Source: The Economic Times May 26, 2012

Bangalore has witnessed one of the most robust growth and higher price trajectory patterns in comparison to other cities in India. Real estate in Bangalore has been signified with robust growth, steadiness in prices and a positive purchasing pattern from customers who intend to purchase plots, flats and villas in and around Bangalore.

Across the world, the phenomenon of price growth has a very unique pattern and the same pattern is seen to be followed in every city in India, including Bangalore.

Detailed studies by various real estate funds, managements and related research organisations have confirmed this pattern. This pattern, in simple terms, means, 'The real estate prices in the outskirts of the city (whichever city you are in) grow faster than in the inner city or CBD area'. The CBD stands for central business district of the city or metro concerned. The CBD area would consist largely of BBMP areas in Bangalore.

As far as Bangalore is concerned, the outskirts includes Sarjapur, Hoskote, Bidadi, and Devanahalli areas including the new international airport areas, and other areas covering Bangalore as a shell to the CBD area.

I have been in the real estate business for the last one and half decades and have known this phenomenon for the same number of years, and have been personally tracking the data in Bangalore and Kerala. All my favourite investments have been based on this principle and have always reaped rich dividends by the 'investments in outskirts strategy'. Those who have purchased flats, villas or plots in the outskirts have earned higher returns on investments, which in financial terms means 'ROI' or returns on investments.

Since the early 1990s, I have been tracking the price movement data of Bangalore south. In those times, Koramangala was considered to be outskirts of Bangalore. During that time, the price in Koramangala was just Rs 300 per sqft, whereas in the neighbouring CBD areas like Wilson Gardens or Shanthi Nagar the price was around Rs 1,000 per sqft.

Subsequently, in the early years of 2000, Koramangala slowly moved from the 'outskirts ' status to the 'CBD' status and the prices in Koramangala during this change-over from outskirts to CBD moved higher than Wilson Garden or Shanthi Nagar. The price in Koramangala was around Rs 2,000 per sqft. During the same time, the earlier CBD areas like Wilson Gardens and Shanthi Nagar moved up from the previous price of Rs 1,000 per sqft to Rs 1,750 per sqft. In real terms of ROI, if you had invested in Koramangala with the principle of 'higher ROI on outskirts investments' , you would have received a 566 percent returns. The then CBD investment would have given you just 75 percent returns.

As cited above, Koramangala moved from the outskirts status to the CBD status in the early years of 2000 and similarly areas like HSR Layout, Ring Road and other surrounding areas became the outskirts areas to Bangalore's CBD. When we do a similar price comparison to understand if the principle of 'outskirts prices grow faster than the CBD', we find these results.

In the early 2000s the price in HSR Layout was Rs 650 per sqft, whereas Koramangala was Rs 2,000 per sqft (by this time Koramangala had moved firmly into the CBD area). If you compare the same prices today, in 2012, Koramangala has reached a healthy price of Rs 12,000 per sqft, whereas the outskirts locations of the early 2000s such as HSR Layout have reached a price of Rs 9,000 per sqft in the year 2012. This clearly shows that you would have received a ROI of 1,284 percent if you had invested in the then outskirts of HSR Layout, while you would have received a ROI of 500 percent if you had invested in the CBD location of Koramangala. Again, it is proved here that the principle of 'higher ROI on outskirts investments' is correct.

For the year 2012 and before, we will do a similar study of location like Sarjapur which is now a part of the outskirts of Bangalore's CBD. In the Year 2003, plots in BMRDA-approved townships were around Rs 200 per sqft. In the year 2012, they are Rs 2,800 per sqft, which means you would have received a ROI of 1,300 per cent.

This analysis has been made for legally approved properties of BDA, BBMP or BMRDA authorities. Believing in these city growth patterns, the present outskirts like Sarjapur, Hoskote, Bidadi and Devanahalli will be part of CBD areas in future and there is a huge price benefit and ROI to be made. At the same time, I would say firmly that this ROI can be made only by long-term investors and not by short-term speculators. At the same time, you should use your prudence and investment analysis to find the right investments in branded and reputed projects.

Similarly, you could make a price appreciation analysis for locations around your current residence. You will find that the prices in the outskirts have appreciated firmly and higher than in the CBD locations around your current residence.

Another important factor you need to know about outskirts' investments is that the total required size of investment is much lower than for the CBD areas. Since the sqft prices are lower in the outskirts areas, a larger piece of land can be bought for a lesser total investment. Let me illustrate this with a simple example. Assume that in the year 2003 you had Rs 10 lakhs for an investment in a plot, and you could have purchased a 5,000 sqft plot in a BMRDA-approved layout in Sarjapur.

The same amount would have got you a 333 sqft plot in Koramangala at the then price of Rs 3,000 per sqft. First of all your investment of Rs 10 lakhs would have never found a plot of 333 sqft in Koramangala since the least plot size of meaningful investment would have been 1,200 sqft. Let us still assume that you invested the Rs 10 lakhs in Koramangala for a 333 sqft plot and compare the returns today against the 5,000 sqft plot in Sarjapur (which the same Rs 10 lakhs could have bought then). At the 2012 price of Rs 12,000 per sqft in Koramangala, your money would have appreciated to Rs 40 lakhs (Rs 12,000 per sqft x 333 sqft). The 5,000 sqft plot in Sarjapur would have fetched a whopping Rs 1.4 crores at the current price of Rs 2,800 per sqft.

This clearly shows that if you have a smaller investment appetite, you need to concentrate exclusively on the outskirts areas. Also, this data would more or else hold good for other asset classes such as villas and flats. The returns would be in some other proportion but definitely higher than from the CBD areas for similar asset classes.

These calculations and returns look very attractive and you would want to make investments immediately. But hold on and listen to this piece of advice. I would want you to understand that this is as an illustration of the past and not that of the future.

The past could have been supported by numerous other positive factors including the economic climate of the country. Do not take it as my prediction of the future. But, at the same time, the fact remains that for over a century, the principle of 'outskirts give you better returns on property investments' has given excellent ROIs to homebuyers across the world, including India. So, if you are planning to invest in a plot, villa or flat in Bangalore or any other metro, do consider these strong facts and take your own wise decision. Make sure you purchase into the future which is safe and at the same time provides the highest returns on your investment. Also, make sure you buy reputed brands with good market standings.

(The author is Chairman and Managing Director, Confident Group)

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