Traveling around India, we found ourselves inundated with signs of India’s real estate explosion. From the extensive construction sites to the glossy billboards advertising developments – one newer than the next – there was no denying a widespread Indian real estate boom.
What I found particularly interesting, though, was the interest by developers in building up areas on the fringes of major cities. As one investor I spoke with said, prices at auctions in “obvious” locations like Mumbai get pumped up beyond what might be considered reasonable. But in outlying areas, you will pay less and be able to do more – the thought being that as India continues along this growth path, the major cities will spread and bring with them the requisite density.
That may sound like investors banking on sprawl, but to me it signaled solid confidence in India’s growth trajectory overall. But it also carried with it a warning about investing in some of these “obvious” locations.
Take Bangalore. Another investor I spoke with told me, “I wouldn’t touch Bangalore.” He pointed to its landlocked location, lacking constraints to keep housing prices artificially high, and noted that while the city’s entire economy is built on the IT boom, the big players are expanding elsewhere.
But the big IT players and other industries are expanding, and rapidly, and that’s what even cautious investors are watching. The anti-Bangalore investor I mentioned was more interested in areas 150 miles or so outside of Bangalore – places like Coimbatore, a city well-known for its textile industry that has significant potential for industrial growth.
He also pointed to Uttarakhand (formerly Uttaranchal), an area in northern India that is home to more than a dozen major companies, most focused on export-oriented businesses.
With any of these outlying areas, one of the limits to growth will be infrastructure (stay tuned for tomorrow’s story). Driving to Uttarakhand, for example, is apparently like driving through a jungle. But as the Golden Quadrilateral highway is completed and the roads are improved, investors are betting that these “fringe” cities will become bustling cities in their own right.
Dana Greenspon is part of the NBR team that produced the NBR series and special, "India's Promise." For more info, check out the "India's Promise" home page.
