A guide to creating wealth with residential real estate investment

Anuj Puri

7 years ago

A guide to creating wealth with residential real estate investment

For any investment in residential property to provide effective returns, the chosen location should have good social infrastructure, adequate public transport and sufficient economic activity to sustain development and growth. These parameters apply to investments in non-agricultural land approved for residential development, as well as flats in residential projects.

However, to mitigate risks, one should stick to tier-1 and select tier-2 cities only. It is also prudent to invest in properties, where the prices range between Rs 2,500 and Rs 5,000 per sq ft, as this will provide protection against capital value erosion. Simply put, this is a safe price segment and almost guarantees capital appreciation.

Guidelines, to make the most of your property investment:

Understand the property cycle, to identify the best entry point.
Leasehold titles issued by the government must be fathomed.
The investor needs to have a clear comprehension of unearned increase or capital gain and quantum of stamp duty that needs to be paid.
Check the quality of the development because poor design and construction are common when the markets are depressed.
The project’s development plans and all statutory approvals, should be in place. If the approvals are not yet in place, the investor should monitor them closely during the investment cycle.
Check the credibility and track record of the developer and his arrangement for finance to complete the project, as even reputed developers have failed to deliver under the current market conditions.
Enlist a reputed legal firm to carry out the due diligence on the property’s title. One can no longer rely solely on the due diligence of home loan firms, as they have targets just like developers.
Understand the implications of the size and dimensions of the plot/apartment. Small plots or apartments may cost less but they may be difficult to sell.
The location of the project may be important but so is the location of the plot or the apartment within the complex. Investors should avoid buying flats on the top floors of high-rise buildings, as the floor-rise charges will add to the cost.
The price of the development, should be lower than the last peak (in 2008). However, exceptions can be made for quality, delivery date and location.
The time frame for getting possession of the property and conveyance of land, must be explicitly clear.
The penalties in case of delays, must be well understood.
The investor must know the difference between soft launch, launch and current price of the developer. The resale price in completed projects, may be actually cheaper.
The investor must understand all the clauses in the sale agreement along with the transfer charges that may applicable, in case he wishes to sell the apartment during its construction. He should also establish whether the agreement value includes the cost of all amenities, parking, etc., or whether these are to be paid separately.
The investor should compare the project with others, based on its carpet area rate.

If all the above precautions have been taken, the property should ideally appreciate at a consistent rate of 15% per annum for three years. It is important to remember that one can almost never sell at the peak, just as it is impossible to always catch the lowest price.

Best cities for residential property investment

North India: National Capital Region, Lucknow, Chandigarh, Jaipur and Dehradun.

East India: Bhubaneswar, Kolkata, Guwahati and Ranchi.

West India: Ahmedabad, Mumbai, Pune, Nashik and Nagpur.

South India: Hyderabad, Bengaluru, Chennai, Coimbatore and Vijaywada.

These cities offer the potential for higher capital value appreciation, depending on the demand and supply dynamics of their micro markets, the quality of the development, the reputation of the developer, location of the project and its timely completion.

(The writer is former chairman and country head, JLL India)

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