Confusion is the word that rules any individual mind especially when he has loads of money in your kitty and looking for investing in real estate. But then how you may deal with this dilemma !!
Home Vs Investment
When it comes to buying property, the first choice you need to make is the answer to the following questions: What do you need it for? Setting goals is always essential!! Don’t forget that. Pure investment, or for self use there’s a whole range of investment choices at the same budget and in the same location. There are some who make the rent versus equated monthly installment (EMI) calculation in cities such as New Delhi and Mumbai, and take the economically sound but emotionally tough decision to pay rent and invest the difference between that and the EMI in a mutual fund.
Firstly most of us want to own the house to live in—home ownership is an aspiration deeply ingrained in our country. Which is also essential? Your 1st purchase should always be towards your own living house. The decision to buy your own home is a function of location, family structure, income levels and preferences—bungalow over flat, ground floor over third floor, city centre versus suburb. There is usually less discussion about appreciation levels than family comfort and amenities when buying a home to buying property for investment and the decision set will change to location, growth, rental possibilities and proximity to hubs of transport or economic zones.
But then what to Buy:
The first of these: Residential or Commercial real estate?
The downturn started hitting the realty market in September 2008. Due to the slump in the real estate market, rentals and capital values corrected drastically in 2009. Although the realty market is stabilizing, rental rates of commercial properties continue to be hit by oversupply and lack of demand. This spells an investment opportunity for those who want to take a slightly higher risk with their real estate investment. Commercial real estates prices are likely to remain stable for the next 12-18 months because of the glut in office and retail space. Low rentals put pressure on the developer, forcing him to sell space at reduced rates to generate liquidity.
Plots Vs Built-up Property
Economic cycles do not affect land prices as much as they hit prices of built-up properties. Looks at the way land prices remained stable even during the slowdown. In fact, over the past three years, land rates have appreciated continuously across big cities and metros. On the other hand, built-up properties are bought in areas that are nearing completion of a development phase and the large return multiplier has already played itself out or is close to doing so. Plots usually are on the outskirts stage of urbanization and, depending on future infrastructure, planned townships and trade zones, have much more steam left in them.
When buying a flat, a major cause of worry is the time it takes to gain possession. There have been innumerable cases of project delays in the recent past, during which buyers have been stranded for up to a few years. Real Estate firms, which sell plotted development, can easily divide up the area, put in the basic infrastructure and hand over segments to you well within the promised time frame. The development of apartment projects, on the other hand, is a slower process. And because it also requires more capital to establish an apartment complex, the project could get delayed if the developer faces a cash crunch.
A thumb rule is: While plots are meant for those with deep pockets, built-up properties are meant for those who want to buy a ready-to-move-in home.
Primary Vs Secondary Market
The primary market is one in which homes are bought directly from the builder or the developer. The advantage here is that you get a property with a clean title and one that’s newly built. But as the majority of transactions happen in resale, the secondary market, thus, refers to that segment in which owners sell property in the resale market. Buyers can, depending on the state of the market, pick and choose and get a discount on the property they want. In new projects, there is very little room for discounts. While brokers may not be involved in primary sales since the buyer can easily get in direct touch with the developers, a secondary sale is usually initiated by such a middle-man.
And the future looks bright !!
REITS, Or Real Estate Investment Trusts
The market regulator has drafted guidelines for introducing real estate investment trusts (Reits) in the Indian market. However, it has not approved its launch a of now. Also, the regulator has allowed launch of real estate mutual funds, but none has been launched till date. A REIT breaks down the ownership of a building, or more often a group of buildings, into units that are sold to its investors and they are usually listed on the stock market. Companies, such as DLF Ltd and Unitech Ltd, India’s two biggest listed property developers have spoken about setting up REIT and floating them in Singapore but nothing has come of those plans.
Structure of REITS in India
In evolved markets, REIT structure comprises the sponsors, trustees, real estate asset management company and unit holders. A REIT is essentially a syndicate, pooling money from investors (who buy its shares) to acquire real estate assets. It’s a way for retail investors to gain exposure in the real estate business without the associated problems. Dividends are distributed from the income that accrues in the form of profit from sales, rentals and lease payments. According to the draft regulations of the Securities and Exchange Board of India (SEBI), 90-95% of the income from the buildings—generally rental income—would be paid by the REIT to its investors in the form go of a regular dividend.
Regulations stipulate that REIT scheme in the country would be close-end. This means that a REIT will not be able to issue new shares to increase its investments. Under all its scheme, while it will not have exposure of more than 15% in any single real estate project, I will have to be listed on stock exchanges.