offers 2/3 bedroom apartment with prices ranging between Rs 1047-1520/sft compared to posh localities such as Koregaon Park where capital values range between Rs 2,400-3,000/sft. Magarpatta has also attracted interest from the IT companies due to the IT park being developed within the township. "The township now enjoys 40 per cent of the total market share of all IT companies coming into Pune," says Satish Magar, managing director, Magarpatta City. Experts opine that residential areas around the upcoming IT corridor of Hinjewadi should also witness an upswing in capital values. One can expect capital values in these locations to appreciate between 10-15 per cent with overall returns including lease yields between 15-22 per cent in the next two-three years.

Source : Pankaj Anup Toppo, Outlook Money.com