The I.Q. of Real Estate - The Investment Quotient of Real Estate

“Roti, Kapda aur Makaan” goes the famous saying. Food, shelter and clothing form the most basic needs of any individual. In the world we live in today, food and clothing are much easier to procure than a ‘Makaan’. For most of us, purchasing a home is the largest investment we make in our lives and for many families it becomes an asset that is passed onto the future generation. Even if we purchase a home with the sole purpose of living in it, it does become an asset for our next in kin. Therefore, every real estate purchase has an element of investment in it and should be made with the same amount of meticulous research and detailing.  If this is agreed upon then what should one consider when searching for the right home? Can it simply be a house that fits one’s present requirement of space, connectivity and opulence or can there be more? How does one ascertain what real estate purchase today will become a valuable asset in the future? The following steps will help you begin the process:

Step 1: Understanding the Real Estate Cycle

The first step to be taken with any investment is to understand the prevailing environment at the time of investing. This environment includes the current state of the economy, interest rates, government policies, demographic shifts and more. Generally speaking, the real estate cycle often follows the economic cycle, and therefore when the economy is sluggish so is real estate. Any major shift in the demographics of a nation impacts real estate and its effects can sometimes be felt for decades. Measures adopted by the current government to boost demand and supply in the form of tax deductions, policy changes and subsides can be useful and can create a great window of opportunity for real estate investments. Similarly, interest rates on mortgages can greatly influence one’s ability to purchase a home and thereby influence overall demand as low interest rates make it easier for individuals to make investments today rather than having to wait. By understanding the environment, you can determine whether it is the right time for you to be making a real estate investment.

Step 2: Identifying the right Micro Market

Location is often believed to be the most important aspect of any real estate investment. Where you buy your house can determine its rentability, capital appreciation and the ease with which you can liquidate it if needed. Every micro market in a city has its own price trajectory due to the available infrastructure, connectivity and overall supply. Present and future infrastructure projects play a fundamental role in determining the value of a property. Projects that are well connected, close to railway and metro lines and from where public transport is easily accessible are always in demand. Micro markets with excessive supply tend to see a stagnation of prices and so investing in such areas may not be worthwhile if you are looking to make a short-term investment. On the other hand, micro markets with limited supply always see a healthy level of demand but can be expensive to buy into and may not always be capable of matching your present requirements. The right micro market to invest in is one that is likely to have a positive growth in demand and become better connected in the future due to infrastructure projects.

Step 3: Finding the right project, product and price

Finally, one comes to understanding what the best product is, in this case property, to buy and what can be the best price for it. The right price or fair market value of a property can be determined only when all factors have been taken into consideration. These factors include the reputation of the builder, quality of construction and finishing, availability of amenities, flat layout and more. Residential projects built by reputed builders tend to demand a higher value as customers can be assured of a high-quality product. The use of advanced technology and ecofriendly means of construction further add value, especially for customers who are mindful of the detrimental impact development can have on the environment. Residential projects that are self-sufficient, i.e., have a convenience store, sports centers, recreational rooms, etc. within the complex are popular because they provide a buyer with convenience and a good lifestyle. Apart from the external amenities, the internal layout of a flat, its finishing and fixtures can further enhance the overall perceived value of a property. A well maintained flat in the case of resale, or a well finished flat in the case of new projects can go a long way in justifying the asking price.

Any real estate purchase, whether as an investment or for personal use, requires painstaking research and an advanced understanding of both the market as well as the product. While a seasoned real estate investor might think it necessary to approach an expert, most regular home buyers do not seek any expert advice before making a purchase decision. Majority of the brokers in India today lack the knowledge and training required to be able to understand the investment quotient of a real estate product and guide their client accordingly. At best brokers are able to get you the best asking price for a product that you have picked out from the options he or she has made available to you. The right intermediary is one that can do the research for you, one that can not only get the right price but also negotiate and close the deal for you and finally one that just does not help you buy but helps you make a great investment.

“Views expressed are the personal views of the author. Any action taken based on the views will be the responsibility of the user alone.”

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