Metro connectivity has an impact on real estate values at various levels. There might be maximum appreciation when announcement of a corridor is made. Smaller price movements could follow during the later construction and operation stages, says Vandana Ramnanirealestate Updated: Feb 14, 2013 15:30 IST
Vibha Sharma, working in a multinational company, bought property in Gurgaon for R5,000 per sq ft when the Metro corridor was announced way back in 2006. The apartment, located in one of the residential complexes along the Delhi-Gurgaon Metro that began operations in 2010, today commands a price of over R10,000 per sq ft. Is the promise of quick connectivity to Delhi translating to rich returns for investors putting their money in real estate in Delhi NCR? Let’s find out more.
The mass transportation network creates important real estate hubs along its route. Though its impact on property prices, both residential and commercial, along the route and in areas nearby is more or less the same, it tends to create a price gap between areas close to and further away from the Metro in the long run.
Real estate experts point out that the Metro does lead to an increase in the base rate of the markets where such projects are announced. That’s because accessibility to the areas improves manifold. However, this might not be the factor leading to the more than 30% increase in property prices in the area. The other reasons could include investors’ confidence/appetite, overall affordability of projects, improvement in the job market and the overall economic environment. The impact of the Metro on the prices of properties located near or around its route is not more than 10-15%, they say.
Also, the Metro’s impact on property prices is much more limited than absorption, which has a tendency to accelerate when the Metro nears completion. What this means is that there is a real spurt in absorption of real estate units as the route nears completion or is operational. And, as absorption picks up, the profile of the area improves, leading to increased prices there.
Also, if a line were to come up in a largely high-end area, the impact on prices is not manifold. For some high-end properties, the Metro connectivity could also have a negative connotation (noise, congestion and vibration).
For new residential units along the line catering to the mid or the affordable segments, the appreciation after the Metro becomes operational is usually in the range of 15-20% as the target is likely to be the actual end-users of the Metro. This is how the Ghaziabad and Noida markets have reacted in the past (during phase 1) and will get impacted as work on phase II begins and finally becomes operational.
Another point to be noted is that real estate prices in most markets factor in the Metro effect during the price rally, which means that the maximum impact of the Metro on property prices is felt at the time of the announcement of the Metro corridor and not so much at the time when it
finally becomes operational.
Impact of second phase
This implies that if a second phase or an extension is announced, that will have a greater impact on property prices than commencement of Metro operations. This means that Metro connectivity may have an impact on real estate values at various levels – there might be maximum appreciation in an area when the corridor is announced and smaller price movements during the construction and operation stages.
The Metro has definitely made the suburbs attractive. Both Gurgaon and Noida have already factored in the positives of road infrastructure and better connectivity with Delhi. The current prevailing prices reflect those positives. An announcement of an extension or a second phase connecting the two towns will definitely have a significant impact in property prices, says Vineet Singh of 99acres.com, a property portal.
Commercial real estate is impacted more by infrastructure development during the operational stage.
Commercial rentals are seen to rise when companies see the benefits of improved connectivity percolate to their employees.
As far as office space is concerned, more companies may want to be in the area where connectivity is set to improve. Firms in Gurgaon contemplating a move have now decided to stay put following the announcement that phase I of the private Metro will be operational in April.