By A. Shankar, JLL India
While Metro rail implementation has
a huge impact on real estate prices along its corridor and the influence zone,
in the larger context it improves the standard of living of a large segment of
urban population, and is also a catalyst for sustainable development across
large urban areas.
Increase in land value
These cities show a uniformly
positive change after the implementation of metros along their metro corridors.
The deployment of a Metro directly impacts real estate through increase in land
value, land use change and densification along the Metro corridor.
International case studies prove that mass transit systems such as Metros and
monorails contribute significantly to solving traffic problems. Such projects
also result in increased urban real estate values, since consumers are willing
to pay more for the convenience.In India, it is indubitably Metro time.
Year
2015 saw the unveiling of metro rails in Chennai and Jaipur, along with the
expansion of Metro lines in Delhi and Bangalore. Currently, there are 7
operational metro systems in India. Kolkata was the first city to be blessed
with a metro rail in 1984, followed by Delhi in 1995.
The success stories of
Kolkata and Delhi paved the way for metro in others cities such as Bangalore
(2011), Gurgaon (2013), Mumbai (2014) and Jaipur (2015).
Real Estate Impact Of Metros
The impact of a Metro on real estate
along its corridor is direct and powerful. Of course, retail or commercial
areas benefit due to improved accessibility, but residential areas receive a
dual demand driver – the Metro generates jobs which result in increased demand
for homes, and the reduced commuting costs and convenience draw buyers to areas
close to the Metro.
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| A. Shankar, JLL India |
- In areas closest the stations, the visible impact is
higher on commercial property values than on residential values, and the
effect diminishes as the distance from the station increases.
- Land prices are higher if a land parcel is located
within walking distance, but not directly next to the station. The
increase in the land values is reflected in the area served, especially
around the stations.
- There is a considerable increase in demand of retail and
office spaces around existing metro stations.
- Most commercial properties near Metros result from the
conversion of standalone residential units to apartments, mixed use
properties to commercial use and new development on vacant land.
Land values are inversely related to
the distance of land parcels from the metro station. Ordinarily, land values
decrease along with the distance from Metro stations.
Technically, a Metro
exerts an influence buffer of up to 1 km radius, with the maximum influence
being within 500 meters.
Typically in a city, the market value of properties
will increase by more than 50% over the prevalent values after the launch of
metro rail, depending upon the location, land use, and the micro-market’s
overall potential.
The population density of nearby
residential areas will increase after the launch of a Metro because of proximity
preference, along with the increases demand for retail and office spaces.
There
will simultaneously be a steep increase of new developments in the abutting
vacant land or open spaces, as the developers will seek to capitalize on the
profit implications of higher developments that can result from additional FSI,
if this is applicable. A constant rise in the land prices in the proximate
areas is usually seen during all project stages.
Regulatory Changes To Accommodate
Metros
There will invariably be regulatory
changes taking shape after a Metro is put in place. To address the needs of
urbanisation in the Metro areas, the government usually addresses the specific
needs of housing development by granting extra FSI (Floor Space Index) along
the corridor.
This increased FSI will reflect in increased prices for land
along the Metro corridor, and automatically lead to increased population
density near the Metro station.
Needless to say, this imposes stress
on the existing infrastructure available in the region, which the government
must tackle along with the Metro development. In order to control development
along the metro corridor, land usage needs to be revised – failing which
unorganised commercial development will crop up on the heels of the higher rentals
assured by the increased connectivity.
Given the influence zone of 800-1000
meters from the Metro stations, the land use for this zone must be properly
mapped in order to maintain a balance. Residential to commercial land use
conversion will invariably be most prominent, as commercial spaces will fetch
higher rentals.
JLL Property Consultants have worked
on various assignments with Metro authorities across the globe and in India to
analyse the impact of Metros on the respective property markets, including
benchmarking property values.
CASE STUDY: Chennai Metro
The now operational Chennai Metro
network has been planned in a manner which integrates it with other forms of
public transport, including buses, suburban trains and MRTS. The enhancement
and easement of connectivity has had a huge impact on real estate prices along
the Metro corridor.
With the amplified connectivity of Chennai’s suburbs to the
city centre, more and more property buyers are considering settling down in the
suburbs, away from the busy city and yet enjoying rapid connectivity to their
workplace in the Central Business District (CBD).
Real estate demand along the
Chennai’s suburbs saw a significant increase, and this prompted developers to
unleash a number of new launches in these areas. North Chennai, which hitherto
had limited real estate prospects, is now seeing the green shoots of growth
after the Metro connected it to other parts of the city.
The Metro is now
expected to find solutions for unsold real estate inventories, resale and unoccupied
commercial and retail spaces.
It will also restore the lost
prominence of micro markets such as Anna Salai, which was the city’s earlier
entertainment and business hub. The existing developments and infrastructure at
Anna Salai had not been able to cater to latter-day demand, but will now
doubtlessly see a lot of commercial redevelopment as a result of the easy
access provided by the Metro.
Since the Metro’s announcement in
2009, Chennai has witnessed steady real estate price increases, especially
along the Metro corridor. Prices near the Metro station have already reached
Rs. 7000–16000 per sq.ft. and are expected to increase further about 15% now that
the Metro is operational.
Residential rentals will rise as more of the
population moves closer to the Metro to benefit from the faster and cheaper
transport. If feeder services are strengthened, this impact will amplify out to
a radius of 4-5 km from the Metro stations.
Likewise, home buyers are also
attracted by the reduced commuting time to work, and this will lead to a
significant rise in sales and increased capital values near the Metro stations.
The return on investment is considerable, given that home buyers are willing to
pay a premium for residential units situated close to public transit systems
like the Metro.
Overall benefits of a Metro:
- Saving on travel time
- High service availability, reliability and quality
- De-congestion
- Higher productivity and savings across the system
While Metro rail implementation has
a huge impact on real estate prices along its corridor and the influence zone,
in the larger context it improves the standard of living of a large segment of
urban population, and is also a catalyst for sustainable development across
large urban areas.
About the author..
Mr. A. Shankar is National
Director & Head – Urban Solutions (Strategic Consulting) at JLL India
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