Wednesday, 27 July 2016

Wealth creation through residential real estate investment

Investment in real estate needs the location to meet specific parameters to be considered effective. Mainly, the location should have good social infrastructure, availability of public transport and sufficient economic activity to sustain growth and development.

To mitigate the risk of investing in real estate, one should restrict investment in residential property in Tier 1 and Tier 2 cities. It is also advisable to invest in properties that fall in the Rs. 2500-5000/sq.ft. price range, because such investment provides safeguard against capital value erosion. In simple terms, the cost of construction and land makes this segment safe and almost guarantees an appreciation in value.

Some other points to be kept in mind are
  • You need to understand the property cycle to determine the best point of entry.
  •          Leasehold titles issued by the Government must be understood.
  • The quality of the development is significant, because depressed markets often result in shoddy design and construction quality.
  • All the development plans and statutory approvals for a project should be available. If approvals are not yet in place, the investor should monitor them closely during the investment cycle
  •  Due diligence by a well known, independent legal firm is an essential. Relying solely on due diligence by home loan firms is not advisable as they are also driven by targets.
  • The size and dimensions of the plot and the apartment need to be understood; small plots or apartments may cost less, but they are also often difficult to resell.
  • The delivery timelines and possession must be explicitly clear. Penalties in case of delay should also be understood clearly, as legal battles are not everyone’s cup of tea.
  • The track record and credibility of the builder has to be carefully and diligently researched. Since even the best ones have failed to deliver under the current market conditions.

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