Real estate as an investment class

Real estate in India is probably going through the most trying times right now. For the longest time ever, the sector has enjoyed patronage from wealthy investors and equity firms. However, the last few years have been a bit rough for the residential real estate due to RERA, GST, demonetization and few other policy changes. But despite all that turbulence, it is far from being discarded as irrelevant as an investment option. Let us examine this a bit in detail.

Commerce of commercial

While investor interest in residential properties has seen some decline, the commercial sector has been performing quite well. Investors are eyeing commercial projects and warehousing properties like never before. As an investment option, commercial properties are financially beneficial as they offer a much more attractive rental yield of 8-12% and capital appreciation is anywhere between 3-12%. The ROI on commercial leasing has increased y-o-y.

Interestingly, REITs (Real Estate Investment Trusts), have finally kicked off and have attracted a lot of attention from real estate investors. In fact, the over-subscription of Embassy-Blackstone REITs is anything but a testimony that the sector has not lost its sheen at all. It has sent out a strong positive message to global as well as domestic investors, that timing couldn’t be more perfect for investment in Indian commercial realty.

Driven by MNCs and tech companies in India, the demand for premium office spaces is also increasing despite temporary setbacks like the ongoing economic slowdown. This year, Tokyo-based Sumitomo Corp. offered more than Rs 2,238 crore for a three-acre plot in BKC, where it plans to build an office complex. Meanwhile, Blackstone Group Lp. bought the ‘One BKC’ office building for Rs 2,500 crore and is in talks to buy another multi-crore property in the vicinity. Commercial spaces are proving to be extremely lucrative to newer investors who see it as a major investment avenue and as a more structured form of investment.

The only thing to be careful about when investing in commercial properties is that it needs thorough research with respect to the type of tenants and occupancy rates in the vicinity.

Commercial segment has performed much better than the residential segment over the last few years. It is definitely the go-to choice for investment purpose given the yield and ROI.

Repertoire of Residential

Sale of residential real estate has been subdued for some time now. However, this slowdown is not a unilateral trend as a country as diverse and huge as India has pockets of growth. It would be unfair to generalise a country as huge as India, where different states are governed by different authorities and do not necessarily share common objectives, compulsions or economic constraints. Hyderabad has bucked the trend by witnessing exceptional growth in residential space in spite of the slowdown in most cities.

Although, the policy changes that have brought in instability in the market in some measure are geared towards making this growth more structured and rational. Even the tonality of the changes is poised to instil investor and end-user confidence. Most of the policies introduced recently along with the ones that have been modified to make residential real estate a very feasible option for the end-user right now.

It would be an exaggeration to say that the sector has never been more rewarding for end-use. With a plethora of deals and discounts, it would be ideal for now to buy a home for self. If one knows the city and the area, the requirements for end-use are pretty much spelt out. But buying a property for investment purpose right now is not an ideal decision.

In a nutshell, when choosing to buy for investment, the commercial is the way to go. When choosing for end-use, now is the best time. It is always ideal to stay away from random speculation and check basis your interest and requirement.

(The writer is CBO and Co-founder, NoBroker.com)