Land prices to grow 15-20% even as property prices drop

Excerpts from India Business Hour on CNBC-TV18 Watch the full show » RELATED NEWS Property prices to decline 15-20%: Orbit Corp Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

The returns on your investment in residential houses may be seeing a slowdown on account of the global economic sluggishness. But is this the case with your investment in land? Anumeet Kaur Bisen finds out.

 

Here is the transcript of Anumeet Kaur Bisen's comments on CNBC-TV18.

 

The Indian real estate market is seeing a slowdown. High inflation and rising interest rates have resulted in a 30-40% drop in sales, and consequently, a 15-20% drop in prices.

 

But land prices, which shot up by over 100% two years ago, are now holding stable. Experts, though, warn that the next six to 12 months could prove to be difficult. They point out that land prices were mainly speculator-driven, and with speculators almost out of the market now, such high growth rates will be difficult to sustain. Some say land prices may even begin to fall soon.

 

Anshuman Magazine, Managing Director - South Asia, CB Richard Ellis, said, "In areas where supply is limited, infrastructure is good, land is close to the cities and which are seeing some economic activities, it would be a smaller drop of 5-10%. In areas which are far away, from where there is economic activity going to take place, the drop could be even 20% plus."

 

But even a 20% fall in prices is not a cause of concern. Experts say that at least over the next five years, land will continue to give 15-20% returns. That's higher than the current 10% returns from investment in housing. The location of the land will also determine the rate of returns.

 

It's better to invest in places where there is a lot of economic activity, and where infrastructure is in place. For instance, townships like Gurgaon and Faridabad in the National Capital Region (NCR) may prove to be good investment destinations as there is ample land available in these places. However, it is important to note that investing in land is not a short-term game. One must stay invested for at least three to five years to get maximum returns.

 

The bottom line is investing in land may work out better in terms of returns than investing in residential property even if the global slowdown takes it toll on land prices.