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How to choose the right investment property
Posted on January 11, 2022
– through Anil Pharande, President – Espaces Pharande
Through ups and downs, pandemics and other calamities, housing never loses its shine as an investment option in India. It may not currently be as lucrative as stocks, but the point is, Indians don’t invest in residential real estate just for the return on their investment. A owned home has tremendous psychological appeal as it is the foundation of all financial security for the owner and his family. They can either live in it or rent it out, and it still retains its value. This is why second homes are very popular in India.
However, keep in mind that you cannot make a quick profit on residential property. In previous years Indian residential investors tried the Western approach of “flipping” properties – buying low and selling high in a year – but that no longer works. These were years when the Indian housing sector was less regulated and many parts of the country were hotbeds of speculative buying and selling.
Today, these investors have almost completely disappeared. Like the mature Western markets, investors have become more realistic in their expectations of a return on real estate investment. They could often get over 100% annual return on investment in the real estate market in previous years. Today, supply and demand adjustments and tighter regulations are keeping house prices in check. You can expect 4-5% per annum capital appreciation on good properties, but not more than that in most cases.
Other than living there, the best reason to invest in a residential property is to earn regular rental income. If you are buying a second home for rent, it is important to understand what type of home will be most in demand from tenants. Let’s look at some of the qualities of a home that can provide a good rental income.
The most important quality of a rental property is its location. It should be close to or well connected to the main office areas of the city. For example, the Hinjawadi of Pune is an important center of work. This means that areas like Punawale and Moshi, which are well connected to Hinjawadi, are in high demand among IT workers looking for rental accommodation.
The second thing to consider is the type of accommodation most renters are looking for. In most Indian cities 2 and 3 BHK apartments are generally affordable and most middle class renters are looking for such apartments. It does not make sense to invest in a bungalow or villa located in an area where there is no demand for overpriced houses to rent. If you want to invest in a large luxury property, look at the areas where people can afford to rent such a house.
Third, look at the price of the property. If you have paid too much for it, it will be very difficult for you to earn enough to cover your initial costs and make a rental profit. At the same time, don’t look for the cheapest houses. Such apartments will either be too small to be attractive to tenants or in locations with little demand. Also, study real estate prices today compared to 4-5 years ago. If you decide to sell the property after 5-6 years, you will want to profit from the sale.
Fourth, take a close look at the region’s infrastructure. By this I mean everything from road and rail connectivity to the availability of schools, hospitals and shopping districts nearby. Think like a tenant and ask yourself the right questions to decide if a property can earn a good rental income.
For example: would you be happy to live here? Would life be convenient? As a middle class tenant, can you afford to live in this neighborhood and this property? Can you easily access your desktop from there? If a family member becomes ill, can you quickly take them to a nearby hospital? How long would it take your children to go to and from school each day? All of these factors contribute to a decent lifestyle.
Type of project
Remember that some projects and properties are more attractive than others even in the same location because they have better equipment and facilities. A 2 BHK in an integrated township offers a much better way of life than a 2 BHK in a small project. A project with a clubhouse, swimming pool and jogging track is more attractive to tenants than another project which may have cheaper houses but does not have these facilities.
All the best in your real estate investment journey. You won’t regret it if you choose property wisely and keep reasonable expectations. Buying a good residential property is still the best investment decision you can make in India.