A recent report by a prominent global property consultant revealed that the residential real estate market in India appreciated 10.5% in 12 months. Considering absolute returns for the last 5 years, the returns came as high as 70% till June 2017. While the stats may appear to be too lucrative to avoid real estate investment, the catch is that not all real estate projects have offered similar returns. Investors tend to overlook the volatility and speculative nature of the realty market.
We take a look at five important points to keep in mind while investing in real estate:
Returns Are Not Same Across India
Just like other financial assets, care needs to be exercised to pick the right real estateinvestment project. Everything from a city to location, price point of the property and micro market demands add up to define the possible returns on investment.
Real Estate Should Be ALong-Term Investment Horizon
Unlike in the past where investors even with small to medium term investment horizon looked at real estate as an option, the horizon today for real estate is more long-term. The introduction of Real Estate (Regulation and Development) Acthas made realty a long term investment option. It is better to avoid a realty investment if you are looking at an investment that can generate high returns in a short span of time and instead go for a foolproof and long-term investment.
Commercial Real Estate A Better Investment Option
For most investors residential realty scores over commercial realty. However, commercial real estate also offer similar investment options, if not better. In the year 2017 so far, over $2 billion worth foreign investment deals have been inked in the commercial realty segment. Some of the major global real estate players are now making their presence felt in the commercial realty segment making it a viable investment option.
Positive Momentum InThe Affordable Housing Segment
India is facing a shortage of around 19 million houses, according to a report. The government on its part is making efforts to fulfill its ‘Housing ForAll’ by 2020 a success. These two factors drive a hidden investment opportunity in the affordable housing segment. Many institutional investors are also focusing their investments in such projects. Affordable housing projects require comparatively lower investment making it suitable for investors of all budget types.
The GST impact
Real estate investments attracted a service tax of 4.5% earlier but the introduction of GST has meant a tax of 12%. With no hidden charges, benefit of cascading and the tax credits on offer to developers, the overall costs of realty projects are likely to go down in the future. This means more pocket friendly investment options in real estate for large majority of individual investors.
Real estate continues to be a lucrative investment option provided the investment is made after adequate research and with a long-term horizon.
(The writer is CEO, BankBazaar.com)