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Thursday, July 21, 2016

Creating Wealth With Residential Real Estate Investment


By Anuj Puri, Chairman & Country Head, JLL India

Effective investment in residential property requires the chosen location to meet certain parameters. Fundamentally, the area should have good social infrastructure, availability of adequate public transport and sufficient economic activity to sustain development and growth. These parameters apply equally to investment in NA-certified land approved for residential development and flats in a residential project.

In order to mitigate most of the investment risk, one should restrict one’s residential property investment to Tier 1 and select Tier 2 cities. It is also most prudent to invest in properties where the price tag falls between Rs. 2500-5000/sq.ft., since such a price tag provides downside protection against any capital value erosion. Simply put, the cost of construction and minimum cost of land literally makes this price segment safe, and almost guarantees capital appreciation.

Further Guidelines:

·         The property cycle needs to be understood so as 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 the consequently higher stamp duty implication at the time of conveyance from the developer
·         The quality of the development is important, because depressed markets often result in poor design and construction quality
·         Availability of the project’s development plans and all statutory approvals is de rigueur. If approvals are not yet in place, the investor should monitor them closely during the investment cycle
·         The developer’s arrangement for all the finances for completion of the project must be verified
·         The title’s due diligence by a qualified and reputed legal firm is now a given. One can no longer rely solely on the due diligence of home loan firms, as they have targets just like developers
·         The size and dimensions of the plot and the apartment need to be understood; small plots or apartments may cost less, but they are also often difficult to resell
·         The location of the development may be important, but so is the location of the plot or apartment within the complex. Investors should avoid buying flats on the top floors of high-rise buildings, as these artificially add to the cost due to floor-rise concepts
·         The credibility and track record of the developer need to be researched, since even the best ones have failed to deliver under the current market conditions
·         The price band of the development should be lower than the last highest peak in 2008 (exceptions can and should be made for quality, delivery date and location)
·         The time of conveyance of land and delivery (possession) must be explicitly clear
·         The penalties in case of delay must be well understood; not everyone can fight legal battles.
·         The investor must clearly understand the delta between soft launch, launch and current price of the developer (the resale of existing ready projects may be actually cheaper)
·         The investor must understand the sale agreement along with the transfer charges in case he wishes to sell the apartment during construction or prior to registration. He should establish whether the agreement captures within the official cost all the amenities, parking, etc. that the developer promised at the time of sale, or whether these are mentioned separately
·         The investor should employ usable carpet area vis-à-vis chargeable area as the price benchmark vis-à-vis other projects

Finally, the investor should keep an eye on the market and sell the residential property at the right time in order to multiply wealth. If all the above precautions have been taken, the property should have appreciated 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

Some of the markets that currently show the highest residential property investment potential:

·         North India: NCR, Lucknow, Chandigarh and Jaipur, Dehradun
·         East India:  Bhubaneswar, Kolkata and Guwahati, Ranchi
·         West India:  Ahmedabad, Mumbai, Pune and Nasik, Nagpur
·         South India: Hyderabad, Bangalore and Chennai, Coimbatore, Vijaywada


Within these cities lie the opportunities for a higher delta of capital value appreciation, depending on the demand and supply dynamics of their micro markets and also the quality of the development, reputation of the developer, strategic value of the location and timely completion of projects.

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