Bangalore Tops Cities in Terms of Capital Appreciation

Real estate has always been considered to be one of the safest investments to make because price of land appreciates over time. The gain in capital values of land outweighs returns from other forms of asset and it is a secure one. For a very long time, Delhi NCR and Mumbai have provided buyers of property with the best possible appreciation in capital value. Post downturn years, the cities dominated by the IT industries such as Pune and Bangalore have moved ahead of the traditional cities when it comes to capital appreciation for residential properties. 

Data should that the maximum median capital appreciation has been clocked in Bangalore in the middle income residential segment of forty one percent between the first half of the year and the next period of the same year. The city that came in the second position was Pune with 28 percent. The increase in capital values for the premium properties in Pune was around 39 percent while in Bangalore it was 37 percent. Pune had topped the list for the country. As there is a lot of disparity between comparisons of residential prices in every city, it was classified that a property would be a mid income one if its capital value was less than Rs 5000 for a square minute. Anything higher than that would be premium property.

In terms of affordable housing and premium housing, Mumbai and Delhi NCR are towards the bottom of India’s well performing realty markets. Usually Delhi NCR and Mumbai have done well in the higher end segment but this time there was a 24 percent capital appreciation only. The two cities fell behind the affordable property market of Kolkata as well, which clocked in at 26 percent.

Markets which are driven by end users in Pune and Bangalore have exhibited the maximum mean rise in capital values whereas markets driven by investors such as Mumbai and Delhi NCR have not done very well. In the last three years, the IT sectors of India have shown a growth trajectory which has given rise to salary scales and job possibilities. There is a logical and distinct correlation between appreciation of property prices and the IT sector in the country. Metro areas which are largely dependent on the IT sector have seen a fair, consistent and generous demand for luxury and middle income housing. Cities driven by the IT sector are more evolved in terms of aspiration levels among house hunters, including increased exposure in international housing, improved purchasing power and standards or luxury along with awareness regarding environmental sustainability and other contemporary ideas.

Between the years 2008 and 2010, the prices of real estate in Pune and Bangalore had steadied which made the realty markets of these cities appear stagnant. Delhi NCR and Mumbai on another hand were peaking in terms of property prices. Pune and Bangalore have also gained from the NRI segment along with funding from private equity companies as Delhi NCR and Mumbai became unproductive.  Currently, Mumbai and Delhi NCR are facing price correction and stagnation.

The market for property in Bangalore has attracted the most amounts of private equity or PE investments in India in the former half of 2014 and has defeated the Delhi NCR region along with finance capital of India, Mumbai. There is very high demand for commercial and office spaces along with steady housing demand which has made the realty market of the city see PE investments elevate by almost 20 times year-on-year to roughly Rs 2005 crores. In the first 6 months of the year 2013, Bangalore had received private equity investment of almost Rs 103 crores. The real estate investment received by Mumbai has been around Rs 1140 crores while NCR Delhi has received Rs 490 crores and Chennai has received Rs 200 crores in the same period. Mostly availability of office assets on lease and steady yields has positioned interest level high.

The private equity investment share is expected to be significant in the years to come in Bangalore. A lot of the assets have very high occupancy rate and shall offer stable yields of roughly 9 percent that make them much attractive to investors. A 100 crore non-convertible debenture has been struck by Piramal Fund Management with Century Real Estate Holdings on 2 projects in the Garden City. This Tata Capital preceded this deal by investing almost Rs 470 crores for roughly 15 percent shareholding along and board seat in Vaswani Group and Shriram Properties which has raised Rs 100 crores almost from JP Morgan. Underwriting projects in Bangalore is easier as ticket size is quite reasonable. Almost 1 to 2 transactions are closed in a month although a reverse challenge in velocity is there of which one has to be careful. Piramal Fund Management are thinking of investing Rs 300 to Rs 400 crores for each deal in Bangalore, compared to earlier investments of Rs 100 crores.

 The Red Fort Capital group is making mid income projects which are priced between Rs 60 lakhs and Rs 4 crores as their targets in Bangalore. Even though the NCR Delhi and Mumbai are high margin and value markets, the most stable market that is driven by end users is Bangalore. Capital being churned around in the city is also quicker than other markets.

Some companies which are seeking transaction opportunities in the Garden City are MotilalOswal Private Equity, Milestone Capital Advisors, ShapoorjiPallonji, Blackstone and Xander. Milestone Capital Advisors invest almost 30 to 40 percent of their whole fund outlay in property in Bangalore and they are also evaluating numerous transactions for their latest Rs 500 crores fund which shall be launched in the next few months.

Market for property in Bangalore is growing as a number of projects have been started in different areas of Bangalore such as HSR Layout, Whitefield, and Bannerghatta Road etc. Infrastructure projects such as widening of roads and completion of various phases of the Metro Railway have also inspired investor and end buyers’ confidence which is why the market for property in Bangalore is booming.