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. A. Shankar, National Director & Head – Urban Solutions (Strategic Consulting), JLL India says it is also a catalyst for sustainable development across large urban areas.
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.
• 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.