MC Explains: How does Metro connectivity impact real estate prices in mature markets?

Real estate experts say that while metro connectors in upcoming/new locations generally lead to a price increase of 30 to 50 percent, the impact on mature markets is barely around 10 to 15 percent

The Union Cabinet has cleared a Rs 6,000 crore Metro project from HUDA City Centre to Cyber City, with a spur to Dwarka Expressway in National Capital Region. The link with 27 elevated stations is expected to pass mostly through mature real estate markets. The Ghaziabad Development Authority (GDA) and Delhi Metro have also come up with a proposal to connect the two legs of the Blue Line Metro passing through two developed real estate markets in Ghaziabad-Vaishali and Indirapuram to Noida’s Electronic City station, which is a commercial hub.

Pricing impact

Real estate experts say that while metro connectors in upcoming/new locations generally lead to a price increase of 30 to 50 percent, the impact on mature markets is barely around 10 to 15 percent and that too in the resale market as the intention is primarily to improve connectivity to the central business districts and provide ease of commute to the existing population.

There are two reasons why metro connectivity is provided to an area – to connect new areas with existing ones or to provide ease of commute to established areas. Most of these Metro connectors are linked to central business districts where offices are located.

“There is a visible impact of new Metro connectivity on both residential as well as commercial property prices,” said Akash Bansal, senior director and India head consulting, JLL.

With a metro connection, sectors in Old Gurgaon may see redevelopment activity. The transit-oriented development will make new options available to commercial property buyers as well, he said, adding there may be an increase of around 15 to 20 percent in prices in these areas.

Housing stock will become more affordable, especially for buyers who find it difficult to purchase property in new sectors in Gurgaon, he said.

Mumbai experience

In Mumbai, the Metro network between Dahisar and Andheri is a classic example. The stretch connects older locations and the intent is to improve connectivity in these areas, points out Pankaj Kapoor of Liases Foras. Since more people usually reside in established areas, it makes sense to connect older areas such as Old Gurgaon with new Gurgaon as more people are likely to take the Metro.

Having said that, while connecting older locations is worthwhile, it is also more complex as acquiring land along the stretch may be far more challenging as the area is densely populated.

New Metro connectors also help improve a city’s affordability. “Property prices depend on not only the convenience being provided by the new infrastructure but also on the amount of travel time that is getting reduced,” he explained.

Spurring redevelopment

If the Noida Electronic City to Vaishali proposal goes through, one would have to consider not only the density and travel time that is getting reduced for a commuter but also the number of central business districts that the metro connector is linked to, he said.

Manoj Gaur, chairman Credai and chairman and managing director, Gaurs Group, told Moneycontrol that Metro connectors, whether connecting new areas or for that matter old ones, provide ease of commute. “In an established real estate market, it leads to increased activity in the secondary market, and the enhanced sale and purchase of properties benefit the government in terms of stamp duty collections. If a Metro corridor gets approved in a new location, it increases economic activity in the area, generates revenue for the government, not only by way of stamp duty but also in terms of approvals and purchasable FAR (Floor Area Ratio),” he said.

In the case of the Metro connector in Gurgaon, the government’s intention seems to be to balance real estate activity in old areas as well as new areas, which are the Old Gurgaon sectors and Dwarka Expressway, respectively. “GDA should also try and do the same. The Ghaziabad Metro connector should try and link both established markets as well as open avenues for development in newer locations,” he added.

Arvind Rai, Senior Director, Valuation Services at Colliers India said that a Metro will improve connectivity in Old Gurgaon, link it with upcoming areas along Dwarka Expressway, Global City and also change the landscape of old parts of Gurgaon. The transit-oriented development that kicks in may pave the way to vertical growth and redevelopment activity, and this may help prices to inch up a few notches in the area.