Invest in Real Estate: A Complete Guide For a Novice Buyer
By Pratik Balasaria

Those who invest in real estate swear by the returns extended by the housing sector. Most investors who have parked funds in real estate in all major cities in the country have seen handsome returns, owing to the rapid compounding in property prices over the last 10 years. To feed the growing population and increasing purchasing power of its citizens, cities keep growing with more and more attractive developments on offer for purchase. In tune with this demand, the government has introduced laws like the Real Estate (Regulation and Development) Act, 2016 (RERA) over the last few years to protect the interest of property buyers and further increase demand for purchasing real estate in India. 

The RBI House Price Index shows that Indian real estate prices have risen by an average of 9.3% over the last five years in the country. According to Global Property Guide, even during the pandemic prices of real estate in Kolkata increased by 3% year on year. And this trend does not seem to be slowing down. 

Why Invest In Real Estate

invest in real estate: why invest in real estate

The primary reason it makes sense to invest in real estate is the assurance of positive growth. Capital appreciation means that the value of the property keeps increasing. And at the same time, rental yield also displays a positive trend. This dual effect of value growth and assured rent makes the real estate sector generate unparalleled returns, unlike any other asset. Since cities keep expanding and growing, they keep running out of space. This means that a property purchased in a prime location will give you attractive assured returns for a long period of time. 

But the risks involved in real estate purchases come from buying property without proper research or from a developer of disrepute. When purchasing property, make sure to check that the property has not been developed haphazardly and has been constructed following all municipal laws and approved plans. Real estate investments are also highly capital intensive and fairly illiquid.

How to Invest In Real Estate

invest in real estate: how to invest in real estate

The most common way to invest in real estate in India is to purchase a property. While doing so, the following points should be kept in mind:

  1. Estimate Affordability:

    The first step is to identify your appetite for investment. The budget for purchase will have to be fixed depending upon one’s income and savings. Not only the property’s price, the statutory charges associated with property purchase including stamp duty, registration fee, brokerage, etc. will also have to be kept in mind

  2. Apply for Home Loan:

    To avail a home loan, make sure your credit score is in the ideal range. This can be checked on CIBIL’s portal online. In addition to the credit score, banks will check a loan taker’s EMI paying capacity by scrutinizing their documents including a statement of assets, bank statements, income tax returns, and salary slips.

  3. Choose Property:

    While deciding which property to purchase, it is good to keep the location, amenities, and size of the flat in mind. Good development will maintain a balance between open spaces and built-up areas. If the property is for rental purposes, check that the rental yield in the locality is sustainable. Properties that are closer to popular office spaces and commercial hubs are ideal. They should be well connected to public transportation and should have schools and hospitals in their vicinity. Other things to keep in mind are whether the home has been owned before or you are the first owner. Previously lived in homes will come with pre-fitted woodwork, fittings, broadband, etc. Although a lot of newer developments by respectable developers come with many of these facilities pre-installed in the flat including modular kitchens, video phones for main doors, and air conditioning. The property should have good open floor management and space should be designated well between hallways and rooms. If you own a vehicle, it is essential to have a designated parking space. Security in the complex should also be satisfactory. 

  4. Reputation of Builder:

    Before purchasing the property make sure that the builder is a trusted name and can be relied upon to complete the project in the agreed-upon time frame. A good developer is one who delivers projects in a timely manner, follows municipal guidelines and building plans, uses quality materials and fittings in construction, and pays special attention to the architectural design.

  5. Check Papers:

    The documents like title deed and registration papers have to be in order otherwise the property purchase will be null and void. It is a good idea to hire a real estate attorney who can look over these papers and make sure everything is in order. If the property has changed many hands, it is even more essential to check the papers properly to make sure no litigation is attached to any previous transactions on the property.

Other Ways to Invest In Real Estate

invest in real estate: Other Ways to Invest In Real Estate

You might be interested in investing in real estate but might not have enough funds to put up. If that is the case, do not give up. There are many ways other than purchasing property to invest in real estate. Here are a few:

  1. Real Estate Mutual Funds and ETFs: Real estate mutual funds invest in real estate companies and REITs. They provide diversified exposure to real estate with a relatively small amount of capital investment. Depending on their strategy and goals, real estate mutual funds provide investors with a much broader asset selection than can be achieved through buying REITs.  Real estate mutual funds are very liquid. Another advantage is the analytical and research information provided by the fund, which takes a lot of the work out for you. Investors are entitled to avail the assistance of financial advisors to make informed investment decisions on their behalf.
  1. Real Estate Investment Trusts (REITs): REITs allow you to invest in real estate without actually buying physical real estate. Often compared to mutual funds, they’re public companies that raise funds by selling shares of stock and issuing bonds and use the proceeds to purchase and lease out real estate assets like shopping malls, office buildings, apartment buildings, and warehouses. REITs are required to pay out nearly all of their after-tax profits to their investors as dividends. As an investor, all you have to do is sit back and collect dividends. The trust management handles all of the ownership and rental logistics. You can buy and sell shares of REIT stock in the market via a brokerage account. This makes REITs a very liquid investment option. REITs tend to pay high dividends, which makes them a common investment in retirement. Investors who don’t need or want the regular income can automatically reinvest those dividends to grow their investment further. The only difference between a REIT and a mutual fund is that a REIT holds properties instead of bonds or stock options. 
  1. Shares of Real Estate Companies: As an investor, you can directly purchase stocks of real estate companies in India. This will require more in-depth knowledge and research about the company’s performances and portfolios. The real estate sectoral index, S&P BSE Realty Index, tracks the top real estate companies in India. Investing in the stock market requires a brokerage account and can be very risky. This option should only be utilized if you are confident about your knowledge of real estate companies. 
  1. Invest in Rental Properties: If you are committed to investing in the real estate sector, purchasing properties for the purposes of rental is another option. Rentals can offer steady cash flows along with appreciating over time, but investing in rental properties means taking on the role of a landlord. This is labor-intensive because as a landlord, you’ll be responsible for paying EMIs, property taxes, maintaining the property, finding tenants, and dealing with any problems. A common strategy is to charge enough rent to cover expenses until the home loan has been paid off, at which time the majority of the rent becomes profit. The other primary way that landlords make money is through appreciation. If your property appreciates in value, you may be able to sell it at a profit at a later date.

Conclusion

Real estate investment is profitable and gives assured returns over time but it comes with its own set of risks. There are many options available for investment in real estate in India. But a lot of thorough research needs to be done before you decide which option is right for you. Hopefully, the above article provides a brief overview of the pros and cons of the various options.

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