Investments in real estate hardly go wrong, as they invariably fetch good returns. For people who buy property during the festive season of Diwali, this reinforces the belief that Diwali is an auspicious period to make investment in property!

Diwali , the festival of light, is considered to be an auspicious period to buy property.

During this festive season, those that are planning to buy a house normally try their best and take the plunge. As it happens, investments in real estate hardly go wrong, as they invariably give good returns. And, this reinforces people's belief that Diwali is an auspicious period to make an investment in real estate.

Investment in real estate remains a most profitable proposition in India, particularly in an expanding region like the National Capital Region (NCR) of Delhi. Overall returns in the long term, say around 15 years, is almost 15-20 % compounded annually. These kinds of returns are not possible from any other asset class.

The general perception that prices in Delhi or Mumbai have already gone very high and any investment at this level would not fetch a good return is not true if you analyse the past performances of investments in real estate.

If you see past record, in the long term the high-price level gets evened out and the overall returns from investments in real estate remain high.
The other important factor that might boost the returns is the high probability of softening of interest rates in the near future. As soon as the interest rates fall, capital value of residential real estate increases.

If you have borrowed money to buy a house at variable rates, when the rate falls, your interest burden will also come down. But the appreciation in the value of the house will continue to remain. Therefore, experts say that it is not advisable to wait for prices to correct if you want to buy a house either to live or for investment purpose.

Interestingly, the rentals in the NCR have soared in the last couple of years substantially. If you take the rental income into account, the net investment made by you to buy the house is even less; also, the rental income has increased in the last couple of years.

The annual rental of an apartment has gone up to around 3% of the capital value as against 2.5%, a couple of years ago. That means that an apartment of Rs 1 crore will fetch around Rs 25,000 per month or Rs 3 lakh per annum in rental income.

This will reduce your interest burden substantially. In the first year, at 10%, your interest burden on Rs 1 crore loan would be Rs 9,92,552. If you adjust the rental income, the net outflow on account of interest payment will be only Rs 6,92,552. This will bring down the effective interest rate to 6.92%.

As the rentals normally get an escalation of 5% per annum, the interest burden will keep on declining. By the end of 14 years, rentals will be more than the interest portion of your EMI. At the end of 14 years, the interest portion from you annual EMI of Rs 11,58,024 will be Rs 5,54,115. As against this, your annual rental income in that year will be Rs 5,65,695.

In this way, if you buy a ready-to-move-in house, in the first year itself, the effective EMI on Rs 1 crore house will come down from Rs 96,502 to Rs 71,500. By the fifth year, it will become even more affordable , reducing to Rs 66,114, which will further go down to Rs 55,780 by the end of 10th year. Therefore, the effective cost of your investment will come down substantially during the repayment period of the loan itself.

If the property prices in the region appreciate by 10% compounded annually, which is very conservative as the prices have seen an appreciation of around 17-25 % per annum compounded annually for the last 20 years in NCR region , the value of your investment will be around Rs 6.75 crore. If you calculate your return taking the rental income into account, it will be in the range of 15% compounded annually.

If you take the risk of investing in a house under construction , the returns will be even better. However, there will be no rental income in the first few years, but as the cost of the house under construction is normally lower than the completed one, both the rental income as percentage of your investment to buy the house and the value after 20 years, with respect to the cost you paid, is substantially higher.

But while buying a house under construction, you must take care of a few things like the builder who is implementing the project, as it is not only important for timely delivery , it is likewise imperative for the maintenance after completion of the house.

At the same time, while buying the house under construction, you must see if the project has good connectivity . Better connectivity to a project will always give you a better price and hence better returns.


However, in many parts of the NCR, prices of newly launched apartments are already quoting upwards of Rs 1 crore. In order to bring down the prices to around Rs 60-75 lakh, developers have launched some projects in remote areas. At present, if you go to the sites of these projects, you will hardly find any infrastructure.

Before investing in these projects, you must find out the government's plan to develop infrastructure in the area. If there is road and Metro connectivity in the master plan of the area, you can think of investing in these projects. But, you must factor in a delay of one to two years in the development of these infrastructural projects. If you still find the price quoted by the developer cheap, you should go ahead.

So, you may 'lock the decision ' to buy a house this festival season. This will also help you in taking the benefits of the bonanza offers by developers . Most developers either cut prices of their products or offer buyers the option of not paying the EMI for the first two years or till the possession is not given, or give modular kitchens free of cost.

Some of the builders offer LCD televisions or gold coins or even a foreign trip. These offers, when analysed closely, certainly do not reduce the price substantially; but they act as a catalyst in one's decision-making process in purchasing a house. Also, as the number of buyers during the festival season goes up, banks also cut their interest rates.

QUICK BITES

The general perception that prices in Delhi or Mumbai are very high and any investment at this level would not fetch good returns is not true.









Diwali: A good time to buy property! - The Economic Times
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  • Originally Posted by MANOJa

    1. As it happens, investments in real estate hardly go wrong, as they invariably give good returns.
    .
    .
    .

    2. Investment in real estate remains a most profitable proposition in India, particularly in an expanding region like the National Capital Region (NCR) of Delhi. Overall returns in the long term, say around 15 years, is almost 15-20 % compounded annually. These kinds of returns are not possible from any other asset class.

    3. The general perception that prices in Delhi or Mumbai have already gone very high and any investment at this level would not fetch a good return is not true if you analyse the past performances of investments in real estate.
    .
    .
    .

    4. The other important factor that might boost the returns is the high probability of softening of interest rates in the near future. As soon as the interest rates fall, capital value of residential real estate increases.
    .
    .
    .

    QUICK BITES

    The general perception that prices in Delhi or Mumbai are very high and any investment at this level would not fetch good returns is not true.









    Diwali: A good time to buy property! - The Economic Times


    1. Easy to make comments without backing it up with facts. Conveniently leaving out slumps during 90s or stagnant prices during late 90s and early part of 20th century, and then 2009 correction.

    2. The same was said of stocks and similar graphs and numbers being brandied around in 2006-07. And look at where the sensex is after 5 yrs of touching 21000.

    3. If in a real-estate crazy country like India, the general perception has changed to suspicion on prices, I hear warning bells. And how come every justification is based on past performance? Gold did not give good returns for decades and then surged like anything. Equities fell massively after sharp rally. Why should past performance dictate future prices in real-estate? We dont drive by looking only into the rear-view mirror, do we?

    4. So by corollary, when interest rates rise, the prices should fall, right? So what did builders do during 2010-2011 when interest rates rose in India? Did they cut prices? And if prices didn't fall then, why should they rise now?

    Basically, ET is living up to its reputation of making money through paid articles, not subscriptions. ;)
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  • Lot of sentimental value is attached by buying things on auspicious occassions.

    While respecting tradition buy after due diligence.

    Dont let sentiment make you over look price and legal requirements.
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  • Property buying or selling is best during festive season, since it is believed that happiness and prosperous comes along festivals. :)
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  • Originally Posted by AdityaRaghav
    Property buying or selling is best during festive season, since it is believed that happiness and prosperous comes along festivals. :)


    Also lot of investors arrive in the market this time which leads to high sensex breaching, and also lowers the interest rates. That's also one of the reasons why people buy properties during Diwali. People go for discount offers and property investment to people is like a boom.Diwali bonus are enough to give a satisfying investment to oneself.
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