Should you invest in a tier-2 city property?

Metro cities such as Mumbai, National Capital Region (NCR), Bengaluru and Chennai account for the bulk of property transactions in both residential and commercial space. Larger markets account for three-fourth of all sales in the country. But smaller towns may offer some attractive and niche investment opportunities that differ from what you may get in metros. Investors who are interested in looking beyond big cities must weigh the pros and cons of small town property investments before taking the plunge.

The good
Infrastructure and job growth in smaller towns offer genuine opportunities for investments that many may not be aware of. For example, IT park development in Coimbatore boosted property prices. Likewise creation of industrial corridors may create new pockets of job growth, spurring property demand.

Property ticket sizes also tend to be smaller in tier-2/3 cities. This can make it an attractive choice for many investors who cannot afford to buy a property without a budget in crores. Home prices in prime neighbourhoods such as Banjara Hills in Hyderabad go for Rs 4,000 to 4,500 per sq ft, compared with over Rs 1 crore tag for a home that is under 1,000 sq ft and in an ok locality in Chennai.

Some locations may also offer niche prospects typically not available in cities. For example, a home in a hill-station town or a tourist spot such as Mysore or Goa may offer good income and price growth potential, driven by factors that differ from what helps price appreciation of a home in the suburb. These may be of interest to some investors and may offer good potential for savvy investors.

The bad
That said, the property markets in smaller towns are, well, small! There are not enough transactions and the market depth is low. As a result, liquidity may be poor. Prices may rise fast on low volume and when things turn for the worse, selling may turn out to be a challenge.

Job growth, which drives property prices, may not happen steadily in smaller cities. So the price appreciation or demand growth that one hoped for, may not pan out. This coupled with supply additions from larger projects that were possibly launched add to inventory that may create price pressure. Unlike large cities, even a few mid-sized projects with only add a few hundred homes each may lead to excess supply, as local demand tends to be typically low.

The choice
Small town investments offer different risk-reward profiles and may yield results in short or long term horizon. For example, currently prices in regions such as NCR are on a severe downtrend; but many smaller towns such as Vizag and Indore are witnessing robust market size growth. Sales volume in 19 tier-2 cities fell by 17 per cent in the last two years, half the fall witnessed in the top 14 tier-1 cities (32 per cent fall), as per a report from PropTiger.

When the property market was hot, there was a lot of investor interest in smaller towns. But when the tide turned, small town investors faced more pain than those who bet on metros. The risks tend to be higher as many towns rely on one or two sectors to drive demand. For instance, the change in oil fortunes in the middle-east impacts the property market in towns such as Kochi where there is a lot of money coming in from abroad. So you must assess the specific risk in a region before investing.

If you are from a small town area, you must be extra cautious to not let familiarity bias cloud your decision. You must separate the emotional attachment aspects from investment potential and assess the opportunity objectively. Buy a property only if it meets your goals of returns and time horizon of investment. Do not overlook risks since you have a comfort factors.

Small town properties can be an interesting opportunity to consider for many, but specific risks, growth drivers and local factors have to be evaluated to decide on the investment.

Time to focus on Rental Housing

Harvard researchers predict that over the next ten years, India can become the world’s fastest growing economy. The real estate sector, the highest job-creating sector after agriculture, has a significant role to play. The government can chip in with the role of an enabler.
Alas, it hasn’t worked that way.
Poorly formulated housing policies can trigger an economic and financial crisis. So, what we need are good policies to support growth in long-term living standards and strengthen macroeconomic stability. Here are a few things the government can do.
The government should intervene in housing markets to ensure equitable access to housing. These interventions could include fiscal measures such as taxes and subsidies, the direct provision of social housing, and various regulations influencing the quantity, quality, and price of houses.
These policies will impact the overall economic performance and living standards, in that they can influence how households use their savings as well as residential and labour mobility which is crucial for reallocating workers to new jobs and geographical areas.
Remember, adequately supervised financial and mortgage market development, combined with policies that enhance housing-supply flexibility, are key for macroeconomic stability.
In a country like India where there is continuous growing population, there is tremendous pressure on the housing markets. The rental property market is the only available option for most people who migrate into a city either for employment or for nurturing their careers.
There is always a demand for rental housing regardless of how the home sales market is performing. This is because rental housing has a positive impact on the development of a city.
Focus on infrastructure and land acquisition
Infrastructure in many Indian cities is inadequate to meet the growing needs of its population. Many people do not move into houses they bought because of lack of amenities like shopping markets, good roads, hospitals, etc. in that area. If there is greater investment in infrastructure in areas that need such facilities, it will lead to opening up of more of the urban landscape for development. This will make housing less expensive, and more people will be able to live away from their employment centres.
But, constraints in the Land Acquisition Act has made things difficult. Thereby real estate development has become expensive. Developers getting entangled in legal battles over land is par for the course. Historically, the world over, when construction becomes expensive, people begin to live in informal settlements aka slums. Data show that nearly 17 percent of India’s population live in slums.
When the title to property is not clear, you don’t have an incentive to invest in improving the housing standards. It also freezes valuable urban land. If the government can legalise these settlements, the informal economy could be brought under the ambit of formal law. This will lead to redevelopment of many households. Here affordable housing could act as a preventive for such unorganized growth.
Innovations in mortgage markets should be coupled with appropriate regulatory oversight and prudent banking regulations. This would increase access to credit and lower the cost of housing finance.
Eleven percent of the entire housing stock is in the rental market. Since 1961, the fraction of the houses in the rental market had declined by over 70 percent in cities like Mumbai. The reason was that rent controls were not eased while allowing for the development of buildings by raising the floor space index (FSI). As most households with low-income levels cannot afford to buy houses, the function of the rental housing market is of great importance. FSI is an important factor in the housing market. Restrictions in this regard prevent redevelopment of old buildings.
Another interesting fact is that rental properties come with variation in budget sizes. The higher one’s budget was, there was scope to get a better place regarding location or size, accompanied with amenities. These ranged from single family homes to high-end multi-bedroom apartments. Rental housing catered to a whole spectrum of income groups.
Developing cities see migration from the hinterlands. We must develop the suburbs and surrounding spaces to meet this demand. This ensures that the wheels of the economy are sufficiently oiled and pulled by the cogwheels called rental housing. Otherwise, we would be staring at a major man-made crisis.

Credibility Cycling

Let’s understand the science behind the cycling first, to
1. Two wheels
2. One frame
3. Connectivity and
4. A cyclist –the driver who rides it .
The modern bicycle, complete with a steel frame, a chain drive, steel wheels, spokes, and pneumatic tires. We’ve described a bicycle as a “machine” and, in scientific terms, that’s exactly what it is: a device that can magnify force (making it easier to go uphill) or speed.


The frame
The frame doesn’t simply support you: its triangular shape (often two triangles joined together to make a diamond) is carefully designed to distribute your weight. Although the saddle is positioned much nearer to the back wheel, you lean forward to hold the handlebars. The angled bars in the frame are designed to share your weight more or less evenly between the front and back wheels. If you think about it, that’s really important. If all your weight acted over the back wheel, and you tried to pedal uphill, you’d tip backwards; similarly, if there were too much weight on the front wheel, you’d go head over heels every time you went downhill!
Frames aren’t designed to be 100 percent rigid: that would make for a much less comfortable ride. Virtually all bike frames flex and bend a little so they absorb some of the shocks of riding, though other factors (like the saddle and tires) have much more effect on ride comfort.
The wheels
The wheel is the most crucial element of the bicycle: it allows the rider to roll over the ground with great speed and efficiency.Dragging a load using a wheeled cart is far easier than dragging it on the ground—for two reasons:
Wheels reduce friction. Instead of simply sliding over the ground, the wheels dig in and rotate, turning around sturdy rods called axles.
Wheels provide leverage in other words, they are examples of force multipliers or simple machines.
The energy
It takes less energy to bicycle one mile than it takes to walk a mile. In fact, a bicycle can be up to 5 times more efficient than walking. If we compare the amount of calories burned in bicycling to the number of calories an automobile burns, the difference is astounding. One hundred calories can power a cyclist for three miles, but it would only power a car 280 feet (85 meters)!


A comparison of the energy cost of various forms of transportation shows that the bicycle is most energy-efficient.
It’s a machine, a system , a process in the sense that it converts energy from one form (whatever you had to eat) into another (the kinetic energy your body and bicycle have as they speed along).
Now you’ve probably heard of a law of physics called the conservation of energy, which says that you can’t create energy out of thin air or make it vanish without trace: all you can do is convert it from one from to another. So where does the energy you use in cycling actually go? It scientific terms, we say it goes into “doing work”.
The coolest thing about a bicycle is that it lets you get where you are going a lot faster and using a lot less energy than if you were walking or running.
“Penny-farthing” Victorian bicycle Vs Bicycle
You have probably seen a picture of the funny-looking “penny-farthing” or “high-wheeler” bicycles — the ones with a huge front wheel and a tiny rear wheel. You might even have seen someone riding one in a parade or in a movie. These bicycles became popular starting in 1870, but by the turn of the century were replaced by the “safety bicycle.” A bicycle from 1900 or 1910 looks almost exactly like any bicycle you see today. Today’s bicycles have two wheels of the same reasonable size, a pair of pedals in the middle of the bike and then a chain that connects the pedals to the rear wheel.
In a penny-farthing bicycle, the pedals and the front wheel are directly connected just like they are on a kid’s tricycle. That means that when you turn the pedals one time, the wheel goes around one time. That’s an inexpensive way to build a bicycle, but it has a problem. Think about a kid’s tricycle. The front wheel might be 16 inches (40 cm) in diameter, or 16 * 3.14 = 50 inches (127 cm) in circumference. That means that each time a kid on a tricycle pedals through one revolution of the front wheel, the tricycle moves forward 50 inches (127 cm). Let’s say that the kid is turning the front wheel at 60 rpm, or one revolution per second. That means that the tricycle is moving forward 50 inches per second. That is only 2.8 miles per hour (4.5 kph). If the kid pedals twice as fast, at 120 rpm, the trike is moving at just over 5 miles per hour (9 kph), and the kid looks like his legs are about to spin off because 120 rpm is a lot of pedaling!


Our objective is to help the developer community to create a bicycle approach in related to the credibility and make sure that they move faster with the energy. Most of the time currently the developers end up in creating the penny farthing approach.
Every real estate developer has to achieve two wheels first,
1. Developer credibility
2. Project brand identity

In the current scenario the developers also create these wheels but what they do is the penny farthing approach on this. They create their brand identity bigger than the project brand visibility and some time the project credibility is bigger than their own organisation and brand credibility. The difference in the wheel sizes even the energy is applied will not deliver the result as required and the developer have to keep on pedalling consistently with more efforts like riding the penny farthing.
As in the case of penny farthing the developer keep pedalling the front wheel which is the project brand identity than their credibility , that means every time they put efforts only then they see the result where their credibility of the brand never gives them any result its only the project brand identity which is giving them result. This is working on the pull mechanism. This not only becomes more costly affair but also the most time consuming affair.
We understand that only changing the sizes of wheels will not solve this there is a need to change the framework, the approach towards the cycling from the front wheel to real wheel cycling, instead of the pull to push mechanism, need to build in gears to make it safer faster and also more energy efficient.

To achieve the credibility cycling there are some of the attributes which are very crucial than the equal size wheels,
1. Balanced framework
2. Right connectivity
3. Energetic driving force

Our objectivity is to get the maximum output reach with minimum efforts and also to optimise the credibility of the developer established than just creating more visibility of brand for the development project and also to build credibility out of the brand equity that have been created out for the project through a balanced framework like that of a cycle to achieve the maximum output based on the aerodynamics , the scientific approach , here we are taking marketing science approach based on the consumer behaviour .

It’s not necessary that every time the brand identity is needed for the project under development, the credibility established by the developer on the brand can play an important role by the right connectivity, through various approaches of building trust and transparency with the potential new customer. In most of the scenarios reference of existing happy customers, visibility of the satisfied communities that have been created, identity of the landmarks built become the right connecting chord to strike relationship with a potential customer without even the brand identity of the new development. It’s the push of the real wheel, well established credibility making the new project identity actually like the case of bicycle.

One of the beautiful aspects of the cycling is on the momentum of ride it doubles not only the rider’s energy it helps to reach the destination faster and also it delivers double the result for the energy applied by the way of aerodynamics involved . this applies in the credibility cycling, when the established credibility of the developer is far more greater and keeps on accumulating on every project that is delivered, every brand identity of the project is established it multiplies with multiplier effect and delivers better results to the developer brand as well the project in the form of pricing premium, product demand and post buying satisfaction.

To make every development successfully, Most of the time the challenge is achievement both simultaneously and carrying forward towards the next development as well as the growth. But at the same time it’s very crucial and necessary for the every developer to achieve this, consistent balanced pedalling with the right connectivity for achievement the momentum on every project that is launched and every geography entered. We help the developer to build this, achieve this through a systematic approach of applied science with facts and figures.

Why rental income is a Myth ?

Buying a second home is a common investment choice not just in India but also globally. The rationale for investing in a home that also gives rents is simple to see. The investor gets the benefits of price appreciation as well as steady cash flow. In many countries where the interest rates are low and rents are high, it is possible to fund the second home purchase from the potential rent and repay it from that.

Rents also go up with inflation and hence act as a hedge against it. When investing in a locality that is just coming up, as infrastructure develops, rent also increases, providing rich price appreciation and rental income growth.

That said, there may be some cons to the idea of buying a property with rent as the motivator. One, renters seek a minimal social infrastructure. If the house is in a remote location, finding a renter may not be easy. So the house may remain vacant until facilities such as schools, shopping and hospitals come up.

Two, the rents you may earn may not be high. Rental yield – the ratio of annual rental income to the investment amount – tends to be under 3 per cent in many areas in India. So a house bought for Rs 40 lakh may give you a rental income of Rs 10,000 per month on average after accounting for expenses. Many other investment options will offer better returns than this. For instance, investing the amount in fixed deposits may get you similar returns for less risk and hassles. The main gain tends to be in price appreciation and rents are seen as a bonus.

Three, the house requires ongoing maintenance to retain value and also the tenant. This may range from painting, handling plumbing and other issues that come up from time to time. Depending on the age of the house, these may reduce your returns further. Also, if you don’t live nearby, handling these issues – finding reliable help to do it in a timely way – may be complicated.

Four, there may also be tenant related problems. For instance, rent may not be paid, upkeep may be poor, they may not abide by society rules or have disputes with neighbours; they may refuse to vacate the house when you ask them to leaving you in a difficult situation. While there are agreements between landlords and tenants, the legal system is not easy to navigate and home owners may face a lot of hassles in getting a tenant vacated.

Five, when a tenant vacates, the house has to be repainted and made ready for occupation. You may also have to pay a broker or an intermediary some fee for finding a new tenant. Delays in getting a new tenant would mean loss of rent and overall lower return.

Six, one can consider earning higher returns by renting the property to offices or for short stays. There may be restrictions from the housing society against such choices. Also, short term rentals require a lot of time investment to be profitable. So it may not be a choice for many who may be busy and want to consider passive investments.

Data from CBRE shows that around 1.2 crore completed houses are lying vacant across urban India. The unattractive rental yield coupled with low landlord protection in the legal system makes owners decide to lock the house rather than rent their home. It is indeed ironic, given that urban housing shortage is 1.88 crore units currently. Similar to developed countries, over the years as regulations change, rental home investments will likely be lucrative; but currently residential investments in India with an eye on rents are not a very attractive choice to consider.

Property as a financial asset

Property as a financial asset

Real estate as an investment option is falling out of favour. While a few factors such as oversupply and the black money bill have been cited as the reasons for the cyclical downturn, fundamentally property as an asset class is maturing in the country. From being an opaque market with inefficiencies, the industry has been slowly changing in the last decade, thanks to institutional capital which is bringing in professionalism and transparency.

In the past, homes were built for consumption only and not as an investment. Homes were also self-constructed and there were no large scale projects. With real estate industry picking up, there was a need for capital. Property developers looked to investors to raise money, as traditional funding sources such as banks and NBFCs were not always willing to lend to, especially during the early stages of a project.

As an alternative to money lenders, larger developers went with real estate private equity funds. They were all the rage in the mid 2000s and many foreign and local funds were launched. They offered funding in two models – equity and debt. Equity oriented funds provide money in the early stage and when the property is sold, get their returns by way of price appreciation. Debt oriented funds offer loans in any stage to be repaid with interest (ranging from 18 to 25 per cent annually) after a certain period. There are also hybrid funds where the developer pays an assured minimum return plus a share of the price appreciation.

While it was a good deal for developers, many foreign funds and those that invested in commercial property such as office buildings, malls and retail space were stuck as they could not sell their stake. There was a shake up and many funds shut shop – the number of funds is now down to about 10, from 50 in the go-go days of 2007.

Among those left standing are local funds with a focus on residential real estate. Their strengths include offering thorough diligence on the builder and the project. They also monitor progress, put in systems to ensure quality and on-time delivery – all to ensure they can earn their return. Home buyers and developers also benefit in this bargain.

These methods have worked and the funds have been able to earn healthy returns even when the market was beaten down. The case in point is ASK Investment, a real estate private equity fund. They had at least four exits from the residential segment investments at multiples of 2.25 to 2.5 times in about four years. These work out to annual returns of 20 to 25 per cent – not a bad deal for any investment.

So while investors who bought physical property were stuck with low returns and inability to exit, wealthy investors who took the financial ownership route through real estate PE funds were laughing on their way to the bank. Real estate PE funds also offer diversification benefits as they invest in different geographies. Based on the risks assessed for the project and developer, the returns are set and systems are put in place to reduce issues.

The main disadvantage of the PE funds however is that they need a large corpus – the minimum investment is Rs 1 crore, as per SEBI regulations. Money flow to these funds increased over 20 per cent in 2015, after doubling in 2014.

Making the residential property market more institutionalised – with more economic ownership choices for investors big and small – will only help the system further.