Tuesday, July 19, 2011

Real estate is for investors, not speculators - Indian Express

Real estate is for investors, not speculators - Indian Express

Sanjiv Bajaj
The role of real estate, as one of the best avenues to create wealth, can certainly not be ignored. Investing in real estate has always been a lucrative venture because of its ever increasing importance given its value, and especially in the present scenario, where it has become more important than ever. This holds true not only when you are purchasing your primary residence, but also when you are looking at property as an investment.

Logically, if you have more than one property, you could rent one out and earn a good amount. A growing number of population is investing in realty; there must be some benefits naturally. This is especially true for all those who do not get pension benefits.

Those dependent on loans for buying a second or third property should focus on it early in life. For example, one should start thinking of buying a second property before reaching the age of 50. In that case, you would get enough time to shed all loan liabilities before reaching your retirement age.

Property can be a great source of income once you retire, or in case you lose your job, as many people did during the recent economic slowdown. There is no question that property would not help if your investments were made at the right time. Those who invest in realty should have a longer term horizon, in order to enjoy the benefits of appreciation, since it is a long-term game. One should not expect miracles in the short term.

Real estate has always been considered as a safe investment because it does not decrease in value normally. In addition, people always need a place to live, so investors will always have an edge in the commercial and residential industries. With new businesses opening up regularly, there is always the need for warehouses, production sites, or office spaces.

Land can be another option for those looking for a second property with a specific goal. Between land and constructed property, the former is a lucrative option as it is much easier to sell it and the rate of appreciation is also higher. For example, if you reside in Delhi, you can look at buying land in any part of NCR; that would ensure enough returns in future.

Another opinion if you are thinking of buying a second property is that you should consider investing in the outskirts of your city, as with the passage of time, even the outskirts become part of a city. There are many colonies in India which were earlier bereft of any worthwhile facilities, but after facing hard times for a couple of years, had started undergoing development. With development, the value of their properties went up multifold. Thus, one should not mind investing in outer or little unknown areas.

With the economy giving indications of a recovery, the question as to whether this is the right time to buy property, has yet again surfaced. The answer to whether this is the right time to buy, is not a simple yes or no, but depends on a number of factors: whether a buyer is looking for a first or a second house, whether it is for occupation or not, and whether it will be a long-term or a short-term investment.

From a macroeconomic perspective, booms and slumps predominantly affect active investors and traders in property, who want to make money on every deal they make. The dilemma of whether it is the right time to buy, is always there for those who are looking for their first home.

Even when the market was worst hit by the recession, there were good deals in the market for those looking to invest in property. If the fundamentals are strong, that is, if the property has a clear title, whether it is in the area where growth is expected and where prices have already corrected, then one may opt for buying.

In a demand-supply mismatch scenario, the prices have to go up, unless more land gets released for development.

All realty experts agree that the days of speculation are over. Property prices are determined by the fundamentals of demand and supply, added with civic amenities and growth potential of the geographical region.

The demand in the market had skyrocketed when the economy was doing well, new jobs were being created and salaries were going up. The emergence of the suburban housing market gave people an opportunity to buy property at relatively lower prices and mortgage loans were available at lower rates.

The economic downturn, however, taught a tough lesson to those who had overstretched themselves with the EMIs. Now, with the economic growth consolidating, consumer behaviour will be moderate, atleast for the next few years.

Currently, people are investing in realty with a clear-cut thinking that their investment in property would be their source of income in post-retirement life. With higher disposable incomes and more loan options, this phenomenon is being adopted by a larger number of families.

Thus, you don’t have to wait for the time to reap benefits of your new real estate purchase. You can enjoy a great address or earn from rentals. It is also a good way to manage your wealth for the future, as it is just a matter of perspective and foresight.

— Author is MD, Bajaj Capital
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