Real estate is one of the most lucrative avenues for investment. However, it is important to understand the market dynamics and choose the right property to ensure that your investment yields the expected return.
A popular investment asset, real estate has witnessed tremendous growth in the last decade. This is the reason why Indians continue to find themselves attracted to the sector despite the complex nature of property investments. Experts advise that creating wealth through real estate investment requires a careful analysis of the market, options, preferred locations, and the merits and demerits associated with each. Selecting a property that is best suited to your needs is of vital importance for making a profit in the realty market.
Some key factors that need to be considered before choosing a property for investment are:
Purpose of investment
Before embarking on the search for a suitable property, an investor needs to ascertain his purpose for investment. Does he want regular rental income or is he more interested in capital gains? Price appreciation is the preferred route for long-term investors with greater risk appetite who tend to focus on developing locations as opposed to those looking for rental income who prefer areas with easy access to basic amenities.
Location is the most critical factor to consider while investing in real estate. Amit Wadhwani, Director, Sai Estate Consultants, comments, “Areas enjoying sound infrastructure, such as those located near railway stations, metro stations, markets, etc. will always yield higher rentals and price appreciation.” Those looking for rental investments should focus on areas already having good connectivity and social infrastructure, while long-term investors are better off exploring emerging corridors and city peripheries likely to get infrastructure boost in the near future.
Investors also need to figure out which segment is the right fit for them based on their risk appetite, budget, and overall investment portfolio. Residential, office space, industrial, and retail properties each have their own pros and cons, which must be carefully analysed.
Further, investors would also have to choose between under-construction and completed projects as well as new and resale properties. Wadhwani shares that ready units come with benefits such as zero risk of delays, immediate rental yield, savings on service tax and Value Added Tax (VAT) which can amount to savings of up to six percent in most Indian states. On the other hand, under-construction properties can be purchased at lower rates and enjoy tax benefits on home loans, but carry substantial risks considering the dynamic nature of the market.
Plots are also an attractive investment option owing to the scope of higher capital appreciation, immediate possession, lower costs, and less hassles. However, like any other asset, plots also have their disadvantages, the most notable of which are no tax gains, no financial aid from banks, and no short-term gains.
Buying at the right price is an intrinsic part of investing in real estate in order to achieve attractive capital returns. Investors need to find a property that meets all their needs and still remains within their means. Experts point out that while the most affordable locations are likely to witness delayed development, areas that are already expensive have the lowest scope for future price appreciation. Usually, industry experts suggest cautious buyers to go for properties where the price tag falls between Rs 2,500-5,000 per sq ft to be protected against price erosion.
Picking a wrong developer can be as catastrophic as choosing the wrong location, assert experts. Thus, buyers must carry out adequate research about the developer to ascertain their credibility and track record. With the Real Estate (Regulation and Development) Act in motion, developers now have greater compliance requisites which will weed out fly-by-night and fraudulent operators. The enhanced transparency in the market is expected to make it easier for buyers to shortlist the best developers and projects.