18th March 2017 - Property in Gurgaon - Alignment and Deviations from Economics and Corporate Finance
The property market has evolved over a period of time in Gurgaon. Gurgaon has seen its fair share of ups and downs, with amazing levels of capital appreciation being recorded in what is now a full fledged city. From being an unstructured market we're moving into a more structured market similar to tier 1 metropolitan cities in the country.
Has real estate pricing in Gurgaon been in alignment with the fundamentals of economics namely demand supply equations? Yes and no I would say. In alignment with the way the economy has performed over the last 20 years and global cues with macro-economic implications on real estate in Gurgaon, micro-economic factors have had a huge say to play in the ‘property leela' or real estate stage dynamics.
Certainly every market consists of sub-markets as in Gurgaon where demand supply equations determine pricing and Gurgaon would be no exception. However, given the sub-strata of an unstructured market combined with vision by certain key developers namely DLF, Gurgaon has seen an explosion of growth be it in the residential segment as condominium living or corporate presence in the form of corporate tenant occupier migrations to the city.
In Gurgaon, particularly during boom stages we've seen ridiculously high levels of capital appreciation recorded as high as 200% which defied the economic pundit predictions of real estate in the past and proved that real estate in the city is somewhat insulated from conventional demand supply equilibriums.
Having said that after a prolonged downturn period and market moving to a more transparent, perfect competition mode, I do feel that steady state equilibrium conditions are what we're moving to here in Gurgaon now and herein growth will be more gradual rather than speculative (not to say that investment interest will dither just that the days of real estate flipping are over it would seem for a long time onwards from now). Still Gurgaon is a hard market to predict future wise and timing the market here is no easier than any other city in the country.
As far as corporate finance perspectives go and the linkages with real estate in Gurgaon, we've seen an array of risk taking, risk neutral and risk averse investors. Timing the market has become tough now and the bust and boom durations vary being a still relatively unstructured market. Interesting to see how RERA and other real estate reforms affect transparency and volume of property transactions in the city. Investors who have the luxury of choosing an optimal portfolio of property assets have either adopted diversification strategies or consolidation depending on their need and investor profile.
I would say the smartest and most well to do of portfolio holders have timed the market well after astutely watching other markets abroad and domestically. In our experience we've dealt with clients with primarily a residential high end base of properties. I would add that there are astute investors who've invested in large commercial properties in Gurgaon within CBD limits and good rental yield type properties. Keeping in touch with the market and key market players is a way to keep one's portfolio in check as are factors such as maintenance of assets, holding period, rental play and credibility which all play a big part in real estate in the city.
Bigger foreign institutional investors have tied up with the right developers at the right time in the past whilst some have burnt their fingers in a game they may not be clued onto correctly. Homework is important as in any field. Experience, reliability and consulting acumen should provide the right mix of direction as to market moves by big, medium and small investors across residential, office and retail segments here onwards..
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