
Real estate investment is usually for the long run as land or a building is not as liquid as money. One just cannot buy or sell a house or a property on the spur of the moment. The process involves adherence to certain procedures ? legal, technical and otherwise. What makes such investments even more interesting is the unpredictability. Real estate markets have a tendency to ebb and flow. As a matter of fact, investing in real estate requires some amount of understanding of the macro as well as micro economic variables of the area in question.
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This is where an investor or a buyer would need the assistance of an expert. MagicBricks.com, the leading real estate and property related portal in India understands this need and ensures that buyers are able to access the views of real estate experts in this domain. Online chat sessions with stalwarts in the industry from different regions ? the GuruTalk sessions ? as these are called - ensure that you get your facts cleared on different aspects of real estate investment and related topics.
Kaustuv Roy, who heads the Eastern and Western region operations of Cushman & Wakefield, India, had some words of advice for the MagicBricks.com users in the GuruTalk session. Roy is responsible for the development and execution of business strategies to assist corporate clients in realising their real estate goals in the long run. He leads a team of experienced professionals covering all major cities across India.
FDI Flows:? Roy maintains that India remains an attractive investment destination. However, the flow of FDI in the Indian market in FY 2011-12 would be limited due to the continuing uncertainty in the Western economy. He however, predicts an increase in interest from South East Asian funds.
Regarding real estate funds, Roy said that it was still too early to comment on the most rewarding ones. Most of the funds that have come out are through private placement, with a high initial investment of Rs 5 or 10 lakh. They are also close ended.
Return on Investment: Roy answered that it was typically very difficult to get high returns in both fronts ? regular rental returns and capital appreciation. However, buyers wanting capital appreciation could opt for residential properties. Commercial property ? which can give investors a high rental yield ? can be considered when one can afford a large capital expenditure. The commercial office space demand is expected to be over 45-50 million sq ft this year, including all IT spaces. Last year, the demand was around 40 million sq ft.
The factors influencing returns on real estate investment are primarily related to the economic activity happening in the region and the infrastructure coming up.
However, the real estate growth in smaller towns/Tier-3 cities will take a few more years to become profitable to investors. At one point of time, they were expected to grow rapidly due to the IT/ITeS sector entering these places. But that is now not happening and will take a few more years.
The parameters to be kept in mind while selecting the location for investment in a residential project are quite different from the parameters for commercial projects. In residential, buyers need to consider things like amenities, neighborhood and security aspects. These features lead to a better exit valuation. In commercial, buyers need to select projects in a ?growth corridor,? and also consider buildings that have better services.
Investors were advised to purchase flats with amenities rather than flats in stand-alone buildings with no amenities on offer. At exit, the first category would give better valuation than stand-alone flats. According to Roy, these are still early days for smart homes. While one might have seen many launches, there was still not enough consumers who have tried them out to see how smart or practical they are.
Roy predicts that real estate price correction will not be uniform and will also vary between developers/projects. The bigger developers will try and hold their prices longer than the smaller ones.
Buyers can consider a second flat/property, which would provide regular income and long term security, notwithstanding the high home loan rates. These home loan rates are expected to increase as the RBI has been steadily pushing up the REPO and Reverse REPO rates. Also, when investing in a plot, one needs to consider the title, location and accessibility of the plot. Roy also said that under-construction property would ensure better returns as compared to a property that is ready for possession. However, the associated risks would also be higher.
Consumers can check whether the developer has got all approvals from the concerned authorities. The banks and financial institutions ? giving loans on the project ? can help a buyer in this regard ? as they would have done their due diligence. Speaking to the neighbours and visiting the property at different points in time is also a great way to know more about a property.
Roy also encouraged people to invest in real estate ? in cities other than the ones they are residing in.
He said that given the illiquid nature of property, not more than 30 per cent of an investment portfolio should be invested in the realty sector. However, if one could get early into a real estate project, the returns from the same can be higher than gold.
Good Property Markets: Commenting on the top 2-3 cities for good returns from property investments with limited drawbacks, Roy listed Bangalore, Gurgaon, Pune and Chennai as his preferences. The Hyderabad market is in a bit of flux, possibly due to the current political uncertainty.
West: People wanting to invest in Mumbai were advised to consider opportunities in Navi Mumbai. People wanting a weekend home on the outskirts of Mumbai can consider Pune or even places such as Baner or Aundh.
Huge number of apartments is coming up on the Mumbai-Pune highway. Roy clarified that there were a lot of investors who have entered this region but are expected to exit after 3?4 years. A price correction is on the anvil and people contemplating on buying a property in the area can postpone their purchase decisions to that point in time. Taking an investment horizon of 10 years, Palghar or Boisar can be great locations for purchasing residential flats for Rs 15?17 lakh.
In Pune, both residential and commercial real estate investments are currently quite lucrative. Roy places his bets on residential projects in places like Nagar Road, Sholapur Road, Baner and Aundh. For commercial, the choice could be around the Nagar Road or Baner.
Ahmedabad, he considers a growing market with many major developments happening along the SG Highway. Quite a few large residential projects are coming up in this part of the city. And the best part is that the cost of acquisition is still very small, compared to the rest of the country.
North: In the National Capital Region (NCR), Roy opted for Gurgaon and Noida when asked about the locations expected to yield maximum returns in the near future. He was impressed with the level of economic activity happening in Gurgaon. He was also very happy with infrastructural developments happening in Noida. Another upcoming investment destination in NCR is Greater Noida, which is expected to do well in the next ten years. The opportunity for investing in commercial property in NCR, with an assured return of 12% exists if one can get in at the launch of these projects.
In Gurgaon, residential property is expected to appreciate more than commercial property in the short term. Roy believed that long-term appreciation is definite in both these sectors. However, he was not that bullish on the commercial side for retail investors.
South:? Mangalore, he believes to be definitely looking good as a real estate investment option. With IT/ ITeS companies setting up base there, buyers could opt for new projects from some pan-India developers.
East: The locations in Kolkata which are best for investment include Rajarhat and areas along EM Bypass where the Metro is also getting extended.? According to Roy, New Town, Kolkata is a good investment option, despite the current political situation when one is considering holding on to the property for the next 7-10 years. Smaller Cities: The key cities in India ? excluding the Tier 2 cities - for real estate investment are Coimbatore, Mangalore, Jaipur, Baroda, Ranchi and Bhubaneshwar, where a lot of economic activity is happening.
Among the smaller cities Roy believes that Indore realty market has a lot of potential - investment in land or plot in Indore would give good returns in the next 10 to 15 years. As per Roy, Jaipur is expected to grow in the near future and such an investment would be rewarding in the long run. Investors in Jaipur could also find opportunities near Mahindra World City.
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Source: http://content.magicbricks.com/maximising-returns-on-real-estate-investments
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