The pandemic may have brought drastic changes to our daily lifestyle, however real estate investments are here to stay and will grow in popularity.
Real estate has been, is, and will continue to be the preferred investment class globally. In times of uncertainty and volatility — for example, the past year during the multiple waves of the pandemic — investors prefer to have larger portions of their portfolios allocated to safe and relatively non-volatile investment options.
Real estate has offered all of the above, and will continue to do so, as long as investors take into account multiple factors and choose their options wisely, as we discuss going further.
1. Know where your investment should be directed – commercial, residential, financial instruments or physical assets
In the present market, the avenues for investment are many. So, selecting the right investment that suits one’s requirements is key to starting off on the right foot. With flexible office space strategy becoming more common across global firms going forward in addition to a requirement of increase in space between workstations in existing offices, commercial assets are expected to perform well once the vaccination drive is at its peak. Grade A offices in certain cities and co-working facilities closer to residential localities in these cities would be segments to consider for an investment.
Historically, investment in the commercial sector has been a very sought-after avenue for HNIs attributable to the regular cash-flows that it offers. However, one needs to understand that the ticket sizes associated with ownership of grade A offices are quite high and start at nothing less than a few crores, unless one is looking at financial instruments like REITS, AIFs, or debentures of carefully-curated projects. Residential properties, on the other hand, are a lot more accessible to most investors, for both self occupancy as well as for investment. They are also easier to sell given should one desire to exit.
2. Choose the city and location wisely before investing
If the intended purchase is purely for an investment and not for self-occupancy, choosing the right city is essential to performance of the asset in the long run. In the coming few months, with physical offices still remaining central to most companies’ plans to attract talent, employee well-being and to also enable in-person collaborative work, commercial assets are expected to perform well in cities where quite a few of these companies have expansion plans. These are typically cities that have the right combination of abundance of knowledge-based workforce and relatively low cost of commercial real estate. Within the commercial segment, grade A offices and coworking spaces offering services to enterprise tenants will do well once it is safer for employees to step outside of their homes.
Some of the key factors to evaluate thoroughly in a city for residential sector investments are population and demand growth, and growth in household income levels. Once a city is selected, selection of the right micro-market is equally important. The best micro-markets are those that are closer to knowledge-based jobs and have easy access to socio-cultural amenities such as good schools, hospitals, malls. Connectivity is another significant factor that adds to the market value of an area, especially if it is within walking distance of a metro station making it accessible to job markets and social infrastructure in other parts of the city. Thus, it is important to understand that real estate in India isn’t monolithic and micro-market and city-specific dynamics are to be evaluated carefully.
3. Look at architecture, design, quality, and amenities
Over the last year during the pandemic, with a significant portion of the population working from their homes, the importance of spacious homes within communities that also have a wide range of outdoor amenities has become more evident than before. This brings us to one of the most important factors while selecting a residential property for investment – architecture and design, aspects that often get ignored, are non-negotiable especially in the current environment. While looking at indoor spaces, one needs to look at more than just the carpet area numbers in the floor plans and study the manner in which the space allocation for full sized furniture has been done, enabling performing of all intended activities, while also allocating sufficient space for outdoor decks or open spaces within the homes.
Adequate outdoor spaces and sports amenities should be next in line while selecting a project. Well-designed properties go a long way in creating wealth by remaining visually appealing for many years to come while also being functionally useful, thereby giving a huge impetus to rise in its market value. This is where new-age developers with more design-focussed projects may offer better investor value than other traditional ones focussing on achieving scale at the cost of design. Another important long-term trend that is emerging globally as well as in India, boosted by the pandemic as well, is a demand for international standard luxury by the growing affluent population.
4. Look for transparent pricing
Prices of property purchases in India have traditionally been linked to one’s ability to haggle with the developer. One needs to look at projects by developers who offer transparency and fairness in their pricing, where prices are linked to the value of the underlying units only. This will ensure a level playing field whether one is looking to buy or sell at a later date as well.
5. Give your investments time to perform – factor pandemics into long-term planning
The first wave of the covid-19 pandemic was an unprecedented event, and during later months many may have misconstrued it as a one-off event. The occurrence of the second wave has made it imperative for everyone, be it individuals or large companies to factor pandemics into their long-term planning. While real estate is a stable and safe asset class, one also needs to understand that it is relatively less liquid in comparison with fixed deposits for example. While there are various options available to list and sell one’s property online, the final transaction in most cases is dependent on a physical inspection of the property, which may not be feasible during a lockdown. However, with sufficient time on hand, one can find buyers to sell at the desired price.
With buyers in the millennial age group already accounting for a sizable percentage of real estate transactions ever since the start of the pandemic, the trend is expected to continue for the foreseeable future even though this was seen as improbable prior to the pandemic. The pandemic may have brought drastic changes to our daily lifestyle, however real estate investments are here to stay and will grow in popularity, and if done keeping all the above factors in mind, should provide one with a solid foundation for one’s portfolio. The options for investments in this sector in India are widespread, across both financial and physical assets and are only expected to further increase as the country gets wealthier and more developed.
(By Vikram Chari, CEO at SmartOwner, Asia’s leading FinTech firm in real estate)