There are hundreds of people around who can share their property investment ideas with us.
Almost everyone, at some stage in their life, has experienced a property dealing.
Saw your parents, elder sibling buy a property? It must have enriched your knowledge.
Even listening about property dealing through friends also adds to our knowledge base.
But nothing is more valuable than “self indulgence”.
But what are those precious ideas (concepts) that one must embed in mind before venturing into a property dealing?
This is what we are going to discuss in this article.
But before that, lets refresh a little bit of basics about the property market in India.
Property market of India…
Have you seen price of a decent real estate property decline in India?
Let me present you some data related to price of residential property in India in last 10 years…
I am quoting price trend of multi-storeyed apartments in certain parts of India…
|Multi-storeyed Residential Property||Year 2009 Price (Rs./Sqft)||Year 2018 Price (Rs./Sqft)||Price Growth in 10 Years|
|Dwarka, New Delhi||5700||8648||4.26%|
|DLF City Ph1, Gurgaon||5092||9947||6.93%|
What does the above table show?
Property price continues to increase in India.
Seeing the growth rates, we can assume that the price rise looks to be steady and sustainable.
The rate of price appreciation is different for different cities.
If we buy a property in Hyderabad, capital-appreciation will be relatively slow.
If we buy a property in Gurgaon, capital-appreciation will be faster.
But no matter where ever is the property located in India, its price will increase. Why?
“Growing population” and “increasing standard of living” will continue to push property prices up.
Cities like Mumbai, Delhi NCR, Bangalore, Pune etc have seen steep rise in property prices.
These are cities where people generally migrate from other states for jobs and business.
The price momentum of Metro cities in India will also be reflected in other smaller cities.
On an average, in last 10 years, property prices in India have gone up @5% per annnum.
In addition to this, add the rental yield (3.5%).
This makes investment in property market in India worth a consideration.
Rich and wealthy prefer property investment
Rich and wealthy invest in real estate directly.
They own multiple residential or commercial properties.
Steady and decent capital appreciation of their real estate properties, is common.
But the part which makes property investment so dear is its capability of generating stable short term income.
The short term income is generated in form of “monthly rents“.
The rate at which the rental income grows, generally beats inflation in long term.
As the monthly yield of property grows, this also pushes the overall property price up.
What is shown in the above infographic?
Property prices grows in two ways:
- Demand growth of properties in general (which is common).
- Rental yield growth (unique).
Why rental yield growth is unique? Because rent of property generally grows at par with inflation.
No matter how bad is the market, rental yield will grow almost at par with inflation.
Unlike dividend yield, interest yield etc, which may fall with inflation, rental yield of property more certainly grows with inflation.
This is one reason why property investment is one of the best inflation hedge.
Hence rich and wealthy prefer to buy real estate property more than any other investment option.
Big investors like Robert Kiyosaki and Donald Trump has special liking for real estate investment.
I personally feel that there is a great deal simplicity involved in real estate investments.
This is what makes property the first investment choice of everybody, both rich and others.
Practice property investment in India with care…
Why? Because, except for few cities, real estate market has not really matured so much in India?
Why I say so? Because we still see “random development” of properties in majority cities in India.
A real estate property is developed, sold, and maintained as per a master plan.
Unless a property satisfies the above criteria, its long term value appreciation is not certain.
In most cases, value of such properties depreciates with time.
The problem is, most of the property that is developed are by either unplanned or by a below-par developers.
This makes investing in property in India slightly risk.
Hence it is essential to take care while buying one.
What care must be taken?
I am listing below some of my personal ideas related to real estate property investment.
These ideas has helped me to circumvent this otherwise slightly risky, and highly-capital intensive investment (real estate property).
#1. Buy a Good Property
What is a good property?
It must display at least these 3 characteristics:
- Attractive Project Plan.
- Value for money.
- Accessible location.
What is attractive project plan? Distribution between open area and occupied land (by buildings) must be optimum.
The more is the open area, the better.
What is value for money? Property should not be expensive.
How to define expensive? I follow this rule of thumb for myself.
Total price of acquisition of property should be less than 50 times ones monthly take home salary.
- Monthly take home salary: Rs.100,000
- Acceptable Price: Rs.50,00,000 (100,000 x 50).
What is accessible location? Again, what I used here is a rule of thumb.
If one travels by road to commute between home & office, distance between the two should be less than 20Km.
If one travels by rail, distance can be more.
#2. Look for amenities around the property…
First, look for the supply of basic amenities like electricity and water.
Nearby hospital, school, and market are also necessary requirements.
Presence of these amenities around, ensures long term value appreciation of the property.
It will also result in better rental yield for the owner.
#3. Developers reputation…
Try to find out the reputation of the property developer.
Some developers are prone to carry problems related to plan approvals, last minutes changes, work delay, bad quality construction etc.
Idea is to, not fall for such developers.
The best way to identify a good developer is by visiting their old sites.
If possible, meet with few residents to get a feel.
One of the key attributes of a good developer is:
- Timely completion.
- Good project (outside ambience) layout.
- Good property (eg. flat) design.
- Good Quality of construction.
- Supply of quality fittings (lighting, faucets etc).
A combination of “good developer” and “cost effective property” means investment goal is almost achieved.
#4. Look for properties on outskirts of city…
Often, properties which are within the city are expensive.
But there is a way out. Look for properties which are coming up right on the city’s outskirts.
Do not go too far out of the city.
Idea is to remain in the city, but at the outer boundaries.
I have found this method of locating projects helpful.
At the time of purchase, such properties may look slightly distant. But within 2-3 years, they become the next city hub.
Buying such properties, and holding them for five years can prove profitable.
#5. Book property in its project launch…
Booking property at project launch proves to be more profitable.
Project launch is that moment of time, when the developer is first displaying its plans to public.
At that time, the developer is also gauging public’s perception about its project.
If the response of public is good during project launch, price of property will go up.
For good builders, project launch price if often the best price to buy.
Keeping an eye on project launches of good developers in your city is a good idea.
#6. Avoid oversized property…
We often get lured into buying a oversized property. This is a mistake.
It not only cost the buyer those extra bucks, but it also means higher long-term maintenance costs.
Reports have proved that, smaller sized properties are often better value for money for the investor.
Compare a 2BHK and 3BHF apartment. Which will get sold first? 2BHK, as it is more affordable.
Similarly, a 1BHK apartment can be bought and sold the quickest.
As this is the case, small size apartments are always in higher demands.
Even high net-worth investors, would like to buy a multiple 2BHK homes, than one large penthouse. Why?
- Less money is locked with one property.
- As size is small, liquidations becomes easier.
- There will be bigger range of buyers for small properties.
These property investment ideas may sound basic, but they are effective.
For a beginner, these suggestions can help in framing a right strategy.
- Location of property.
- Size of property.
- Acceptable quality & amenities.
- Time of purchase.
These, days one of the biggest spoiler of property investment is “project delays”.
Though not all delays are due to the builders, but they will always have the onus on them.
Good, reputed developers always seems to find a way out and complete the project within schedule.
In property investment, there could be noting better than a timely completion.
I hope these ideas will give you some food for thought for your next property purchase.
Please do write in the comment sections below and share your point of view.
Have a happy investing.