What to Consider while Investing in Real Estate

Investment in the real estate sector stood at close to Rs 53,000 crore in 2015, a seven year high, according to a report published by The Financial Express in December 2015. The year also saw regulatory changes in the sector, such as increased allowance for FDI and the approval of the Real Estate Bill. The performance of the sector is expected to pick up in 2016, according to another article in The Financial Express in December 2015. Both property and real estate funds in India make good investment sense.

real estate funds in India

Tips to Consider

Among the host of investment avenues, real estate is one sector that stands out. Conventionally, investment in this sector was done for capital gains, but with the introduction in REITs (Real Estate Investment Trusts), short term gains have been made possible. Here are some real estate investment tips you can consider.

real estate investment tips

·         Know the Property – If you are buying a property directly, then you must enquire about the developer, their previous project completion and sale records. You must also gain knowledge about market rates, legal procedures, and terms and conditions of the contract.

·         Make an Estimate – While calculating the capital appreciation and returns on a property, you must take into account the inflation rate, the maintenance cost, insurance cost, loan repayment, and taxes. It is wise to buy a property only when the return rate exceeds the inflation rate, taking all other factor into consideration.

·         Invest through an Agency – You can avail advisory services of a financial company. This will save you the hassle of ensuring the credibility of the deal. They will not only help you zero in on the right property at a great price but will also help you with the legal procedures and loan procurement.

·         Invest in Real Estate Funds in India – Unlike equities, which are governed by market movements, real estate is a fairly low risk investment and is completely unrelated to other types of assets. It helps you diversify your portfolio and strike a balance. Real estate funds in India invest in real assets and you can benefit immensely from long-term capital appreciation.

·         Invest Through REITs – RIETs have been recently introduced in India and it has made investment in this sector highly approachable and liquid. REITs are the sector’s equivalent to equity funds. They are funds that invest in commercial income generating properties. They commit to the property for about 10 to 15 years or more. Unlike conventional investment in this sector, REITs do not require you to park a huge amount of money at a single time. The rental incomes generated from the commercial properties are distributed amongst the investors. Moreover, you can look forward to appreciation in your earnings in the long-run, with the capital appreciation of the property held by the REIT. You can either invest directly in REITs or through real estate funds in India. 

Does It Make Sense for Me to Invest in Real Estate?

According to the Ministry of Commerce, the Indian Real Estate market size is expected to reach $180 billion by 2020 from $93.8 billion in 2014. The government approved 100 smart city projects in August this year. Demand continues to be high in the face of supply for real estate across the country. In fact, along with equities, investments in the real estate sector have provided the highest returns reaching 20% over the last two decades.

Real estate will continue to appreciate as long as India’s human capital continues to expand and the GDP growth rate stays positive.

real estate investment

Is the Real Estate Market a Cause for Concern?

If you think that you should not now invest in residential property because markets have yet to correct themselves or that builders have been sitting on a large pile of unsold inventory and that the weak global economy restricts FDI flows into employment generating sectors then you could be in for an indefinitely long wait.

The soon to be implemented Real Estate Regulation and Development Bill 2015 is further expected to lift consumer and market sentiment.

It is true that the real estate sector has been hampered by fraud and red tape but proper care and precaution while making the purchase can ensure that you do not miss out on the opportunity to partake of the unparalleled returns.

real estate fund in India

Real Estate Investment Tips

·         The past record of a developer and the number of completed projects on time is a good indicator of whether a developer can be trusted or not.

·         That the location of the property in question drives prices is one of the most sound real estate investment tips you’re likely to hear.

·         As land acquisition continues to be controversial, real estate funds in India are a great alternative to owning a property. A Private Equity Fund works just like a Mutual Fund by letting experts handle the veracity and credentials of an under construction project. You also get the benefit of certain returns without taking the risk involved in a single project.

·         The capital involved in a real estate fund in India is also less than that in buying a property.

·         Investing in real estate should be looked at from a long term perspective. Hold on to your property for say 10 years and you will notice the power of compounding growth rates that give spectacular returns.

Property rates in favored locations in New Delhi and Mumbai are one of the highest in the world. Remember that real estate funds in India provide returns higher than gold or silver and are less volatile than equity. Economic growth in India is expected to continue and consumerism set to rise. It is best to buy before the market reaches its peak as by then you cannot hope to earn any higher returns on your investment.