On the Impact of Infrastructure Improvement on Real Estate Property Values: Evidence from a Quasi-natural Experiment in an Emerging Market

48 Pages Posted: 22 Jul 2021

See all articles by Venkatesh Panchapagesan

Venkatesh Panchapagesan

Indian Institute of Management (IIMB), Bangalore

Madalasa Venkataraman

Indian Institute of Management (IIMB), Bangalore - Century Real Estate Research Initiative

Chinmoy Ghosh

University of Connecticut - Department of Finance

Date Written: July 20, 2021

Abstract

Prior studies show infrastructural improvements impact property values positively. The effect is often reflected soon after the announcement and continues until the project is complete. These studies, however, are primarily set in developed countries. Emerging markets pose unique risks where uncertainty around implementation and funding could dampen these positive effects significantly. We utilize a quasi-natural experiment around an inner-city road redesign and improvement project in Bangalore, the fastest growing city in India. We exploit the difference-in-difference regression approach to examine the project’s impact on residential and commercial property values around two sets of geographically proximate roads, one of which was chosen for the redesign. Unlike in developed countries, we find that property values are unaffected by the announcement when uncertainty is the highest but start reflecting the positive value of the infrastructure once construction starts and show significant gains upon completion. Our findings carry important policy implications for structuring value capture strategies in emerging markets.

Keywords: Infrastructural development, inner-city rejuvenation, real estate pricing, hedonic modeling, value capture.

Suggested Citation

Panchapagesan, Venkatesh and Venkataraman, Madalasa and Ghosh, Chinmoy, On the Impact of Infrastructure Improvement on Real Estate Property Values: Evidence from a Quasi-natural Experiment in an Emerging Market (July 20, 2021). IIM Bangalore Research Paper No. 646, Available at SSRN: https://ssrn.com/abstract=3890048 or http://dx.doi.org/10.2139/ssrn.3890048

Venkatesh Panchapagesan (Contact Author)

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Madalasa Venkataraman

Indian Institute of Management (IIMB), Bangalore - Century Real Estate Research Initiative ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Chinmoy Ghosh

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

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