New Delhi: Property prices in middle-class neighbourhoods in some big cities have grown at a much faster pace than tony localities between 2001 and 2007, according to the country’s first real estate price index.
Latest NHB Residex data, released by home loans regulator National Housing Bank (NHB), show prices in South Extension and Safdarjung Enclave in New Delhi, and Lavelle Road in Bangalore—some of the most sought-after addresses—rose at a rate less than half of those in Jahangirpuri, Dakshinpuri and Hari Nagar on Delhi’s outskirts in these six years.
Also See Property Rates (Graphic)
Industry experts say some of this disparate price growth could be attributed to the so-called base effect, as property values in neighbourhoods closer to city centres were already high at the time the price data were tracked.
For example, places such as Madivala in south-east Bangalore were just villages as recently as 1993-94, but have currently become part of the city, said S.L. Rao, an economist and chairman of Bangalore-based think-tank Institute for Social and Economic Change (ISEC).
The area on the route to the Electronic City, which hosts a number of Bangalore’s software companies, has seen a 283% growth in property prices between 2001 and 2007. In contrast, prices in areas such as Lavelle Road in central Bangalore have actually declined during the period.
NHB chairman and managing director S. Sridhar agreed that this trend could be a reflection of the already high property prices in neighbourhoods such as South Extension and Vasant Vihar in Delhi.
“We have noticed that, too. It could be the base effect. In absolute terms, these places have higher property rates. Also, supply could be a reason,” Sridhar said.
Pankaj Renjhen, managing director, north India, at property advisory Jones Lang LaSalle Meghraj, said several reasons have fuelled this growth pattern in different urban set-ups across the country.
In cities such as Mumbai or Bangalore, the outskirts or suburbs have developed as new growth corridors, both in terms of infrastructure and economy.
A city’s traditionally posh neighbourhoods, on the other hand, have already seen optimum growth and are saturated in most cases, both in terms of new property stock or population, Renjhen said.
Since base property prices in any suburb is much lower than the posh Malabar Hill in Mumbai or Residency Road in Bangalore, the percentage of increase in this segment is far higher than the latter, where prices are already steep, he pointed out.
For example, Mumbai’s suburban Kandivali or Borivali have seen a near 100% or more rise in property prices that were earlier in the range of Rs3,000-4,000 per sq. ft compared with Nepean Sea Road, where prices were already in the Rs40,000-45,000 per sq. ft and may have gone up by a maximum 0-60%.
Renjhen also said another factor behind this trend is the growth in migrant populations, forcing each city to expand and create new spaces with employment opportunities, new infrastructure and better connectivity.
Launched in July 2007, the NHB Residex tracks property prices in Delhi, Mumbai, Kolkata, Bhopal and Bangalore by collecting data from the field and housing finance companies.
In India, 28% of the population lives in cities that account for just 2% of the country’s land, and the proportion could rise to as much as 55% by 2050, according to United Nations’ projections.
ISEC’s Rao said much of the price growth in middle-class-dominated areas is due to continued migration to urban areas, creating huge pressure on land availability.
“The biggest shortage today is land. As urban areas develop, a whole lot of what is agricultural land, is becoming city. What was a small town is becoming a big city,” he said.
NHB will by March extend its index to 10 more cities—Chandigarh, Ahmedabad, Chennai, Kochi, Jaipur, Patna, Lucknow, Pune, Surat and Hyderabad—which will have updated property prices to December 2008, Sridhar said.
Madhurima Nandy in Bangalore contributed to this story.