What Affects Property Prices in India?

Prices of property go on increasing every day. Those who had bought land early on and used it for the purpose of housing development have seen good appreciation in the value of their land. The common factors such as infrastructure, strategic advantage and uninterrupted connectivity in a locality push property prices up. However, some other factors too affect the price of land. Some of them have been discussed below:


Intrinsic Value

Depending on how you use a particular tract of land, its property price if determined. For example, barren lands may not be cultivable but they may be turned into commercially useful properties which lead to appreciation of land. A land’s possibility of being developed into commercial and industrial properties depends a lot on location and quality of the land. For example, if a barren land tract is surrounded by cultivable plots then nothing can be done about it. Also, if the land is swampy, then houses built on it would not be of good quality and hence be priced lowly.

FAR or Floor Area Ratio

The size of a building is controlled regulation. The ratio between the area of a plot and total building’s floor area determines the market value of the plot. If the FAR is increased by the planning authority then the property’s market value may double. Therefore, without playing a part in appreciation also, landlords may enjoy higher returns from such decisions made by the government.

For buyers too, a rise in FAR is good news. A rise in FAR indicates that developers may build more flats and sell more which could lead to a fall in price of projects. However, the FAR is not the only cause of a drop in price of the India property. Nevertheless, the FAR must be used judiciously.

The Speculation Game

Over the past 1 year, realty in India has been sluggish because of snail-like economic growth and also the speculation over the nature of government to ascend in the Centre. Most people in the real estate market were expecting price corrections and reforms in policies. Buying India property post the Lok Sabha elections seemed to be the best option for buyers.

Usually speculations are a part of the market when there is scarcity, political uncertainty, migratory movement, over-supply and financial crisis. Most buyers wait for rates to fall whereas sellers wait for the appropriate moment for a sell.

Black Market

More often than not, builders want a part of the amount in “black” which understates actual prices. The cash amount which cannot be accounted for is what is referred to as “black money”. Unless the money is stashed away or funnelled into banks which handle black money, this amount can be used for generating employment further. However, the bigger picture suggests that revenues of the government suffer much. After some time, a builder may want to change his money into white and funnel it through several channels which would convert it into legal profits. Most of the “black money” is meant for keeping the red tape happy, bypassing the law, evading taxes and duties. The main result of such actions is that quality and reliability of constructions are hard hit and there is very little transparency and price discover. The true price of a tract of land is much lesser than the black market value.

Interest Rates of Banks

When banks decide to slash their interest rates on home loans, it engenders investment patterns among house buyers. The slashing of interest rates leads to more lending for the bank, which leads to an elevated demand for properties which further fuels price rise. A lot of people think this is a vicious cycle.

Service Class People

Those working close to FDI sites, industrial parks, SEZs and ITeS and IT companies want to live in neighbouring localities. This demand from employees of these companies has led to a shooting up of prices in these areas. Biggest examples of this phenomenon are Powai in Mumbai, Kolkata’s Rajarhat, Kerala’s Kochi, Hinjewadi in Pune and Powai in Mumbai along with Gachibowli in Hyderabad and Bangalore’s Whitefield.

Metro Railway

The metro railway has led to a major change in the face of cities, prominently being Delhi. Closeness to the metro railway sells projects for both brokers and builders as future appreciation of such lands are high and it affects valuation of a property positively. However, purchase of India property close to a metro line needs to be timed well for maximum benefits.

Usually when a metro line is announced in an area, the capital values of the surrounding area increase rapidly. Therefore, those looking to sell their properties should do so now as they can capitalize on the mileage received by properties for the metro railway. Even though there is an increase in price when the metro railway line is announced, a price drop does happen when construction begins. Because of traffic congestions and other inconveniences caused by the ongoing construction, both rental and capital values of the area fall. However, as the metro railway’s construction draws to a close or when the metro line starts its operations, prices begin rising again. These stages of price movements can be noted mostly in Bangalore, Delhi and Mumbai where the metro lines have been made operational.

Aside from the localities which are right by the metro railway, areas close to the neighbourhoods of the metro stations also gain in terms of capital value. This is mainly because metro stations are located in commercial and retail hubs and being connected to them via the metro railway improves connectivity of an area. This leads to a property price rise in neighbourhoods near metro stations.

Prior to making investments in a locality for an upcoming metro railway, you should look into the issues that you may face at the time of construction. The stage of the construction is one of the most important determinants.

If you can gauge correctly the trends of the economy which affect price of land, you can invest at the right time to reap lots of benefits from your investment.