“If one doesn’t make money in this thriving real estate market, then when?” exclaimed one of the VPs of a leading wealth manager firm with limits on providing property exposure to their clients’ funds. This post summarises the short discussions we had in that catch-up on what HNIs/retail investors can do in real estate this year.

The sector is resilient, and India’s growth trajectory looks strong. Investors have a spectrum of opportunities to explore from traditional to emerging avenues, with investment options spanning INR 5 lakhs to INR 10 crores.

Exploring Pooled Credit Platforms/Funds for Developer Lending

Size – INR 5 lakhs to INR 5 crores

Annual Return – 16%-18%

Tenure – 2 to 4 years

Liquidity – Low to Medium

How about the prospect of providing loans or subscribing to NCDs of mid to large-sized developers for a fixed return or with some upside sharing from the project’s success?

Specialized platforms, some live and others emerging, with their experienced management teams provide services of pooling funds from retail investors to lend to projects sponsored by developers and monitor the project until the successful exit of the investment.

These platforms curate investment opportunities, conduct due diligence, and establish robust investment agreements and monitoring mechanisms to facilitate lending/investments to developers.

This evolving avenue offers an alternative means of securing returns from real estate without actually investing in a house or property. However, prudent scrutiny of management teams, projects on offer and the diligence reports shared are imperative before committing funds through the platforms.

Also Read: Stock Markets Remain Volatile: Is this the right time to increase your SIP amount?

Exploring Fractional Ownership of Commercial Real Estate or Co-working Spaces

Size – INR 10 lakhs to INR 5 crores

Annual Return – IRR of 16-18%

Tenure – 3-5 years

Liquidity – low (secondary/trade exit)

Collaborative investing through fractional ownership of commercial real estate presents another avenue for investors. By pooling resources with like-minded investors, individuals can gain access to high-value commercial properties in thriving business hubs while spreading investment costs and risks. Shared rental income from these properties provides a steady stream of passive income, further enhancing investment portfolios.

To date, many of these platforms have outperformed listed REITs. With advent of new regulations facilitating mini/micro REITs, the early liquidity options under such smaller property ownership platforms are set to improve.

Like with any new market/instrument, the proliferation of new concepts and products introduces a myriad of launches by fresh players.

Hence conducting due diligence on the management teams behind these platforms and the various reports/cashflow models shared as part of the investment process is imperative to stay clear of unpleasant investment experiences.

Commercial Exposure through REITs and ETFs

Size – INR 5 lakhs plus

Annual Return – 6% of Yield and expected unit price increase of 4-5%

Tenure – 12 months plus

Liquidity – High

Indirect exposure to real estate through Real Estate Investment Trusts (REITs) & Exchange-Traded Funds (ETFs) offers a blend of liquidity, regulatory safeguards.

Although the currently traded Indian REITs haven’t provided returns as desired in the last few years, it can be a promising asset class to diversify into as India is looking at over 700 mn sft of Grade A office stock that is REIT compliant.

Liquid nature, lower volatility versus equities, passive income potential through dividends, and inflation-beating characteristics make this asset class for being the sandbag in an overall real estate portfolio. Moreover, it has the advantage of owning Grade A assets without the complexities of property management.

Investment in Vetted Projects with Well-established Developers / Flipping Strategies

Size – INR 50 lakhs to INR 5 crores

Annual Return – 10% (long term) to 20% + (short term levered)

Tenure – 2 to 4 years

Liquidity – mid to high

While considered a conventional method, investing in a residential project at the greenfield stage can provide attractive returns and is gaining more traction due to the recent increase in prices across cities by more than 50%. The option to leverage using a housing loan after the 20%-30% down payment can further enhance the returns. Over the longer run, the return can still be in double digits, making this option an essential prospect for investors seeking long-term stable return holding the ownership of the house/plot.

Rental Income from Residential Properties

Size – INR 50 lakhs to INR 2.5 crores

Annual Return – 5% of Yield and 5-7% of capital appreciation

Tenure – 4 plus years

Liquidity – mid to high

With urbanization, growth of the millennial population, and young professionals in cities like Bangalore, the demand for quality living has been on the rise. The rental yields are 4% off late, and in many cases, investments made at the launch stage are providing yield-on-cost of even 5%-6% getting it closer to returns from commercial properties.

Choosing the right location is paramount, as areas with improving infrastructure and economic activities offer better prospects of maximizing returns. However, thorough market research and due diligence are essential to identify areas with high rental demand and growth potential.

Rental Income from Vacation Properties

Size – INR 1 crore to INR 10 crores

Annual Return – up to 10% of Yield and 3-4% of capital appreciation

Tenure – 5 plus years

Liquidity – low to mid

Essentially a subset of the residential property market, the vacation rental market is on the rise as India sees a surge in high earners and high spending patterns, leading to tourism and demand for homestays/bespoke holiday homes growing from an earlier unstable source of income to consistent income throughout the year (with high rental income during the peak season). Many platforms like Airbnb have come up that let the owners post property ads and attract tourists from across the globe. There are also specialized platforms taking holiday homes on rent with assured returns and upside sharing.

FY2025 presents numerous prospects for investors to participate in India’s real estate story. It’s crucial for investors to evaluate their capital, liquidity needs, and risk tolerance before venturing into real estate. By embracing a professional and diversified strategy, investors can harness the vast potential of the Indian real estate market, paving the path for sustained financial prosperity.

(By Sunil Pareek, Executive Director & CIO, Assetz Property Group)

Disclaimer: Views and facts expressed above are those of the author. They do not necessarily reflect the views of financialexpress.com. Readers are advised to consult their financial planner before making any investment.