The real es­tate lessons I learnt from Kundli: looks can be de­cep­tive

HT Estates - - FRONT PAGE - Ash­wini Ku­mar Sharma ash­[email protected]

I re­mem­ber that it was a decade ago that I went to an un­der-con­struc­tion res­i­den­tial hous­ing so­ci­ety in Kundli, Haryana, ad­ja­cent to Delhi. I was with my friend who was look­ing to buy an apart­ment there. My friend is a north Delhi-based busi­ness­man hav­ing busi­nesses in Rithala, Bawana and Kundli in­dus­trial ar­eas in an­daround Delhi. At­the project site, we vis­ited sam­ple flats, th­ese were­beau­ti­fully done up. The light­ing, fur­ni­ture, fur­nish­ing and fit­tings were ex­quis­ite and the rooms looked very spa­cious. Thek­itchen had­mod­u­lar fit­tings and all this got my friend very ex­cited. A decade later, hav­ing cov­ered real es­tate all this while, I now know the dif­fer­ence be­tween what the de­vel­oper shows in a sam­ple flat and what he ac­tu­ally de­liv­ers. The ask­ing price of the apart­ment was around ₹22 lakh 10 years ago.

Re­cently, I vis­ited the same res­i­den­tial hous­ing so­ci­ety in Kundli again for a story. I saw that around 2,500 apart­ments were al­ready built, but more than half were va­cant. I found that one can still buy a two-bed­room com­pleted apart­ment in less than ₹30 lakh, even af­ter 10 years in the same project. That means over the last 10 years, prices in­creased at just about 3% per an­num, less than the in­ter­est rate you get on sav­ings bank ac­count. Even if I con­sider tow­ers in the project that are closer to the high­way or at the en­trance of the project, the price of a twobed­room is around ₹35 lakh in the re­sale mar­ket, i. e. an in­crease of less than 5% per an­num over 10 years. Also, the av­er­age rental of a two-bed­room is ₹7,000 a month or about 2.5% of the prop­erty value an­nu­ally.

At the time of the project launch, the de­vel­oper had talked up the value propo­si­tion of the project given that it is strate­gi­cally lo­cated on na­tional high­way 1 and en­joys prox­im­ity to Delhi. Be­sides, other in­fra­struc­ture projects like Kundli-Mane­sar-Pal­wal (KMP) ex­press­way, pro­posed metro con­nec­tiv­ity and cy­ber city will boost and de­velop the Kundli real es­tate mar­ket. The de­vel­oper was also con­fi­dent about Kundli be­ing turned into an ed­u­ca­tion hub with for­eign in­sti­tu­tions and an IIM branch propos­ing to come into the area. How­ever, till date, other than the KMP ex­press­way which was un­der con­struc­tion even be­fore the project was launched, noth­ing else has ma­te­ri­alised.

What we need to re­mem­ber is that just a pro­posal of an in­dus­trial cor­ri­dor or in­fra­struc­ture projects brings such lo­ca­tions into fo­cus from a real es­tate an­gle. De­vel­op­ers come up with hous­ing projects to cap­i­talise on such news. Scheme free­bies and of­fers were made to woo home buy­ers and in­vestors. But whether book­ing or in­vest­ing in such lo­ca­tions is worth­while de­pends on var­i­ous fac­tors. My les­son from this story was that punt­ing on real es­tate can go very wrong. This is not the only case; there are var­i­ous ex­am­ples where real es­tate has not given bet­ter re­turns com­pared­toother as­sets classes. If we look at data, real es­tate has given a re­turn of about 10.1% and 12.15% an­nu­ally in Delhi and Mum­bai, re­spec­tively, be­tween 2001 and 2017, com­pared to 11.75% and 13% an­nual re­turns dur­ing the same pe­riod from gold and eq­uity, re­spec­tively (read more here.

What I also un­der­stood is that, typ­i­cally, when it comes to buy a house, peo­ple ex­haust all their sav­ings and even then if they fall short of money, they don’t hes­i­tate to take a huge home loan to fi­nance the short­fall. What makes the sit­u­a­tion worse is the buyer’s ten­dency of get­ting at­tracted and end up buy­ing some­thing which is be­yond their bud­get. My friend ended up buy­ing a house in Sec­tor 24, Ro­hini, Delhi, two years later in 2010. He bought a builder’s floor for ₹32 lakh con­sist­ing two be­d­rooms, a hall and a kitchen, his ini­tial bud­get was ₹25 lakh. He bought a prop­erty out of his bud­get with the con­vic­tion that real es­tate will only ap­pre­ci­ate. I asked my friend about the pre­vail­ing price of the house he bought; he said it is about ₹ 50 lakh, again an in­crease of less than 6%.

But had my friend bought in the com­mer­cial area of Kundli, the prop­erty would have given a re­turn of five times. But most re­tail in­vestors shy away from com­mer­cial deals and stay with res­i­den­tial real es­tate.

What I learnt from Kundli is this: if you are in­vest­ing in real es­tate, put it through the tough met­rics youputanyother­in­vest­ment. Do not think that prices will al­ways only rise. Do not be­lieve the builder hype. Avoid buy­ing un­der-con­struc­tion flats. And al­ways look at the cost ben­e­fit of a real es­tate in­vest­ment. Do not buy on sen­ti­ment be­cause the tiles in the sam­ple flat are su­per nice.



There are var­i­ous ex­am­ples where realty has not given bet­ter re­turns com­pared to other as­sets

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