Karthi Sharma, an educated IT professional, is a first-time investor who has no knowledge about the real estate business but his aspirations are high in terms of making good money out of his investment. He had made up his mind to invest but he asks some fundamental questions before you go ahead with his plans. He asks, “Hello, I am a first time investor with zero knowledge about the real estate sector. I would like to invest in a property so that I can make good money. Can you please suggest which area should I buy in for fast and better returns? How should I choose an area for investment?”
There are many first-time investors like Karthi who are in a hurry to park their money in projects and locations they hardly know about. What are the key issues such investors should look into and what problems they may in the course of their investments face? Although there are no fixed rules to be rich by investing in the real estate but you can earn healthy returns if you take a wise decision. Let us look into these aspects of the real estate industry and find out tips for a first-time real estate investor which will help you take this crucial decision.
Growth Potential of Area
Real Estate has produced many of the world’s wealthy people so there are plenty of reasons to think that property is a sound investment. You need to choose the right location for your investment and arm yourself with the information before buying in a particular area and expect healthy returns.
Prices are low for a new property in locations where the infrastructure yet to come or development has not yet begun. Once infrastructure work begins, prices are likely to go up. When the property development reaches mid-way point, there is more appreciation expected. After possession, you can expect more escalation in your property price and your overall returns are much higher than what you paid for in the beginning. This is mainly in developing areas where new infrastructure is coming up. Investors often prefer areas where consumer demand is going to be high or already high. It helps in selling the property at the right time and get returns at the right time.
Developed areas with both under-construction and ready-to-move properties are likely to be expensive and the price appreciation will depend on the demand and the real estate market. As an investor buying into developed areas are going to be an expensive affairs for you as such areas are often considered for short-term investment. Eventually, the area of your property will have a high influence on its price and you should be careful where you are buying it.
Focus on the growth potential of the area. Factors such as connectivity, social and physical infrastructure and employment opportunities nearby will certainly make a location worth your investment.
India is witnessing significant interest from international investors in the infrastructure space. Many companies are keen on collaborating with India on infrastructure, high speed trains, renewable energy and developing smart cities. From roadways, railways to airports and other smart-city initiatives, the last few years have witnessed a phenomenal change in the sector, leading to world-class facilities coming up across various parts in the country.
This is positive news for the real estate sector and developers are also tapping on such locations where new infrastructure will be developed in years to come. As an investor you are required to research on such locations where new infrastructure will be developed such as road connectivity, new metro lines, highways, expressways, water supply, electricity supply, etc. as these factors will push the real estate market and also influence the price movement.
New infrastructure developments take time so you will have to increase the time horizon of your investment and wait for the right time when you have got the returns you expected.
Rates and Price Trends
The mid-end and affordable housing segments often record healthy appreciation in capital values in the short term. High-value properties are likely to yield lower rates of appreciation but are good for short-term investment plans. You need to perform the due diligence on the current rates and market price trends in the past before investing. It will help you know the price appreciation in a particular area. Each city and location has its price history which will tell you the appreciation trends and the same will tell you about the investment returns you are likely to earn in years to come.
Assess your Budget
It is crucial to know your budget before you start searching for a location to invest otherwise you will end up buying a property much higher than your budget and may not meet your investment expectations. Check your budget and see which are the locations where you can buy and earn good returns on the basis of returns that particular locations has given in the past to investors. Talk to fellow investors and buyers to get more inputs about the area you choose for your investment.
Once you know your budget, you should know what fits your pocket the best. You want to buy an apartment in a high-rise residential project or buy independent house or a villa. It all depends on your budget what you buy and what you get in returns in the long term period.
The objective of your investment should be crystal clear in your mind otherwise getting desired returns might be difficult. What are you buying for? What is going to be the investment period? What should you buy in your budget – 2BHK or 3BHK? When should you buy and sell? Where should you buy? All these and related questions should have an answer before you invest. Make checklist of your objectives and see whether the property you choose meeting that criterion for you.
When to buy & sell?
After you have done all the research on location, price trends and infrastructure developments you need to know – ‘when to buy’ and ‘when to sell’? This is one of the important questions all investors should ask themselves. Right time to buy is when the property rates are on the lower side and you have sufficient budget to make an investment. You can also consider the time when developers are offering you discount and when the banks have lower home loan rates available for you. For selling, you can check the market trends and see the demand in your location and current rates. If your property rates are on the higher side and by selling it you can get an amount as per your expectations then it could be the right time to strike the deal. Find a right buyer who is offering you expected rates is also something you would be looking at while selling your property. Invest when the market is down and sell when it is going up.
Choose your developer carefully
You need to choose your developer carefully. Check his past records and projects delivered by him. You need ensure you get what you pay for in terms of construction quality and other amenities the builder has promised you. Go with a developer who delivers projects on time so that your investment period is not hampered owing to long delays in delivery. Take a legal expert’s help in case you have to get legality of the property checked so that you don’t have to bear litigation expenses later on.
Your investment can give you desired returns only when you take the right decisions from the stage when you choose a location and buy a property to when you decide to sell it.
By Ms. Jayshree Kurup, Head of Content & Advisory, Magicbricks.
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