In today’s market environment, there are four primary areas that home buyers should focus on—location, value for money, builder’s reliability and quality of construction. Three of these tie in with the quality of the product in one way or the other, which is what matters most in the final analysis.
A buyer should have a clear idea about which location works and does not work for her, and not compromise on that front.
Getting marooned in an area with no connectivity and support infrastructure is not a good bargain, regardless of how cost-effective the purchase price was. Developers with projects in non-supportive locations will quote lower purchase prices so that buyers show interest, while better locations may cost more because of the higher land prices and the better demand profile.
If necessary, buyers should leverage their budget and avail of good locations.
Apart from the fact that good infrastructure contributes to the quality of life in a location, it is also a major appreciation driver. The existing and upcoming infrastructure in an area identified for residential property purchase should therefore not be ignored.
It is an established fact that scheduled infrastructure projects tend to increase the value of properties in the adjoining areas.
This occurs because the infrastructure project becomes a part of unique selling proposition (USP) for the developers or property owners. There have been instances where property prices have increased 50-70% due to the announcement of an infrastructure initiative, before the operational phase.
This phenomenon should be clearly understood, because property price increases may not be a unanimous phenomena across all property segments.
Let us take, for example, the announcement of a new railway station, Metro, bus terminus or even an airport. While the low- to mid-income property segments would definitely be positively affected, property prices in high-end residential areas would be less likely to experience a steep rise with the announcement of a major infrastructure project. The reason is simple: the high-end segment would not consider improved public transport be of major significance.
With upcoming infrastructure like airports or Metro corridors, other factors that may have a negative bearing on the demand for and profitability of high-end residential properties are increased noise and crowding.
On the other hand, infrastructure projects like airports result in increased employment opportunities in the logistics, hospitality and commercial sectors. Naturally, low-to-mid income residential property demand increases because more people employed in these sectors will need to live in the immediate vicinity.
Therefore, one should take a good look at the property appreciation dynamics involved before investing in a certain property on the heels of a major infrastructure upgrade or project implementation announcement.
A proper assessment of the demand drivers around a particular infrastructure project is of the essence to establish the genuine investment potential in the vicinity on a case-to-case basis.
Generally, the ‘Real Estate Zone’ is already packaged within large infrastructure projects to increase the viability. Investing in such zones, maybe as a co-developer, is a good idea.
Value for money
It is currently a buyer’s market in most cities, which means that there are a lot of projects and fewer buyers. There are also good projects in good locations, and prices are currently at their lowest point. Buyers should be aware of this fact and not jump at the first attractive offer they encounter.
A good project is in a well-connected location and has enough amenities and facilities to afford a safe and comfortable lifestyle to buyers. A bad project does not have this. It is as simple as that.
Reliability of the builder
The real estate Act has yet to kick in, and until it does the Indian real estate market must continue to contend with unreliable developers who make tall promises but do not deliver on them. Such promises will relate to the amenities and facilities of the project, upcoming infrastructure that adds to the area’s liveability, and delivery timelines. Failure to live up to any of these promises can result in a dead investment for a buyer. It is best to stick to builders who have a strong brand reputation, as such builders will do what it takes to preserve that reputation. Anonymous developers have no established reputation, so they have nothing to lose; at least not until the real estate Act weeds them out altogether.
Quality of construction
Concrete buildings have a finite life-cycle, which is not improved if the builder skimps on construction material and sound building design. There are innumerable instances of buildings collapsing because they were built with inferior construction materials or used faulty designs. Also, badly-constructed buildings will involve much higher maintenance costs, and inferior fittings will need to be replaced much sooner and more often. Construction quality is, therefore, an important factor for buyers to focus on.
Anuj Puri is chairman and country head, JLL India