Real estate as long term investment option
Investment is not an easy game for many but where to invest is far more difficult to decide. At a time when there are too many investment options, it is quite common that one gets baffled about which way to go. The struggle never ends here. Once you have chosen the market/s, there starts more and more challenges coming your way regarding safeguarding, maintaining and multiplying your investment.
Various investment options
There are numerous investment options available in India including mutual funds, share markets, real estate, bank deposits, real estate, gold, silver, etc. An investor should understand that every investment type has its own merits and demerits. The investor has to learn to identify which option suits him the best and should understand the associated risks as well.
Real estate investment
In the past two-three decades, real estate investment has been among the most profitable long-term investment options. However, one should check for various parameters before making a real estate transaction.
Sufficient funds
Make sure you have adequate funds required to invest in real estate. In case you are going for a bank loan, you have to know that most lending institutions typically fund only 75-80% of the total property value and insist that buyers arrange the balance amount from personal funds.
At present market condition, buyers should keep aside a savings of at least 40 percent of the property value for upfront payment and other additional charges. It is helpful to go for a home loan as the financial institution will conduct a fine check related to the project including land ownership, NOCs, legal clearances, etc.
Choose right location
Investors have to consider the all-round development scenario of the area where the project is located. Livability of the area, proximity to markets, schools, colleges, hospitals, availability of transport facilities, social infrastructure, etc. have to be checked. All these factors play a major role on the final returns on the property based on the micro-market.
As per Crisil data, the average return over the past eight years across 92 micro markets has been 11-12 percent, about 15 micro markets have fetched annualized returns of above 15 percent while 11 locations have offered returns of 5 percent or less annualized returns.
Background verification
Before finalising the project, it is important to do a background check of the developer and project. Check the builder’s track record regarding timeliness of delivery of past projects and ensure that the developer has got all the approvals in place.
According to RBI’s recent announcements, buyers should examine the terms and conditions in case of 20:80 and similar schemes. Besides this, one should be prepared for any unexpected delays in the project completion.
Selling the property
Real estate investors need to make sure that they have an investment horizon of around six to ten years. If you are looking for short-term returns and sell off the property early, then you may end up in loss.
But the extent of appreciation mostly varies among different cities. Consider the real estate market of Hyderabad. It has never really picked up after the 2008-09 global slowdowns followed by issues related to Telangana formation. In such cases, the appreciation may take more time than expected for which you have to be ready. Also, investors will have to pay various taxes on capital gains thus denting net returns. It is better not invest all your savings into real estate alone.
