Things to know before investing in real estate

Real estate has been, is, and will continue to be the preferred investment class globally. During times of uncertainty and volatility, like the past year due to multiple waves of the
pandemic, investors prefer to allocate larger portions of their portfolios to safe and relatively non-volatile investment options.

What all should you keep in mind while choosing your real estate asset? Firstly, know where your investment should be directed – commercial, residential, financial instruments or physical assets.

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.

Also read: The Lead: What are rental bonds?

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 should one desire to exit.

Choosing the city and location wisely before investing is key. If the purchase is purely for an investment and not self-occupancy, choosing the right city is essential to get value on investment 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 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 co-working 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 is 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.

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.

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.

Property prices in have traditionally been linked to one’s ability to bargain 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.

Lastly, 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.

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.

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 grow in popularity, and if done keeping all the above factors in mind, should provide one with a solid foundation for one’s portfolio.

Investments options 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.

(The author is CEO at SmartOwner, a FinTech firm in Real Estate)