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Why investment in property is both lucrative and safe - Page2 - The Economic Times


The year 2011 was a bad one for equity as an asset class. Investors not only lost a part of their portfolio due to the decline in the market prices of shares but also their confidence in that asset class. The price erosion in equity was sharp and swift, and left many investors shaken enough to think twice before venturing into equity again.

For such investors, property is one of the safest and most usable avenue, and an investment with reasonable yield. Property has consistently out-performed traditional investment options such as bonds and with no correlation to the volatility in the stock markets. Today, property is the only physical asset that offers stability, simplicity and good returns.

Rent generates cash flows

A common approach to property as an investment option is a single-family home, apartment, office or retail space to be rented out. On renting out a property, you can benefit from not only an appreciation in capital value over time, but also from the rental cash flows. Such investments are to an extent inflation-protected , because as operating costs increase, the rental income increases too, compensating the additional expense outgo.

Plan in advance

A serious property investor has to plan thoroughly in advance. The funding should be in place before buying the property. You have to ensure that your financial planning is in place so that you do not have to liquidate your property for some emergencies due to lack of liquidity.

The first step in financing an investment in property is building the initial corpus. You can adopt the systematic investment planning (SIP) route and invest in a debt fund to build the corpus. If there is a sudden cash flow in the form of bonus, gift, sale of property or inheritance , it can be set aside in a fixed deposit or debt mutual fund till the property is finalised .

Loan to fund property

If property identified costs more than amount set aside, you can go for a home loan. Property is one of the few investments where loans are easily available for it. The home loan can be borrowed on the proposed property itself or can be borrowed on other owned properties.

Care must be taken to ensure the EMIs are funded for the tenure of the loan. If your income is large enough to pay the EMIs, you will have a good comfort zone. Or else, the rental income can be diverted towards the EMIs. It can also be a combination of both.
Create wealth

When a property is purchased and tenant identified the time and work spent on the property is considerably reduced. As time goes by the EMIs have to be paid. If well planned in advance, this process can go on smoothly for many years.

Time works magic on property that is purchased after a through analysis of its location and quality . The capital appreciation is huge. Some properties appreciate more than others and it's imperative that you identify such properties to create wealth. Look around and you can see many people who have generated their wealth through property.

Retirement corpus

You can look at property in two ways. If the loan is paid off, the rental income can be a pension plan. If the rental income in insufficient , you can sell the property to en-cash the capital gains. This can be a retirement corpus. The asset can be sold and the money invested in debt funds close to retirement to give steady returns.

Fundamentally, property is a safe investment because it's a tangible asset. Due to this physical aspect, you can never lose with property even in the worst case scenario.

Property offers additional immediate benefits in the form of short-term rents or personal use rather than just price appreciation, making it an attractive asset class.

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Real estate continues to be one of the most profitable avenues to invest - The Economic Times


RE continues to be one of the most vibrant and profitable avenues to invest in the country. Anuj Puri, the chairman and country head of global consultancy firm Jones Lang LaSalle India, says that investment in residential projects is currently the preferred route for investors, since the demand for homes in the metros and Tier II cities is virtually limitless.

Commercial and retail spaces also present potentially lucrative investment propositions, especially in the larger cities, he says.

Belying the general perception of slowdown in the sector and economy, realty consultancy firm DTZ in a report says that India has seen a commercial investment transaction swell by over 600% in the fourth quarter (October-December 2011), as against the third quarter.

In almost all the markets, prices of residential real estate have appreciated in the last one year. Industry experts feel that the demand for residential units is likely to continue in the future as well. However, the investors should focus on buying houses close to a work place where the rental income will be high. This will also reduce the repayment burden.

Anuj Puri says: "In residential realty, the focus should be on properties that have potential for assured rental yields and capital appreciation. This includes residential projects close to workplace catchments, industrial hubs and locations with high aspirational value. Tier I cities like Mumbai and Delhi, and Tier II cities like Bangalore, Pune and Chennai are seeing the highest demand from investors."

In broad terms, Puri says that the configurations in greatest demand are 1- and 2BHK flats in the central areas, as well as the suburbs, while 3BHK flats in good township-projects on the outskirts are also a good option.

Pankaj Bajaj, the president of CREDAI NCR, says one cannot predict shortterm fluctuations in property prices, just as it is difficult to predict exchange rates or interest rates. But if the investor's horizon is more than, say three years, Bajaj says it is a great time to invest in property. Many Tier I & II cities are seeing infrastructure creation and upgradation on the outskirts.

"One can choose one's preferred location based on job opportunities, local ambience and availability of infrastructure. Thereafter, it is a question of choosing the right developer and the right product. With the slowdown in real estate and high interest rates, if you can put money on the table you can strike bargain deals with trustworthy developers. But towards the end of the year, when the liquidity crunch is likely to ease, we will see a sharp rebound in prices and the bargaining power of developers," Bajaj says.

Anuj Puri says that in the commercial real estate sector, investors need to take informed decisions on projects under construction, regardless of the location and the developer. The same negative financial dynamics that are compromising completion dates of many office buildings hold true for residential projects, as well.

If an investor decides to avail of the lower rates of residential projects under construction, he should ensure that at least 50% of the available units in the project are already sold and that construction has progressed according to schedule and is at least at the 50% mark. If half of the projects are already sold, it is more likely that the builders will complete the project.

At the same time, it is advisable to buy from reputed builders, who will not delay projects as it will affect their reputation. In this regard, buy an apartment from a developer who owns a large chunk of land and the present project that he has launched is a small portion of the whole land piece. As he will launch the next phase of project soon, he will not like to delay the first phase as it will bring him a bad name.

Tanuj Goel, the executive director of KDP Infrastructure, says: "This is a great time to buy homes, as the economy is recovering from a small slump. Property prices will be stable for at least a year, which might then shoot up. Also, government agencies have taken steps like reduction in CRR to infuse liquidity in the system and ensure that buyers have to pay less interest on home loans."

Besides, he says, as demand remains low, potential buyers can negotiate better deals and rates with developers. To clinch the best deal, now is the time to invest in property, he says.

O P Agarwal, the chairman of Lotus Infra Projects Pvt Ltd, says that land is a scarce commodity, and as such, land prices are bound to appreciate. "I feel any time is right to invest in the reality sector. The sentiment being low, the prices have not appreciated as expected rather these are stagnant," he said. "We, therefore, consider that this is the right time to invest in the reality sector. Investment in reality sector will give better returns than on any other assets," he says.