How to find a property that appreciates

Why do people buy houses and flats? Reason one: To live in them. Reason two: To benefit from a favourable tax regime if they are buying houses with borrowed money. And reason three: The possibility of value appreciation.

Ever since the early 1990s property boom collapsed, the last reason has almost ceased to exist. In most cities and suburbs, property prices have been stagnant or weak.

However, there is no reason to stop looking for good opportunities. Because, even in a dull property market, there are bright spots - just as there are shares the appreciate in a bear market.

The tricky part is to find out where these pockets are located. Your neighbourhood broker may not be the right person to begin asking questions in this area because his interest lies in selling you the property which gives him the maximum brokerage.

And pricey property may not necessarily be the one that will appreciate the most. Housing loan companies, real estate consultants and property websites may be the right places to ask.

What you need to find out first is area-wise price trends - over the last one year, two years and 10 years. This will give you a fair idea about which areas are gaining favour with property buyers and which aren't.

Take a look at the sample table. It shows how prices have moved in Mumbai over the last 12 months - both for various suburbs and for various grades of property.

According to Knight Frank India Research, the north-western Mumbai suburb of Borivili has seen the highest increase in prices over the last 12 months.

In fact, currently, prices of flats in Borivli range between Rs 1,700 per sq ft and Rs 2,200 per sq ft, depending on the grade of property. Grade A properties, which are newer properties, less than five years old and have good quality construction, amenities and maintenance, command a higher price than grade B properties.

You can also do a long-term annual rate comparison study. For instance, the prices of Bandra and Khar (West) have risen from Rs 3,600 per sq ft in 1992-93 to the current Rs 7,000 per sq ft.

Knowing long-term changes and short-term price movements will help you determine whether prices in a certain area will remain at current levels, increase or fall. So if, for instance, you are considering a residential flat anywhere between Goregaon and Borivli in the north-western suburbs, you will realise that while prices increased from Rs 1,500 per sq ft in 1992-93 to Rs 3,500 per sq ft in 1995-96, they have currently fallen to stabilise at the Rs 2,000 per sq ft mark.

Next week, we will look at property trends in Delhi and some of India's other big cities. So watch this space.

GETTING REAL

So how do you decide where to buy? Says one Mumbai-based real estate consultant: "Today, one should consider buying properties in growth areas, not areas that are fully developed. The maximum property appreciation will take place in areas that are growing currently in terms of infrastructure, developments, amenities and suchlike things. Areas such as south Mumbai - the traditional business hub and haunt of the old and new rich - will appreciate only in the short term."