Development of new infrastructure, which connects the city centre to a wider geography, is an effective tool to give a push to affordability. Most projects in Delhi-NCR, Mumbai and Bengaluru are priced in the above Rs 65 lakh category. While they are relatively affordable, a majority of them are located in peripheral towns, away from the city centre.
Given the constraints of land pricing and availability, such low ticket-sized projects can only be undertaken in peripheral city areas and improving infrastructure is therefore paramount, if they are to serve the purpose of providing a suitable living environment as well as suitable connectivity to core city’s business districts, says a report titled Indian Real Estate: Comprehending the Varying Speeds of Growth by JLL and CII.
Infrastructure projects impact real estate development at three levels – upon announcement of the project, during the construction phase and upon completion of the project, says the report. The announcement of an airport has the maximum impact on land prices, leading to a 20% to 30% increase in prices.
The report also says that tier-I cities such as Mumbai, NCR-Delhi and Bengaluru record a relatively gentler appreciation in residential capital values on announcement of an infrastructure project, as most likely the beneficiary precincts are already established ones. On the contrary, the beneficiary precincts in tier-II cities would react to such announcements more sharply.
As infrastructure development in bigger cities involves a lot of complexities (bigger cities face challenges in acquiring land, resettlement and coordination between multiple government agencies), the construction period would typically be longer compared to that seen in tier-II cities, the report says.
Interestingly, the length of road construction is known to have a direct bearing on real estate. However, it is equally important in potentially lowering average house prices, particularly in urban areas. As road lengths increase, connectivity improves across a wider geography thereby attracting new project launches at lower price points. This also has the effect of reduction in prices in urban agglomerations, says a report.
The report says that the announcement of an airport has the maximum impact on land prices. It can lead to about 20% to 30% increase in prices. This is because airports usually come up in areas that are away from the city centre where land prices are at a very low base.
The appreciation in land prices is around 5% to 10% during construction and 5% to 10% on completion of the project. With huge gestation period for its construction, annual appreciation is moderate until completion of the airport, the report says.
The appreciation in housing stock is around 8% to 10% at the time of announcement of a road project, it is about 7% to 10% during construction and around 5% to 8% on completion of the road construction project, the report says.
A Metro is routed through established residential and commercial areas of a city. Therefore, the price appreciation following the announcement is gentler, although appreciation picks up pace as the infrastructure project nears completion in anticipation of the rising preference for the area, it says.
Prices of residential real estate generally rise by 10% to 15% on announcement of the project, 10% to 12% during construction and 15% to 18% once the Metro project is complete, the report says.
Also, the construction of outer ring roads in cities benefits a wider geography and mitigates sporadic rise in prices of certain precincts
Therefore, it is important to increase the speed with which authorities deliver and execute infrastructure projects. This will not only help decongest cities, but also keep price affordability intact. Central government initiatives such as Smart Cities Mission, targeted development of road projects and increasing land supply through reforms in Land Acquisition Rehabilitation and Resettlement Act hold a lot of promise and must be expedited.