Budget or Luxury
Property - Which Is a Better Investment?
by Mr. Anil Pharande,
Chairman - Pharande Spaces
This is a big question
in every property investor's mind - do you stand to profit more from luxury
properties or budget homes? Generally, lower-end real estate needs lower
capital, which makes it especially appealing to small-time investors. Luxurious
real estate, however, is an asset class reserved for people with a lot of
capital to spend on a prime residential property.
So, what are budget
primarily targets the middle and lower-middle income bracket of buyers. This
would include regular starter homes in emerging or non-prime areas. Such homes
are cheaper and not top of the line, but they are adequate to meet the
requirements of the mid and lower income groups.
In other words, investors with
smaller budgets can invest in such properties - though even the more well-
heeled property investors in India often investing in bulk in budget housing
projects to capitalize on the high-demand middle and lower middle-class
Now that we have defined
budget housing in a nutshell, what is high-end real estate and how does it
compare as an investment with budget housing?
What is luxury
Luxury housing caters
to the wealthy who have a predilection for first-class amenities and
facilities, which they are not averse to paying a premium for.
properties must be exclusive, desirable and unique in many ways.
central location used to be a primary factor while selecting a luxury property
- but with the new trend of extremely prime and ultra-modern projects coming up
even in newer areas, this is no longer strictly true.
What exactly does
exclusivity mean? After all, by virtue of every home having only a single
owner, can it not be argued that all homes are technically 'exclusive'?
really. As far as high-end real estate is concerned, exclusivity means
closeness to other high-end residences, and suitable access to a variety of
tasteful conveniences like five-star hotels, shopping malls, sports complexes,
In areas like Pune's
PCMC where planned urbanization has preserved a lot of the available green
cover, natural beauty is also an essential determinant in defining
exclusiveness. While some buyers may favor mountainside views, others are more
into countryside or lakeside and park views.
In recent years, integrated luxury
townships have been offering such features - and a lot more.
luxury home buyers want the same things that all buyers for lower-end
properties do, just on a considerably bigger scale. While budget home buyers
are satisfied with rudimentary security, regular maintenance of the project and
basic fixtures and fittings, luxury homeowners expect advanced facilities and
project management that provide a seamlessly comfortable, convenient and
visually enriching experience.
They also expect round-the-clock electronic and
human surveillance of the premises, smart security and convenience features in
the properties, and top-grade international branded fittings.
properties cost a lot more than budget / affordable homes. The question is, do luxury
properties make more sense investment-wise than budget homes?
There are various
schools of thought on this, with a lot of emphasis being laid on the fact that
the highest demand in India is for budget housing.
readings also indicate that the number of wealthy home buyers in India is on
the rise - and these buyers all seek top-class, refined housing with all the
latest amenities and facilities.
Moreover, they are invariably not dependent on
home loans and have enough wealth to make outright purchases.
huge complement of India's highly cost-sensitive budget housing segment of
buyers is sitting on the fence, waiting for declining home loan interest rates
and a correction in property prices.
Chairman - Pharande Spaces
Also, over the last
couple of years, a volatile economy has significantly impacted pricing of
luxury homes, making them more affordable.
It is fairly safe to
say that both budget housing and luxury properties are finding buyers in India.
It is certainly advisable to run an all-inclusive market analysis locally
before embarking on a real estate investment, since the exact dynamics driving
ROI on different property typologies differ on a market to market basis.
investment in a luxury integrated township in the Pimpri- Chinchwad Municipal
Corporation make a lot more sense that investment in a small budget housing
project, because luxury townships offer residents neighbours of comparable
status and purchasing power, highly adequate facilities such as green open
spaces, in-project schools and shopping malls and superlative project
maintenance and smart home features at a unit level.
Anil Pharande is
Chairman of Pharande Spaces, a
leading construction and development firm that develops township properties in
West Pune. Pharande Promoters & Builders, the flagship company of Pharande
Spaces and an ISO 9001-2000 certified company, is a pioneer in the PCMC area
offering a diverse range of real estate products catering especially to the 42
sectors of Pradhikaran. The luxury township Puneville at Punavale in West Pune
is among the company's latest premium offerings. Woodsville in Moshi is another
highly successful PCMC-based township by Pharande Spaces which is now in its
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Investors from China, Japan and Korea gung-ho on industrial
By Mr. Anuj Puri, JLL
Apart from the favourite asset classes of office and residential,
private equity (PE) has been taking increased interest in warehousing,
logistics and retail real estate.
PE investors and overseas developers are already looking at
opportunities to enter India’s industrial and warehousing sector by investing
in various development projects.
Investors from other nations, in general, and Asian countries such
as China, Japan and Korea, in particular, have shown a lot of interest
industrial development projects.
A few key announcements that show their increasing interest are:
*‘Wanda Industrial New
City’; Dalian Wanda Group
*Industrial Parks by
China Fortune Land Development Company Private (CFLD)
*Development of smart
cities by ZTE Corporation
Japanese investment zone
zone in Vadodara
multiple portfolios of industrial and logistics parks across India.
With the implementation of Goods and Service Tax (GST),
warehousing and logistics’ spaces will start to see a consolidation of assets.
Unlike earlier (small assets in various states), developers will focus on the
development of large-scale, technologically advanced warehouses.
Such assets will attract private equity (PE) investors, since they
can deploy a larger amount in fewer assets, making monitoring easier. If they
perform well, such assets can even fetch a better valuation when monetising
through REITs or other ways.
Retail assets gaining attention
In the past few months, key leasehold retail assets across the
country have come on the PE radar.
A few reasons include well-managed Grade-A malls starting to enjoy
better occupancy with rent escalation on the cards, after a lull of six to
Such well-managed assets/ entities will attract investor focus.
A few key deals seen in 2016 were
*GIC bought a 50%
stake in Viviana Mall of Sheth Developers in Mumbai
the retail portfolio of Alpha G Corp through an entity level deal
progressed well in acquiring a stake in the retail assets of L&T in Navi
*Blackstone buying 50%
stake in Pune’s Westend Mall
Leasehold retail property usually has a higher probability of
success as the developer is actively involved in the key functions of mall
management, especially tenant management.
Various new regulations like easing foreign investment for
single-brand retailers, longer shopping hours and an updated framework for
establishing Real Estate Investment Trusts (REITs) have attracted the attention
of various private equity funds like Blackstone, Xander, GIC, Morgan
Stanley, towards the Indian retail real estate sector.
Various retail mall developers are also looking to sell
their existing retail assets and raise funds for expansion.
About the author..
Mr. Anuj Puri, Chairman and Country Head at JLL India
Those who have a positive attitude towards what
life brings them are more likely to be successful and happy.
Or at least,
that's the general opinion. Of course, when you meet someone new, it's better
to assume the best about them, since most people are honest and sincere.
Generally, things work out better if your default attitude is open and
Unfortunately, this is not true when choosing and
buying financial services. As a rule, you should assume that everyone who is
trying to sell any financial service to you is either hiding something or is
actively lying. This may only be true 90% to 95% of the time, but it's better to
assume the worst to protect yourself.
In order to make the right choices when you save,
invest and buy insurance, you must educate yourself independently, and make
your decisions yourself, without having to depend on what a salesperson is
Decades of interacting with the customers of
financial services and observing how these industries work has left me with the
strong belief that when it comes to dealing with them, distrust and suspicion
should be the default attitude.
Why is this the case? Why is buying financial
services different from buying, say a jacket, a pair of shoes, or a car? There
are many reasons for this and while some are to do with specific issues with
the way business and regulations are conducted in India, there is a much deeper
reason that is fundamental to financial services.
This reason is that the input, product and output
of a financial service business is all the same stuff money, and the only way
they can earn more is by ensuring you get less of it.
Think about that carefully.
Let's say you are trying to decide on which midsize car to buy. There are
choices at a wide variety of price points. You could buy one from Tata Motors
for Rs. 7 lakh, or Maruti for Rs. 9 lakh, or from Honda from Rs. 13 lakh, or from
Mercedes at Rs. 45 lakh.
So is everyone except Tata overcharging? Not quite.
The deal is quite transparent. You will give an
auto company a certain amount of money, in exchange for which, you will get
some combination of performance, reliability, safety, gadgetry, prestige and
whatever else you are looking for in a car.
You pay money, and you get these
things in return. If a car company wants to make more money, it can enhance the
attributes that you value and charge more.
This has a really important implication: for a
certain type of financial service, and a given competence with which it is run,
the only way for the provider to make more money is to give you less of it. If
the provider wants more of anything, whether it's profit or salaries for
employees, or more dividends for the owners, it has to be eked out by reducing
what you get.
If they want to increase sales by paying more commissions to
agents, that too is paid for by reducing your returns. Everything comes out of
Do not think of this as some esoteric, conceptual
model of financial services. This is what drives every interaction you have
with your bank, insurance company, stockbroker, mutual fund, and anyone else
trying to sell you their services.
Do not count on regulators to protect you
In general, India's financial regulators are always well behind the
curve in terms of stopping the malpractices that are rife in all these
The only way to stay protected is to educate
yourself with knowledge and data that is not tainted by actually being
generated by the same people.
Always be suspicious of anyone who is selling a
financial product, and let distrust be your default attitude. I know it sounds
terrible, but that's the way things are.
Teaching money skills to little children is not
easy because it is a boring subject and they easily lose interest. But a set of
books brought out by brokerage firm Zerodha might help inculcate financial
literacy in a fun manner.
The 5 book series has stories that focus on key
financial concepts such as the importance of saving, the impact of inflation
and the need for banks. There is also a story that explains the concept of
insurance, the role of taxes and how the stock markets work.
Children aged 7 to 10 years will find these books
interesting as well as informative.
A spokes person of Zerodha said the company is
committed to spreading financial literacy among children. In the pipeline are a
series of books for older children in the age groups of 10 to 15 years and 16
to 19 years.
GOVT Sovereign Gold Bonds from Monday 2017, February 27 to March 3
The bonds will be sold through banks, Stock
Holding Corporation of India, designated post offices, National Stock Exchange
(NSE) and Bombay Stock Exchange (BSE).
The Centre has decided to come out with the
fourth series of Sovereign Gold Bonds 2016-17, which the Reserve Bank of India
(RBI) will issue on its behalf.
Applications will be accepted from 2017, February
27 to March 3, an official release said. The bonds will be issued on March 17,
The bonds will be sold through banks, Stock
Holding Corporation of India (SHCIL), designated post offices and recognised
stock exchanges NSE, and BSE.
The bonds will be denominated in gram(s) of gold
with a basic unit of one gram. The tenor will be for a period of eight (8)
years with exit option from the 5th year to be exercised on the interest
Investors will be compensated at a fixed rate of
2.50% per annum payable semi-annually on the nominal value. Launched by Prime
Minister Narendra Modi in November 2015, the Gold Monetisation Scheme (GMS) and
the Sovereign Gold Bond schemes aim at cutting down the huge demand for the
While the GMS has seen tepid response, investors
have found the gold bond scheme reasonably attractive.
Finance Minister Arun Jaitley had, in Union
Budget 2015-16, announced the creation of a Sovereign Gold Bond as an
alternative to purchasing metal gold.
Accordingly, three tranches of issuances had been
undertaken during 2015-16.
wealth involves a whole range of smart strategies. Most rich people get that
way by consistently doing the following five things:
*They understand and manage their debt. They
don't let debt manage them.
*They are restrained spenders and aggressive
savers, far outpacing their peers.
*They invest in stocks and
bonds with discipline.
*Their primary focus is on increasing their
active income. Usually, this comes from a business they know inside and out.
*They invest in real estate and
other 'outside the stock market' opportunities.
can see, investing in stocks and bonds is only one of five strategies you must
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Stocks are a great place to grow your wealth. It
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You may have heard about the club before.
Perhaps you were too busy to take a close look at it. Or perhaps you did look
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If so, I want to say this and bluntly: If you
are hoping to achieve your goals simply by buying a few great stocks or by
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A Strong Case for Chennai’s Rental Housing Markets
By Mr. Simon
Selvaraj, JLL India
Chennai has grown
exponentially in recent decades. It attracts an endless sea of people who keep
moving in to the city, primarily for career and educational prospects.
Employment, education, opportunities and lifestyle are magnets that keep
pulling people into Chennai from all directions of the country.
This naturally has a
profound impact on the demand for rental housing in the city.
Levels of migration..!
Massive churn in urban area has turned out to be an
intrinsic part of life for most of the city’s residents today. The total
migrants into the urban areas of Tamil Nadu, as per 2011 census, accounts to
12.3 million - of this around 47% have duration of residence between 0-9 years.
Thus, a fair portion of citizens in Chennai are tenants who do not necessarily
want to buy a flat to live in the city.
quality of living..!
Rental housing allows residents to opt for a higher
standard of living than their property purchasing power. A new apartment in the
CBD of Chennai would cost around Rs. 75 lakh, while a person earning about Rs.
10 lakh per annum can afford a home costing Rs. 60 lakh in the more affordable
However, such an individual can afford a CBD-based home on
rent within the same annual income. This makes it possible for a denizen of the
MIG (middle-income group) to live in a HIG (higher-income group) flat, while
the and LIG (lower-income group) individuals can comfortably afford to live in
a MIG flat.
Chennai continues to be an expensive city to buy a
property. An average increase in property prices by 6-7% from last year has
further constrained the affordability of owning a house. However, the rental
trends in Chennai have seen only 2.5-5% annual increase over the past 4-5
Rental paid saves taxable income, as almost the whole
portion of the rent paid can be saved by claiming it under Section 10 as HRA.
Mr. Simon Selvaraj, JLL India
greater flexibility and requiring less of a financial stretch than
homeownership, renting is most common among young adults in whose lives changes
in work and relationships are frequent.
Owning a house involves a down payment for the loan
to the tune of almost 20% of the property value, and the EMI to be paid is
often 40-50% of the monthly income.
Property taxes are at about 1.5% of the
property value and the regular maintenance and repair costs which account for
40% additional charges, as compared to a simple monthly rental for the same
However, hunting for a
suitable rental house does come with its own set of challenges – not only to
outsiders but also locals.
Accessibility to work place, quality of neighbourhood,
connectivity to other parts of the city, adequate living space, amenities,
owners’ rulebooks and also certainly the budget and value for money being paid
play a significant role in sound decision-making while searching for a good
Narrowed down to the
important rental housing hotspots of the city, here are the trends being
currently observed in Chennai:
IT Corridor – Old Mahabalipuram Road
OMR continues to thrive
as one of the preferred destination for the city’s Infotech population due to
its proximity to various IT business parks and dedicated SEZs. With a slew of
residential apartments and studios for singles coming up along this corridor,
the burgeoning population of IT professionals has a logical influence on real
estate and rental accommodations in this locality. Being majorly occupied by
bachelors (sharing accommodations) as well as families of 4 to 5 members on average, Shollinganallur, Perumbakkam, Perungudi, Siruseri and Taramani retain
average residential rental values ranging from Rs.12,000-18,000 per month for 2 BHK
flats and Rs.15,000-30,000 per month for 3 BHK individual houses.
Contrasting GST and
Dotted with apartment
complexes, educational institutions, SEZs and retail outlets, Grand Southern
Trunk (GST) Road - the stretch between Perungalathur and Guduvanchery -
is densely populated by a mix of working people and students.
well-connected by road and rail to the southern cities of Tamil Nadu, this
stretch also witnesses tremendous infrastructure activities with rail overbridges,
a proposed new mofussil bus terminus and a planned elevated 8-lane corridor.
The average rental
values of spacious houses in this residential neighbourhood with quality
educational and healthcare institutions in close proximity range from Rs.
7,000-12,000 per month for 2 BHK flats and Rs. 10,000-20,000 for 3 BHKs.
Grand Northern Trunk
Road - a 10 km drive down the stretch from Madhavaram Bypass to Red
Hills - is strikingly dissimilar to the GST Road. This corridor is more about
container terminals, warehouses and some realty activity.
The steady growth in
infrastructure and connectivity as well as availability of water resources has
encouraged leading industries to set up their bases along GNT Road.
However, there is
currently lack of road infrastructure projects, and a perception of North
Chennai and the IT hub at Ambattur as having very little impact on
this stretch. This has led to comparatively less enthusiasm among people to
move in to this location. As a result, employees working in the industries
along this stretch can find more affordable rental housing in the range of
Rs.5,000-8,000/month for 2 BHK flats and Rs.10,000-16,000 per month for 3 BHKs.
Pulsating Pallavaram–Thoraipakkam Road
Connecting the key
corridors of OMR and GST, the Pallavaram-Thoraipakkam Road has vast
employment opportunities and residential rental affordability. 1 BHK
developments (average unit size 550 square feet) account for about 8% of the total
housing supply in this area.
The yield rate in this micro market is 2-3%.
Offering a number of rental options ranging from studio-type apartments to 3BHK
flats, villas, and row houses, the average rental values in this micro-market
falls between Rs.10,000-15,000/month for 2 BHK flats while 3 BHK options are
rented out for Rs.12,000-25,000 per month on an average.
The peaking residential
rental values in city’s central locations have led people to turn to the west
for affordable living.
The western quadrant is predominantly driven by business
people as well as industrial and IT employees due to its excellent connectivity
to Central Chennai, Mount-Poonamallee Road and Ambattur office
districts. After construction of Outer Ring Road, connectivity has improved
projects, including completion of the Metro Rail Corridors, revival of the Maduravoyal flyover,
etc. will keep drawing occupants towards the west. Premium residential
developments and the presence of multi-national companies in Sriperumbudur and Oragadam have
also been major demand drivers in these localities.
The west zone including Porur, Maduravoyal, Manapakkam, Thiruverkadu and Poonamalle offers
decent houses with average rents in the range of Rs.10,000-12,000 per month for
2 BHK flats and 3 BHKs between Rs.15,000-25,000 per month.
A Winning Scenario
Rental housing not only
addresses housing needs but also helps to reduce the completed unsold
residential inventory on the market.
The reduction in this number is a clear
indicator that the market is maturing. With this in mind, the recent Union
Budget has levied tax on developers on the notional rental income on completed
unsold inventory after 1 year.
Apart from the fact that
rental Housing is affordable and offers a better living standard, it is also
correctly viewed as a solution to achieve the Government’s vision of Housing
for All by 2022.
The growing shortfall in housing is a serious challenge, and
its scale makes the success of any single approach like buying/owning a house
On the other hand,
housing situated far away from employment hubs and social infrastructure is
unlikely to induce much demand. Through rental housing schemes, PPP model and
Government subsidies, housing for the EWS (economically weaker sections) and
LIG can even be made available to people drawing monthly income below Rs. 7000
With budget provisions,
residential REITs and the growing demand for rental housing 2017 will witness
the rental market finding its place in the real estate scenario, opening more
options for the rental occupiers and assured returns for owners.
About the author..
Mr. Simon Selvaraj, Local Director - Strategic Consulting (Chennai) JLL India