Green signal for higher realty prices?

Namma Metro is not just about connectivity but brings about positive changes to land value and rentals. Industry expert Shrinivas Rao explains the phenomenon in a talk with RANJANI GOVIND

June 23, 2017 04:33 pm | Updated 04:33 pm IST

N amma Metro running in four directions covering 42.3 km in Phase I has not just opened up the commerce related to land value along the metro line; urban transport that provides proximity in travel has led to better rentals too. With the Green Line providing more connectivity to areas including suburbs that are predominantly residential pockets, rentals in most part of the metro alignment is seeing a positive effect, according to market experts.

The connectivity from suburbs along the Green and Purple Lines to the central business district and IT pockets in East and North Bengaluru, has been the key to rising rentals in these areas.

Most areas along Kanakapura Road, including Basavanagudi, Banashankari, J.P. Nagar, Jaraganahalli, Yelachenahalli and pockets of Vasanthapura, Uttarahalli and ISRO Layout are already seeing 10 per cent increase in rentals, according to the local brokers. In ISRO Layout, a three-bedroom unit saw a steep rise in rent to Rs. 30,000, said to be a 20 per cent higher compared to the last quarter. Near Nayandahalli, residential localities such as Binny Layout, Attiguppe, Bapuji Layout, and Deepanjalinagar are also seeing increased rentals. Property rates too are expected to increase by 10 per cent in the next three months, according to experts.

JLL India feels property prices appreciate at a faster pace when an infrastructure project is announced and nearing completion. “As the metro line has started operations in four directions there would be development of adjoining localities, and price appreciation is likely to be between 10 and 20 per cent over the year,” says a spokesperson of JLL.

While CREDAI Bengaluru feels the first window to better realty will be seen with better rentals, the industry body is positive that implementation of RERA too will help bring in the needed vibrancy to the otherwise subdued realty scene. But what are the other parameters to real estate prices linked to metro connectivity? Urban and property expert Shrinivas Rao of Vestian Global spoke to The Hindu-Property Plus on the prevailing property scene with the complete commissioning of Phase I of Namma Metro.

Excerpts from the interview .....

Question: With Namma Metro doing its rounds in all directions in the city now, how much will it help increase real estate prices?

The increase in realty prices is more significant when a metro line is announced and land acquisition starts. By the time of completion, especially in the current situation where the construction has been going on for 10 years, the effect on real estate prices is usually muted as compared to at the time of announcement. Having said that, the property prices would increase steadily and at a higher rate than non-metro corridors as the local residents reap the benefits of improved connectivity. We believe that the authorities can play their part in accentuating the effect of the metro by providing last mile connectivity to and from the metro stations by providing efficient feeder services.

Will there be an increase in land and property prices completely in and around the Green Line, and by how much?

The land prices would increase at locations closer to metro stations since FAR (Floor Area Ratio) will be available. Prices in general for land and property will increase along metro corridors at rates higher than non-metro corridors, at about 100-200 bps more per annum as per our estimates.

How do you explain the prevailing guidance value? Has it anything to do with the changing dynamics in market value?

Guidance value is just a reference value prescribed by the government with respect to the stamp duty for any property. FAR is more of a guidance document provided by the government on how much of the land can be utilised with respect to total built-up space on that particular piece of land. For example, if a piece of land on any location has FAR of 3, the maximum built-up area would be 3 times the land area. Thus, any land bought with a short-term view from a trading stand point is impacted by demonetisation. Long-term investment properties will not be impacted as the horizon for such properties would be between 5 and 7 years.

Secondly, the guidance value document is normally prepared based on the market value of the properties. Since demonetisation has impacted the property sales (no registrations were happening at this point of time), the government will have to evaluate the current market conditions before publishing the same.

Will this act as a balancing factor for the prices as demonetisation has brought down prices by about 10 per cent that had even increased the unsold inventory here?

The impact would not be enough to negate a 10 per cent drop (we may not subscribe to the idea that there has been a 10 per cent decrease in rates due to only demonetisation and no other market factors) and higher unsold inventory. The effect of the metro will be long term and will not be disruptive and sudden like demonetisation.

Along the 11 stations of the Green Line to Majestic from Yelachenahalli, where do you think we can see the best impact? Just as Vijayanagar and Nagarabhavi, originally suburbs in West Bengaluru, are commanding much higher prices now.

We believe the impact of connectivity will be felt the most in areas like Banashankari, Jayanagar and J.P. Nagar. Last-mile connectivity through feeder services would further improve travel time. With regards to prices, we are of the view that the price increases will be steady and over a period of time. The increase in property prices will be higher than those along non-metro corridors and will be observed as the local residents experience the improved connectivity over the next 12-18 months.

The success of Namma Metro has BMRCL talk of the ‘transit-oriented development’ in future fromn K.R. Puram to Silk Board junction, as it is an ‘emerging urban concept’ that envisages housing, employment, entertainment and civic infrastructure within walking distance of a transit system. Would this be be akin to New York’s Woodhaven Boulevard station or London’s Piccadilly Circus station? Do you see such concepts helping to de-congest city life?

Transit Oriented Developments (TODs) have been in vogue across the globe for decades. These focus on urban mobility solely so that development is concentrated within walking distance/ very close to nodes of public transport.

Honestly, New York and London are not the best examples of TOD. Better examples include the Hong Kong MTR, the San Francisco Bay Area Rapid Transit System, the New Jersey Transit Village Developments and the Stratford area in East London (which was rejuvenated for the 2012 London Olympics). These not only integrate the metro stations with residential and commercial development, but the authorities also make sure that the immediate neighbourhood comprises dense developments by granting high FAR (Floor Area Ratio). Further they integrate other transport systems like feeder buses, monorail and light rail with the metro rail to provide superb connectivity.

In already highly developed areas, e.g., the K.R.-Puram – Silk Board stretch, TODs can be achieved by integrating the existing developments and the upcoming metro. Hence the design is very crucial along with involvement of property owners. The tech parks, residential developments, malls and hotels need to have seamless access to the metro stations through foot over-bridges and subways equipped with escalators and other travel modes.

We believe that the corridor is already densely developed as the ORR – Mutation Corridor offers a FAR of 3.25. Moreover, future development can be made denser near stations by providing higher FAR in line with the National TOD policy prescribed by the Ministry of Urban Development.

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