Does infrastructure spending lead to price effects in the property market? Evidence from major cities across India

ABSTRACT

A recent boost in spending on the public infrastructure across India raises the question: How does the property sector react to massive infrastructure construction? The answer has significant policy relevance. This paper uses panel data across seven major Indian cities, spanning seven years from 2008 to 2014, to ascertain the short- and long-run impacts of infrastructure attributes on property values and rents. The study finds that increases in the percentage of public infrastructure spending lead to a positive effect on the property capitalization rate in India, but have a negative impact on the rental market in the short term.

KEYWORDS:

• infrastructure spending
• rental price
• cap rate

JEL:

• R10
• R30
• R58

ACKNOWLEDGEMENTS

The paper was presented at the AREUEA International 2016 and Asia Pacific Real Estate Research Symposium 2016. The authors thank the conference participants and referees for valuable comments.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1. See https://unfccc.int/sites/default/files/resource/INDIA%20SECOND%20BUR%20High%20Res.pdf/.

2. The National Bureau of Statistics publishes classification codes for each of the 700,000 neighbourhoods in China from 2009 to 2013. During this period, 3.8% of neighbourhoods were reclassified as urban neighbourhoods.

3. We also use the spatial lag matrix to capture the spatially weighted externality from the subject city and other cities.

Additional information

Funding

Xiaoying Deng acknowledges the financial support of the National Science Foundation of China [grant number 71703095] and the Fundamental Research Funds for the Central Universities. Anupam Nanda acknowledges financial support from the Department of Real Estate and Planning, Henley Business School, University of Reading.