Delay In Infrastructure Projects Hit Property Prices
There are several infrastructure projects across the country that have been delayed due to several reasons. Delay in these projects hit property prices in those areas. This could be good as well as bad news for property buyers as well as developers. According to a report from Standard and Poor’s, several projects are finding it difficult to meet deadlines due to limited long-term funding options, government clearances and slow pace of reforms.
Projects struggling for completion
There are several projects that have seen successful completion across the country such as Eastern Freeway in Mumbai, Bus Rapid Transit System (BRTS) in Indore and Banihal-Qazigund rail link in Jammu Kashmir. However, there are several projects that are finding it hard to complete. Some of these projects include Navi Mumbai International Airport (NMIA), Ahmedabad and Pune Metros, and Multi-modal International Cargo Hub and Airport at Nagpur (Mihan).
The first phase of NMIA project was supposed to be complete by 2014. But due to setbacks in land acquisition and environment clearances, the new deadline has been pushed to 2017. The Ahmedabad metro is expected to be completed in 2021. This is a delay of 6-8 years from its initial deadline. This was majorly due to a major change in the metro route. The final cost of the project is expected to be four times the original estimate. The Pune metro has been delayed by five years. The initial estimate of the project was approximately Rs. 2,200 crore. Now, the estimated cost stands at an estimated Rs. 10,200 crore.
Effects of delays on realty prices
Whenever an infrastructure project is announced in a particular area, people expect supporting infrastructure to be developed in that area. Developers buy properties in that area, develop and sell those properties at a higher price to the customer. Most customers too buy these properties with hopes of further price appreciation. In essence, when a project is announced, there is an immediate price appreciation in those areas with an anticipation of the project getting completed. However, when the project fails to complete on time or if it is completely shelved, property prices fall there.
This hits both the developers and the customers. For example, property prices in Navi Mumbai has fallen by 13% in the June quarter compared to the March quarter this year. The price fell by 3-4% in Ahmedabad in the June quarter compared to March quarter. Prices have fallen in the third quarter in many areas due to delay in projects. Even if there is an increase in price, it is a marginal increase. People who bought properties in these areas with an anticipation of price appreciation are stuck as they are not willing to sell it at a lower price.
Developers who developed areas are stuck with inventory pile up as there are very few people willing to buy property in an area that doesn’t have the necessary infrastructure. For example, areas like Ulwe in Navi Mumbai, which is the neighbouring area of NMIA does not have the basic social infrastructure such as roads, street lights and sanitation. If a developer or investor wants to clock profits, s/he will have to wait at least for 5-7 years in the given situation.
There are few things an investor or potential buyer can do in such situation. If one is an investor, it is better to stay invested for a longer period instead of hoping for short term exit. If one is an end-user, it is better to wait and watch for the speculators who buy houses. Though this may prove a bit expensive in the short term due to increasing prices, one can decide whether to buy or not to buy a property depending on the development of the infrastructure project in that area.
