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Realty investors turn to Tier II cities for lucrative returns

Moumita Bakshi

New Delhi , July 13

IT'S no longer just the `top three' metros that are attracting investor attention in the residential realty market. Many others have joined the `elite list' that was earlier restricted to obvious locations like Delhi, Mumbai, Bangalore and Chennai.

Healthy capital appreciation have made other metros and tier II cities as, if not more, attractive. Add to it factors like ease of investment, hectic construction activity and exit options and you have a stream of investors queuing up for a place in the sun, which at the moment seems to be shining brightest in places like Hyderabad, Pune, Kolkata, Chandigarh, Mysore, Nasik and Visakhapatnam.

According to Chesterton Meghraj Property Consultants, hot properties for residential investment this year are Delhi and suburbia, Nasik, Mumbai, Chennai, Kolkata, Hyderabad, Pune, Ludhiana, Visakhapatnam and Bangalore with return on investment in the next two years ranging from a stable 3-5 per cent in the case of Pune to as high as 15 per cent for Kolkata. For Visakhapatnam, Chesterton Meghraj pegs the returns at 5-7 per cent, and for Ludhiana at 4-6 per cent.

"From an investor's perspective these locations have seen a strong demand by end-users, have a good quality of development and developers and are expected to yield a healthy rate of return," Mr Anuj Puri, Managing Director of Chesterton Meghraj, said, adding that it was difficult to give a similar list for an end user as the purchase decision in such cases is largely driven by emotional factors.

"Residential markets across various metros and large tier-II cities have witnessed heightened activity over the last 12 months, particularly Mumbai and Delhi. Bangalore, Pune, Chennai, Hyderabad, Kolkata have also witnessed a rise in construction and absorption. These cities have seen substantial economic activity and, therefore, have a long-term future from a purchase perspective," Mr Sanjay Verma, Joint Managing Director, Cushman and Wakefield India, said.

Cushman and Wakefield identifies Mumbai, Navi Mumbai, Thane City, Pune, Kolkata, Hyderabad, Noida, Gurgaon, Chandigarh and Mysore as the 10 most attractive locations for purchasing residential property in 2005. "Though the returns vary in a broad spectrum, most suburban markets - where substantial residential construction activity is taking place - offer initial pre-tax yields of 4-6 per cent per annum based on the rental income out of residential properties," Mr Verma added.

Knight Frank India's list of boom locations for this year includes Jaipur, Chandigarh, Noida, Chennai and Pune, besides the suburban Mumbai, Bangalore, Hyderabad and Kolkata. "At the moment the property market in these locations is looking really attractive, while other places may be overheated," Mr Tariq Vaidya, head of advisory services and Asia Pacific Research at Knight Frank India, said.

Mr Vaidya feels that the investors could look at an average capital appreciation of 10-15 per cent across the board in these locations in the next six to nine months, on the back of favourable factors like decline in the interest rate regime, healthy stock market performance, and health of the economy.

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