Real Estate investment in India can be a daunting and confusing process. India offers a range of real estate investment options in the real estate vertical – residential, commercial, industrial and agricultural and each have their own set of laws and regulations about investments. Each investment type can be suitable for an investor depending on their investment goals.
Investors primarily aim at earning rental income or capital appreciation from their real estate investment.
In the past decade, many multinational corporations have established offices in India for their outsourcing activities which have resulted in the creation of facilities that meet international standards. India has a large and growing inventory of commercial space. Over the time high-quality facilities are expected to become a standard norm for all companies. With most of the significant international real estate funds having growing presence in the country, there has been a massive investment in high-quality rental space. Overall foreign investment in Indian commercial space has been positive and on an average yield around 8%.
In the Indian context, the buildings are owned by real estate investment firms and the property is managed by a hotel company. Each entity receives the appropriate share of profits. Hotel investments seem quite attractive however it is essential to understand the dynamics of the hospitality industry before making any investment decisions. A hotel does not have a protection mechanism from oversupply as against a rented office building and existing, and new players suffer when supply outpaces demand. Nonetheless, a well thought out investment in hotel ventures can reap valuable rewards.
India’s retail sector is moving from the local mom and pop stores to global brands creating a presence in the country. This evolution is now in full motion organised retail is showing an upward trend. This sector offers lucrative investment opportunities but requires in depth due diligence. As with the hospitality sector retail requires a clear understanding of the prospects available and a judicious assessment of the future demand and supply.
These include rental apartments, accommodation for IT employees, industrial buildings and warehouses.
These provide an excellent opportunity for sophisticated investors to generate attractive returns. Investors purchase a sizable portion of the planned inventory at a price which is significantly discounted in comparison to the market rate for a finished apartment. Under construction, properties are the most common type of real estate investment asset in India. Such investments should be made after thorough research to confirm the developer, project and price is right.
Offices are considered to be income generating assets, but under construction, offices are an exciting avenue to partake in the value created by developing the land. In this format, an investor purchases an under construction building at the initial stage and exits the transaction after it’s leased out. The price will depend on the ongoing rate at the time of resale. This avenue is potentially uncommon as individual investors hesitate to participate due to the larger ticket size of the transaction.
Gated communities, commonly referred to in India as planned developments or layouts, are one of the best ways to invest in fast-growing cities. If the land title is clear and the developer has a solid track record of adherence to timelines, such investments can be wise for several reasons. They typically have an execution time span of less than a year, most cities have a scarcity of such plots available, and the resale of the plots tends to happen very quickly.
This is the most common and most profitable investment avenue in the country but also comes with a lot of risks attached. Most land tracts are categorised as agricultural land by the government and development on these is not possible unless the classification is legally changed. The changeover is a cumbersome process and required extensive interfacing with government officials. This avenue can generate an immense profit regarding capital appreciation in the long term, but an investor must be careful with legal due diligence.
The investors investing in this asset class seeks to take advantage of rising prices as the country develops. This is a legitimate and popular investment choice but involves a lot of speculation as the investor is betting on the direction and growth rate of future prices. Under construction properties, on the contrary, have the benefit of entering at a deeply discounted price, and results are predicted to be positively inclined. The investor avails a discount such that an adequate return can be expected even in case of a fall in prices.
India offers a gamut of attractive real estate opportunities. Investors can make high returns through real estate if the investment decisions are made in tandem with the goals that you are trying to achieve.
See Also: Managing Multiple Investment Properties