Property Investment: How To Invest In Real Estate

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Check the below price chart. Except for Delhi (not Delhi NCR), property prices in major cities has gone up in last 2 years

In the above table, it is clear that property prices continues to increase in India. The rate of price appreciation is different for different cities. If we buy a property in Hyderabad, capital-appreciation will be relatively slow. If we buy a property in Gurgaon, capital-appreciation will be faster.

But no matter where ever is the property located in India, its price will increase. Why? Because of the growing population and increasing purchasing power of Indian middle class.

Cities like Mumbai, Delhi NCR, Bangalore, Chennai, Ahmedabad, Pune etc have seen healthy rise in property prices. Why? These are cities where people generally migrate from other states for jobs and business.

Why Property Investment?

Rich and wealthy invest in real estate directly. They own multiple residential or commercial properties. Steady and decent capital appreciation of their real estate property is common.

But the part which makes property investment so dear is its capability of generating stable short term income. The short term income is generated in form of “monthly rents“.

The rate at which the rental income grows, generally beats inflation in long term. This is specially true for Metro, Tier1, and Tier 2 Cities. As the monthly yield of property grows, this also pushes the overall property price up.

What is shown in the above infographic? Real estate investment generates assured returns. The returns are in form of rent and capital appreciation.

The rental yield (fixed income) grows with time. Generally this growth keeps pace with the inflation. Capital appreciation will happen due to demand growth. India being a growing and young population, demand for property keeps rising.

This dual effect (of assured rent and value growth) makes the real estate sector generate unparalleled returns, unlike any other asset.

Property investment is one of the best inflation hedge. This is the reason why big investors like Robert Kiyosaki and Donald Trump has special liking for it.

Tread With Caution

Why? Because, except for few Indian cities, real estate market has not really matured in India? Why I say so? Because we still see random development of properties in majority cities in India

Unless property has a master plan, its long term value appreciation is doubtful. In most cases, value of such properties depreciates with time.

The problem is, most of the properties are by either unplanned or are developed by below-par developers. This makes real estate investing in India slightly risky.

How To Invest In Real Estate?

Criteria For Property Selection

Target should be to buy a good property. What is a good property? It must display at least two characteristics: (a) Attractive Project Plan, and (b) Value for money.

What is attractive project plan? Distribution between open area and occupied land (by buildings) must be optimum. The more is the open area, the better.

What is value for money? Property should not be expensive. How to define expensive? I follow this rule of thumb for myself. Rental yield of the property should not be less than 3.0%. Suppose the property is valued at Rs.35 Lakhs. If put on rent it wil fetch Rs.10,000 per month. Its rental yield will be 3.4% (10000×12/3500000).

Price

3.1 Affordability: If ones affordability is Rs.35 Lakhs, and the property on offer is costing Rs.40 Lakhs, it is clearly not affordable. This is one reason why affordability calculation in step #1 is essential before making a commitment.

Vicinity

3.2 Location: Property investment must be done in a location which is known to the investor. Investing in an unknown city/town shall be avoided. Location of property within the city is also important. A property which has schools, markets, hospitals nearby is preferable.
3.3 Transportation: Approach road is important. If there is a broad and paved road connecting the property, it’s a big thumbs up. Public transport connectivity like metro, bus depot, auto rickshaw stand, Ola/Uber connectivity also adds to the value.
3.3 Negatives: Special attention must be given to the drawbacks of the property. Typical ones can be like busy roads, too close to railway station or airport, traffic noise, remote location, old society etc. These factors cause hardships & also lowers the quality of life of the residents.

Specification

3.4 Type of House: If the preference is a row house, multi-storeyed apartment will not work and vice versa. Before venturing out for property search, type of house must be finalised.
3.5 New or Used: Second hand homes can be great value for money. They have an advantage of ready possession and established locality. They may also have pre-built facilities like internet, heaters, wood work, modular kitchens etc. But a new property also comes with its own advantages.
3.6 Number of bedroom: For a small family, even a studio apartment is enough. For others, requirement may range from 1/2BHK to higher size flats. I personally like evaluating property first on basis of their size (in SQFT), and then on the number of bedrooms it can offer.
3.7 Open Floor: There are some properties which has slots & pockets for wardrobes, cabinets, fridge etc. Such homes offer better ‘open floor space management’ after the furnitures are put in place. Generally speaking, a house must be able to accommodate your special furnitures (like over , bicycle, pram etc).
3.8 Parking: If you own a car, two wheeler etc the property must offer an adequate parking facility.

Other Features

3.9 Communication: If the property has facilities already laid for services like cable TV and broadband etc, it can save few bucks. Generally speaking, look for mobile & internet connectivity in the area. There are some areas which has inherently poor mobile network connectivity.
3.10 Extension: Over a period of time, owners like to extend their living space. Properties which has provisions for extension may prove handy in times to come.
3.11 Gardening: For some, building a hanging garden in their balcony is a big plus. If you are looking for a row house, check if the open space provides the possibility of gardening. Property with such provisions becomes desirable.
3.12 Present Condition: Check the ‘built condition’ of the property. If it is a new property, no problem. But in a second hand house, rework or repairs may be required. Being aware of this extra cost before taking the possession is advisable.
3.13 Condition on Outside: Apartment may be good from inside, but the outside building is equally good? Make sure to check the property from outside. Scan the painting, cracks, seepage, loose wirings, encroachments, quality of parking etc.
3.14 Security: These days the societies are plagued with random thefts and pilferages. Make sure to check if the property has a dedicated security protection.

It is also a good idea to visit the property at least thrice before taking a final call.

Visit 1: Try to reach the property from your office etc during peak hours. It will give you an idea of the traffic congestion.
Visit 2: See the property during the night. You will be able to judge the ambience during those hours. There are properties which looks too gloomy in dark. Avoid them.
Visit 3: Try to visit the property in weekends. It will give a new outlook and you may also be able to socialise with few existing occupants.

Ask CBPL Homes Advisor

What is done in Above step takes care of the “big things”. There are also minor queries that needs attention. A Propre agent will be able to answer these question (honestly).

There are like strategic questions which must be posted to the agent or to the present owner:

Remained Unsold: For how many days the property has been in the market for resale? Some properties gets sold in days. Some properties take time. Idea is to know the cause of the delay. The reasons could be overprice, bad Vaastu etc.
Occupation History: Preferably, buying a property which has multiple occupations in the past shall be avoided. Buying a second or third hand property should be the goal. If the property was occupied by the first owners themselves, it is a big plus.
Current Possession: Who is currently occupying the property? If there are no people living inside, no problem. But if the property is occupied (say by a tenant), when they are going to vacate? Since how long they have been staying?
Seller’s Direct Contact: Before taking the final decision, it is always better to have a one-on-one discussion with the owner. One may not like to buy a property from a shady or inappropriate character.

New Home: Extra Points To Take Care

There are few unique features comes to face only with a new (under construction) real estate property. They also needs separate attention and handling:

Booking Amount: Purchase of new, under construction property is often initiated after inspecting a “vacant land” and an “approved plan”. To initiate the purchase, the buyer pays a booking amount to the builder. Make sure to ask for the refund policy before making the payment.
First Deposit: If you are going for the home loan, the first deposit (which will be your self contribution) needs to be paid soon after booking. Why? Because only after this the loan disbursement process will be initiated. Make sure to keep your own legal advisor informed about these payments.
Pre-Approved Loans: The builder may lure you to go for their pre-approved lender (for loan). You are not obliged to take their advice. You can go with your own bank.
Completion Time Line: From the date of booking, a typical Indian builder may take upto 3 years to complete the project. Make sure to ask the builder about the time lines (& milestones) of the project. Ask how the builder is going to compensate in case of delays.
Withdrawal Clause: There may be a condition where you may want to exit the deal mid way. This is where withdrawal clause becomes handy. Read and discuss it with your builder. How much will be your loss? How the already paid money will be returned etc.
Warranty: Generally, a newly constructed buildings has a 10 year warranty for structural faults. There is 2 years warranty for general defects. Make sure to ask your agent/builder about the same.
Finish House: What is included in the finished house? Final paint, electricity fittings, plumbing, finished flooring, modular kitchen, wardrobes, furnitures etc. Idea is to know, in what finished condition the house will be delivered to you.

Check The Builders Reputation

Try to find out the reputation of the builder. Some developers are prone to carry problems related to plan approvals, last minutes changes, work delay, bad quality construction etc. Idea is to not fall for such developers.

The best way to identify a good developer is by visiting their old sites. If possible, meet few residents to get a feel. Few key attributes of a good developer is:

Timely completion.
Quality project (outside ambience) layout.
Good flat layout (inside design).
Superior construction quality.
Quality of installed fittings (lighting, faucets etc).

A combination of ‘good developer’ and a ‘cost effective property’ means good investment.

Look for A Property On The Outskirts

Often, properties which are within the city are expensive. There is a way to identify a good and inexpensive property.

Look for properties which are coming up right on the city’s outskirts. Do not go too far out of the city. Idea is to remain in the city – but at the outer boundaries. I have found this method of locating projects very helpful.

At the time of purchase, such properties may look slightly distant. But within 2-3 years, they become the next city hub. Buying such properties, and holding them for 3+ years can prove profitable.

Try to Book Property In Its Project Launch

Project launch is that moment of time, when the developer is first displaying its project plan to the public. At that time, the developer is also gauging publics perception about its project.

Booking property at project launch can be more profitable. Builders are often quoting 20-30% less price in its launch.

If the response of public is good, during project launch, price of property will go up. For public, project launch price is often the best price to buy. Keeping an eye on project launches of good developers in your city is a good idea.

It must also be noted that, during project launch, the builder may not have already taken the necessary project approvals. Hence it is essential for buyers to ask about the schedule of approvals. Only after the approval, construction will start.

Look For A Small Property

We often get lured into buying an oversized property. This is a mistake. It not only costs more, but it also means higher long-term maintenance costs.

Reports have proved that, smaller sized properties are often better value for money for the investor. Compare a 2BHK and 3BHK apartment. Which will get sold first? 2BHK, as it is more affordable.

Similarly, a 1BHK apartment can be bought and sold the quickest. Small size apartments are always in higher demands. Even high net-worth investors, would like to buy multiple 2BHK homes over large penthouse. Why? Two reasons:

Less money is locked in one property.
As size is small, liquidation becomes easier.
There will be bigger range of buyers for small properties.

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Conclusion

These property investment ideas may sound basic, but they are effective. For a beginner, these suggestions can help in framing a right strategy. Connect with Us to Crash in Deep.

These days, one of the biggest spoiler of property investment is “project delays”. Though not all delays are due to the builders, but they will always have the onus on them.

Good, reputed developers always seems to find a way out and complete the project within schedule. In property investment, there could be noting better than a timely completion.

I hope these ideas will give you some food for thought for your next property purchase. Connect with our Agent/Advisor. We are here to Serve you Professionally.

Have a happy investing……

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