The real estate sector is looking up after multiple years of stagnation and home sales are on the rise. Is it a good time to invest in residential real estate for investment purposes?
In the past decade, there has not been a more perfect time to invest in property. Aside from the fact that housing affordability is at its peak because of record low home loan interest rates, and reduction in circle rate and stamp duty charges in several states, buyers today are in a much greater bargaining position. Since rates would move only upwards from here, it makes perfect sense to pour money in investment property.
What are the factors buyers should keep in mind while buying residential property as an investment to maximize gains?
*Buy in emerging areas where rates have yet to reach their highest peak.
*Invest only in trusted brands.
*Make sure the builder has an impeccable track record
*Make sure the project is RERA registered
*Don’t over leverage in terms of housing finance
What is a reasonable amount of returns that investors should expect from residential property? Should you go in for the affordable segment or midrange or premium homes for better gains?
The demand is robust for both affordable housing segment and the premium housing segment but gains might be higher and faster in case of affordable segment as for premium segment the demand is not very high and liquidity is always a challenge.
Also from a broader perspective, we may factor in 2.5 to 3% rental yield and capital appreciation of around 5 to 6% and hence overall return of 8 to 10% can be expected over a longer period. From historic data point of view we may say 1 to 3% of return but as the demand is reviving and upcycle in real estate industry is usually long hence very signal is that return will improve from here onwards
Investing in plots can also be considered as that’s usually a safest bet. As per the latest report of our group company Housing.com, residential land is still a better investment than buying apartments. The report found that prices of residential plots appreciated by 7 per cent (CAGR) annually since 2015 across eight major cities, while rates of apartments grew by 2 per cent (CAGR) annually during this period.
The average prices for apartments in India are INR 5,500-5,700 /sq ft, and for residential plots it is INR 1,600-1,800 /sq ft.
In eight major cities — Delhi-NCR, Mumbai, Pune, Bengaluru, Hyderabad, Chennai, Kolkata and Ahmedabad, people generally prefer to buy apartments than plots. The reasons behind the popularity of flats are security and common amenities like power backup, car parking, club, gym, swimming pool and garden area, among others.
Despite higher demand for flats in these eight cities, the current and historical trends suggest that plots comparatively have higher returns than other residential assets.
What are the few emerging markets and micro-markets which are showing the potential for giving high returns?
Emerging areas where infrastructure is improving are seeing robust demand from investors. As per our latest IRIS Index, IRIS index tracks the online property search volume on our platform Housing.com of high-intent homebuyers. The index is a leading indicator of the building-up of residential demand in India’s key 42 cities.
The findings of the IRIS Index has shown that the metro cities of Mumbai, Bengaluru and Hyderabad will drive residential demand revival in 2022. In addition to the top cities, increased traction was noted in tier-II cities such as Surat, Jaipur, Patna, Mohali, Lucknow and Coimbatore on the back of continuing remote working policies. Consumers are now looking for larger homes and localities with easy access to healthcare services, security, and open spaces. The changing preference in residential realty, along with digital penetration across the supply and demand value chain, will shape the market in 2022.
Also areas in the NCR along the Jewar airport, for instance, are seeing a tremendous jump in demand. The same is true of some housing pockets in Gurgaon and Manesar where several road networks have become operational in the recent past.
The index also shows that larger homes are going to be the preferred option among homebuyers in 2022 as companies continue to offer remote working policies amid Omicron variant threats. Data show that the search queries for apartments with 3+BHK configuration grew by 15% year-on-year in 2021. Due to the rising demand for larger homes in the post coronavirus world, the demand for plots is also likely to emerge much stronger. In fact, there has already been a 42% YoY growth in search queries for residential plots in 2021, as per the IRIS Index.
Since the price of any property is directly linked to its size and amenities, online search for properties in the ticket size of more than Rs 2 crore, has also undergone an increase – 1.1x times more queries were registered on the index for premium properties in 2021. Proximity to health infrastructure and security would remain two of the biggest factors among prospective homebuyers when selecting their dream properties, the index reveals, citing data from Housing.com’s Consumer Sentiment Outlook forJanuary-June 2021.
Even though the NCR has been at the receiving end of negative publicity due to project delays and developer insolvencies, Noida Extension (Greater Noida) will see significant homebuyer interest in the coming year, the index shows. Noida Extension took the maximum share in national online property search volume this year as recorded by the index. This is primarily because of the comparative affordability the area provides, along with the fact that the centre and the UP government have announced several mega infrastructure projects for this region in the recent past.
Top-5 most searched localities by homebuyers that might lead the national residential demand in 2022:
Greater Noida West (erstwhile know as Noida Extension) in Greater Noida
Mira Road East (Mumbai)
Andheri West (Mumbai)
Borivali West (Mumbai)
Whitefield (Bengaluru)
Housing.com’s IRIS index also indicated that the rental market in the mega cities of Mumbai, Bengaluru and Delhi might come back on track in 2022, as companies increase hiring. In 2021, these three cities took the maximum share in online search volume for renting a home.
What are the few mistakes to avoid while buying residential property for investment purposes?
One can’t over-emphasize the importance of builders. Opt for only trusted brands. Properties in established areas must either be at their peak or about to be there. So, it does not make sense to invest in those. People are more conscious about the amenities in their homes now post the pandemic. Make sure the project in which you invest is loaded with amenities.
