In Part 1 of this series, we had covered developer-related risks when it comes to investing in real estate projects.
In Part 2, we’ll talk about how an investor should deeply analyze a micro-market to assuage potential returns.
A micro-market is the area around the project which influences its price. Micro-market factors that affect return on investment consist of the following:
1. Infrastructure
This includes the quality of local roads, proximity to major roads (like the Outer Ring Road, etc.), water and electricity availability, etc. Chronic traffic, water, and power problems in Bengaluru mean residents tend to pay a premium for areas unaffected (or less affected) by these issues.
2. Demographics
How ‘aspirational’ an area becomes to live in is a strong indicator of future demand. You can see this in the case of a micro-market like Indiranagar, which has boomed in recent years because of demand by young professionals. Another neighborhood would be Adarsh Palm Retreat in Bellandur, which became the address of choice for several tech entrepreneurs and executives, leading to a doubling of prices in just the last 3-4 years.
3. Commercial Developments
Due to Bengaluru’s infamous traffic issues, there’s always a strong preference to stay close to where you work. A micro-market that is mixed-use (i.e., has a mix of housing and office projects) tends to command a premium. A good example is HSR Layout and Koramangala, which have a holistic mix of residential and commercial properties. The KIADB Aerospace Park coming up near the airport is an example of an upcoming mixed-use micro-market.
4. Public Transport
Traffic makes an appearance again as the main character here. Bengaluru has a large planned metro network which is expected to be completed sometime in the early 2030s, alongside a suburban rail network that will serve upcoming parts of the city that are being developed beyond the Outer Ring Road.
5. Amenities
This includes schools, hospitals, parks, etc. Lack of urban planning means that micro-markets with a higher quality of life command higher prices. For example, central Bengaluru continues to be the most expensive part of the city due to its high standard of living (parks, footpaths, greenery, low pollution, etc.).
Another micro-market trend over the last few years has been a preference for proximity to large international schools. These schools came up on the outskirts of Bengaluru (Sarjapur Road, etc.), followed by the development of large luxury projects in the same area that were preferred by parents wanting to reduce their children’s commuting time.
6. Developing Micro-Markets
Developing micro-markets are where most real estate investments tend to go. Think of early investors in Whitefield or properties along the airport road (beyond Hebbal). These areas have seen a rapid increase in prices due to existing and upcoming infrastructure projects, combined with large commercial developments being completed in the area.
Do note that most of the time, projects usually ‘price in’ upcoming developments in a micro-market. That is, they increase their prices in anticipation of these developments. So if you’re investing in one of these projects, you need to ensure that upcoming developments in a micro-market have a disproportionate effect on the price. For example, the opening of the Bangalore Metro’s purple line extension to Whitefield in 2023 resulted in a 30% increase in property prices, despite the line being announced in 2017.
Also, keep in mind that certain developments (especially ones related to infrastructure) tend to be delayed. For example, several projects were sold around 15 years ago on the promise of the PRR (Peripheral Ring Road) coming up in a few years. The PRR construction still hasn’t started as of 2024, and this has caused prices to increase slower than expected.
Conclusion
Overall, data shows that micro-markets which become self-sufficient ‘islands’ tend to appreciate the most in price over time. Think of Koramangala, Indiranagar, or HSR Layout, where everything you need is at most a 5-minute drive away.
To sum it up, analyze every future development promised in a micro-market carefully. Try to understand which ones will meet their deadlines and which ones might have a larger-than-expected effect on future prices in that area.
In Part 3, we’ll cover macroeconomic factors that affect your return on real estate investments.
TruEstate closely tracks future developments in the micro-markets of all the projects it recommends and provides a detailed breakdown of how they can affect price appreciation in the future. Sign up to know more.
