India – infrastructure and real estate pricing

August 31, 2012 / By

Infrastructure projects influence the supply, valuations and prices of real estate. Though mostly catering to housing demand, residential developments are inherently speculative in nature. While being marketed, residential prices are often invented and depend on upcoming infrastructure projects. Positive developments in the construction of an infrastructure project make the prices sticky-upward, as developers tend to profitably exploit the positive sentiment created by such activity within the buyer and investor community. Such upcoming infrastructure projects also lead to the development of new residential hubs, and, if land prices have not picked up in those areas, affordable and budget housing is often boosted as well, before higher-priced residential projects begin to crowd out such economical housing options.

Commercial projects show a slightly skewed behaviour. They truly gather momentum when infrastructure projects have moved from the drawing board to the execution phase. Such projects continue to pick up steam when they have very clear completion timelines. Delays in infrastructure development after breaking ground often lead to projects showing lagged capital appreciation and end-user demand. Occupier demand flowers late and only after a new hub has attained a sustainable level of infrastructure development, while retaining its low prices.
Land works in a different way. Initially, land acquisition and consolidation is based on preliminary news regarding infrastructure projects, such as that contained in a city’s futuristic master plan. Land values show an uptick once a region’s authorities approve the master plan for development. Usually, developers and land consolidators enter a region before such projects are even announced based on speculative news, to lower their acquisition costs. Thereafter, land values soar due to a reduction in available space and announcements of ancillary infrastructure projects, which contribute to creating an overall vision for a development hub.

The recently completed Yamuna Expressway, linking Delhi and Noida to Agra, is the perfect case study for this phenomenon. The initial portion called the Noida-Greater Noida Expressway has been operational for the past nine years. This stretch saw developers acquire land around the time when the highway project was first announced. Residential projects were the first to be delivered with controlled supply. This was followed by a spurt of commercial office space developments. This stretch then saw a huge increase in residential launches from 2009 onwards, as the highway entered advanced stages of construction. This time, the projects catered to all budgets and eventually focused on the high-end market.

Retail projects are usually the last to flourish in any upcoming development hub, as they require a well-defined catchment derived from operational residential developments and the white-collar workforce in the vicinity. This activity has been seen as mixed-use projects comprising retail developments, which were announced three-to-four years ago, started construction just recently and only on the more vibrant Noida-Greater Noida Expressway portion of the highway. Newer retail projects were announced over the past four quarters as the highway entered its final stages of completion. This completed the process of land acquisition to retail development via residential and commercial stop-overs, born out of infrastructure announcements and implementation.


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