Friday, March 23, 2012: 07:52:27 PM

TJCD Case Study

Gurgaon Residential Property Investor Report

Gurgaon is expected to see a residential property supply explosion in near future; there are already 55,000 ready flats in the market today

Over the last 1 year, capital values rose by more than 30-35% in the residential real estate sector in Gurgaon. Developers are now going slow on execution of real estate projects, resulting in a drop in supply of residential apartments in most prime markets. Emerging residential areas are still not able to meet the huge housing demand.

 
Two key reasons for increasing rental and capital values for residential properties are:
 
  • Rampant construction delays, the expected supply of residential properties announced in early 2009 has not been able to reach the market. Around 500,000 units that were scheduled for possession in key markets by end of 2011 are delayed by another year
  • There has been an increase in lateral hiring by corporates. With job scenario improving all over the country, people have more to spend. This has resulted in good investment opportunities, and investor sentiments in the affordable and mid-income segment of Gurgaon’s residential market have improved.
 
Hot locations
 
Residential property prices on the upcoming southern peripheral road connecting to National Highway (NH) 8 have seen considerable appreciation over the past few months. This location holds great investment potential, thanks to enhanced connectivity that NH8 provides to Manesar and Dwarka. In particular, residential properties along the Dwarka Expressway have attracted interest from the mid-income buyer group. As prices soar in upcoming locations of Gurgaon such as Golf Course Extension, Sectors 70 and Sector 78, buyers have been looking at these alternate locations.
 
The downside
 
That said, not all residential projects rank equally from an ROI perspective. Whatever appreciation in capital values Gurgaon residential properties have seen does not seem as significant when seen in the light of factors like the higher interest rates on home loans. Nominal capital appreciation of a property may be as high as 25-30%, but the actual ROI after making adjustments for inflation and higher interest rates can be nil. There is a 75% chance of investing in a property that will not give investor any gains - and in some cases it may even result in a loss.
 
Gurgaon is expected to see a residential property supply explosion. There are 55,000 ready flats on the market today. We expect to have around 6,000 ready flats by end of 2012, with an additional 65,000 by the end of 2014. Another 20,000 in 2015 will take the final tally to almost 150,000 by the end of 2015.
 
Out of the total supply, properties that offer locational advantages in terms of vicinity to airport and metro connectivity will have better absorption. Strategic location and superior amenities will be the keys to profitable residential property investment in Gurgaon in the foreseeable future.
 
Long-term fundamentals
 
Gurgaon remains promising for office space, and there are good prospects for more major global players setting up operations here in near future. On the whole, this augurs well for the residential property market, more or less assuring relatively healthy absorption of residential space in the times to come.  The new infrastructure initiatives being undertaken by the government will also play a crucial role for Gurgaon’s residential and commercial property sectors.
 
 
The report was prepared by reputed property advisory firm JLL (India)

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