Investment learnings of 2015

Investment learnings of 2015

2015 will not be remembered for the gloom it brought to the residential real estate sector but for forging a solid base for sustained future growth. Few of the notable highlights of the year gone by are as follows:

• FDI rule relaxation will facilitate the flow of more investment in the country with the removal of the two major obstacles: Minimum capital of $5 million and minimum of 20,000 square metres of development.
• The passing of the Real Estate Bill by the Union Cabinet implies a more vibrant, efficient and highly transparent real estate sector, beneficial for both the buyers and developers.
• The proposed recommendations to increase the salary of state as well as central government employees by almost 23.6 per cent by the seventh Pay Commission will have a positive thrust to the demand side of residential real estate.
• A burgeoning economy with reduced inflation and a rate cut of 50 basis points by the RBI will result in lower home loan rates.
• Launch of pioneering initiatives such as Smart Cities, AMRUT, and Housing for All by 2022 will create a revolution upon their respective implementation. Despite the sectors below average performance, it attracted investments worth Rs. 53,000 crore which might become the highest in the preceding seven-year period.

Many factors will contribute towards the growth of the real estate sector going forward. However, one may apply a touch of pragmatism while deciding the purchase of residential property in 2016. Some of the points to be noted are as under:

• Due to the slump experienced by the realty market over the past 2-3 years, the demand and supply alignment has experienced a lot of stir. While the days of exponential returns have become past; returns have become more aligned to actual market forces rather than speculation.
• In current scenario more than ever before, investment decisions must be made post doing a thorough due diligence and expert consultation. Even if the wider parameters are remaining the same, the market will perform differently in different areas, budget ranges, configurations and typologies. The due diligence to be undertaken must involve a thorough background check of the developer and all-encompassing research about the project — whether or not the various statutory permissions have been obtained, its location, etc. If there is the slightest of reasons to worry about, expert consultation is a must to avoid getting trapped in the wrong project.
• For under-construction projects, expecting the ROI is not as important as establishing a developer’s cash flows. The liquid squeeze in the market owing to the recent slump in the realty market has further limited the ability of developers to undertake newer projects or sell out the existing ones with ease. In other words, it is far more important to scrutinise the builders ability to fund the project rather than anticipating the profit one will earn from investing in the project.
• Real Estate sector is a risky sector to invest as there is no guarantee of assured returns. It is therefore important that every investor assess their resilience and preparedness for risk
• Buyers who are looking for a home for their personal use, should go ahead and buy it as it is a buyers’ market right now. For investors looking for sizeable returns, it would be advisable to have a wait and watch approach and enter at the right time.
• A need assessment may be carried out by both buyers and investors as the same is more important than liquidity. In simple terms, one should understand whether the identified property actually has the characteristics what one is looking for, or if the same exceeds or falls short of one’s requirements.
• Investors can think out of the box by taking a chance with upcoming markets rather than safer bets such as mature markets.
• End-users must decide whether to buy or rent. The current employment market in the country suggests frequent movement of employees across cities. In such a situation, investing in real estate while one lives on rent in another place doesn’t make much sense and should be reconsidered.
• While planning to invest in a property with a loan, studying the identified market’s performance in over the last few years as well as its expected future performance is critical. The performance of the rental market should not be ignored, either. Situations where one’s outgo on interest or maintenance on a property is more than the generated income must be avoided.

Recommended markets to invest in:

• Noida & Greater Noida – National Capital Region (NCR)
• Thane – Mumbai Metropolitan Region (MMR)
• Navi Mumbai – Mumbai Metropolitan Region (MMR)
• Whitefield – Bangalore
• Viman Nagar and Nagar Road – Pune
• Kochi – Kerala