Investing in real estate in India
Property Investments in India have normally been a gold mine for most investors. The growth and development of cities across the country have added fuel to the rise in prices across the country.
By Anil Rego, chief executive officer and founder, Right Horizons
The promise of real estate in India
Property Investments in India have normally been a gold mine for most investors. The growth and development of cities across the country have added fuel to the rise in prices across the country. According to a survey conducted by ASSOCHAM, 65% of working individuals prefer real estate as a mode of long term investment.
Property prices in India have increased by 16.5% in the last year according to a study by Makaan.com. The question now for investors is how best to benefit from investments in realty; whether to look at investments directly in property or route the investments to real estate companies that are listed on the stock markets.
Investment in Real Estate Stocks:
The realty index has recently underperformed the Sensex by as much as 47%. This raises a question on why companies are not able to replicate the returns that investors make while investing on property. Real Estate companies have been facing volume pressures and are burdened with huge debts which lead to outflow of cash towards interest rate commitments.
Increasing interest rates are a double whammy for real estate stocks as its add pressure on bottom lines for companies plus reduces demand as customers postpone real estate purchases. Increasing costs of raw materials add pressure on the margins of real estate companies. Investors can also look at the land base, debt levels and the segmental diversification of the company.
Investmens in Property:
The lure of investments in property will never fade in India. Property prices in upscale Gurgaon and Navi Mumbai have appreciated sharply. Down south, cities like Bangalore, Chennai have also seen good returns on property. As prices in tier 1 cities have already gone up investors could look at investment opportunities in select tier 2 and tier 3 cities. Tier 2 and Tier 3 cities offer prospects for returns as they stand to grow faster over the years proportionate to the growth of the economy.
Mysore is one such example; the city today plays host to global orgnisations like Infosys. Other cities like Lucknow, Jaipur, Chandigarh, Ranchi, Guwahati, Bhubaneshwar, Thiruvananthapuram, Bhopal and Jammu and even smaller ones like, Kochi, Madurai, Vizag, Cuttack, Ludhiana, Nagpur and Aurangabad are catching up fast. One needs to focus on cities where there is commercial and industrial development so as to benefit from an uptick.
However, real estate investments are predominantly a long term investment providing low liquidity to an investor. Investors can look at renting out their property (resedential or commercial) if the idea is to have a continuous revenue stream. This can also help lower the burden of EMI