Investment is a risk-return game. The scope of return increases with your appetite to absorb risk. However, before we delve further into this topic, let’s clarify the definition of real estate investment.
Purchase of an under construction property or purchase of a house to stay in is not real estate investment. The first case is that of lending money to a builder in the hope of getting a fully finished house in the not so distant future – which, in the Indian context, translates to a lot of risk; the second case is that of investing in an asset for use – which, in most cases, you will not sell unless your life depended on it.
That said, the investor confidence in India has increased in the past one year and large international firms are entering into the real estate foray once again. While the big players are self-reliant, mid-size partnerships (between mid-sized developers and mid-sized venture firms) will be the key this time around. New development in posh tier-I localities as well as infrastructural development of tier-II towns is set to reach unprecedented levels this time.
According to data from Cushman & Wakefield, private equity firms & other ventures have invested over Rs. 400 cr. in the first half of 2015 (which is more than double of what was invested during this time period in 2013). This has been made possible by relaxing of foreign direct investment (FDI) norms (reduction in initial capital requirement by 50% to close to Rs. 30, 00, 00,000 and a 40% cut in minimum area required for built-up to 20,000 sq meters.)
Measures such as creating a market for real estate investment trusts and providing safe exit avenues for investors have also increased the investor confidence. Attractive interest rates offered by state-run banks is another important factor for the positive sentiment in real estate investment in India.
Since the fluctuations in real estate prices are not listed, and investments are made in an asset that’s not as liquid as equity, you can experience the joys of compounding to the fullest, if you’re planning to stay invested for a long time.
That said, following are some tips you should follow before investing in property:
- Always look at the lease rentals and thoroughly check the scope of appreciation of capital in the locality where you plan to invest
- Make sure to look at the scope of development of infrastructure around the property
- Check for proximity to markets, public transport, hospitals, schools and other essential amenities
- Make sure you understand the property taxes to be paid
- If you are planning to hire a property manager, make sure you do a thorough background check on his history, the kind of investments he’s helped clients with, the number of years in the industry and his personal equation with you
Finally, make sure you have a strong plan B and a sound exit strategy in place before taking the plunge in investment waters.