Investment Advice – Residential Complexes Vs. Smaller Projects

Residential property in India has evolved into an asset which individuals hold for multiple purposes, not merely self-occupancy. Individuals now seek homes either for investment purpose, or for weekend stays and ‘lifestyle accommodation’. It is therefore apt to look at residential projects on the basis of the profile of individual buyers.

In an upcoming research note by JLL which covers over 1200 projects in the Mumbai Metropolitan Region (MMR), we closely compare three types of residential asset classes (viz. complexes, ultra-small buildings and small buildings) to ascertain their performances and level of preferences amongst buyers and developers. We define complexes as projects with more than 60 apartments.

A residential complex is a type of project which offers multiple high-rise towers with apartments of various configurations and sizes. This type of a structure can accommodate many amenities such as gymnasium, sports complex, large parking space, gardens or open areas, along with good safety and security features. A complex can be seen as a city within a city, offering convenience in terms of accessibility to all the basic residential amenities.

In Mumbai, a common perception is that living in complexes means having to live in the suburbs or peripheral locations. However, in recent times land been unlocked near city centres, and home buyers now have the option of living in complexes within Mumbai’s city limits.

On the flip-side, living in complexes does not come cheap. Prices in complexes are usually higher than a small (30-60 units) or ultra-small (less than 30 units) building in the same vicinity, largely due to the provision of better amenities in the former. The benefits of living in complexes include the availability of a predominantly cosmopolitan culture. However, this also means a relatively apathetic neighbourhood when compared to living in small and ultra-small buildings.

Small and ultra-small buildings offer individuals better prospects for socialising with like-minded people when compared to complexes. Thus, residential complexes are best suited for individuals or families who value lifestyle more than other factors. Often, families with young children display a higher preference for living in a complex.

Complexes are also a superior option for buyers who look at property purchase from an investment perspective. As the forthcoming study by JLL evidences, residential complexes have enjoyed better annualised price appreciation between project launch and completion during the last four-year period. Two key reasons have emerged for this type of market behaviour:

1. With more units to sell, developers usually give discounts to early buyers at the launch stage
2. As construction progresses and bookings increase in a complex, the location becomes more attractive to other developers, retail entrepreneurs, etc., thereby raising the overall attractiveness of the site location.

In other words, the duration for holding onto an investment in a residential complex has a direct relation to the rate of returns that investors could expect.
With a higher number of units to sell when compared to small and ultra-small projects, the bargaining power of developers reduces to some extent. Developers of residential complexes see such projects as a volume rather than value game. It is primarily large developers that enter into the business of constructing complexes, largely due to the scale of operation.

Over the last few years since 2009, close to 60% of the projects launched in the Mumbai Metropolitan Region were residential complexes, with the maximum incidence evident in the Thane, east-suburban and west-suburban sub-markets.

To Summarize

Residential complexes should be the option of choice for buyers with a penchant for lifestyle living and a willingness to forego a certain degree of local community. Young couples with children prefer complexes over others form of residential development despite the higher prices. While investors find it lucrative to buy apartments in complexes, it has been observed that those with a longer investment horizon benefit from a better rate of return when compared to those with shorter investment horizons.

Ashutosh Limaye, Head – Research & REIS, JLL India


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