The roots of RE Investing

Like roots that nourish plants and trees; legality, approvals and structure determine the health and longevity of a good investment. You do not need to be a mathematical expert or a financial whizz to be able to identify a potentially good investment, just taking a cue from nature can take you a long way. A good investment is one which gives you suitable risk adjusted returns, is hassle free to maintain and can be liquidated with ease. Real estate investments of this caliber are usually ones with strong roots in the form of a sound legal standing, clear approvals and a sturdy structure. While it is always best to seek expert advice and use reliable sources of information before making any major investment decision, it does help to understand the process yourself.

Is your investment legally sound?

One of the most overlooked aspects when it comes to any real estate investment is that of ownership. Very few home buyers are aware of who owns the land upon which the project in question has been built. More often than not, even the sales team is largely unaware of the ownership history of the land. A clear land title adds immense long-term value to any real estate product. The more the number of encumbrances there are attached to a piece of land, the more likely you are to encounter hinderances in the future. Sometimes land can come with covenants and restrictions on transfer. Banks may hesitate to provide loans for flats built on leasehold land where the lease period is coming to an end. At the time of renewal, members of a housing society may not always have the capability of renegotiating fair terms of lease. Therefore, it is absolutely essentially that you begin your research with first identifying the title of the land for any real estate investment.

Are all the necessary approvals in place?

Approvals are another factor that often goes unnoticed by buyers. Every city in India has its own set of local governing bodies that are responsible for issuing construction permissions. These permissions are in tandem with the Development Plans for that particular region. These Development Plans usually identify which areas can be developed for residential purposes, industries, commercial establishments, etc. It also limits development in certain zones, e.g. the Costal Regulation Zone (CRZ) and also determines areas where no development (NDZ) can take place like salt pans, forest areas, heritage sites and water bodies. Projects built on land that are in violation of such regulations, more often than not end up getting stuck in lengthy litigations and lawsuits.

Sometimes a builder may procure land with the purpose of building low income housing or affordable housing projects and instead create luxury apartments. When this is done, the apartment in its physical form may appear to be a palatial 4BHK flat but the approved drawings will indicate otherwise. This could create problems in the future, should the local authorities decide to strictly enforce their rule. Without an Occupation Certificate, it is illegal for a buyer to occupy his flat and the local authorities can at any time demand that the flat be vacated, without having to give prior notice. One of the most infamous cases in this regard is the Campa Cola Compound Case in Mumbai City in 2014. Therefore, it is in your best interest to ensure the project you are buying into is not in violation of any zoning norms and has procured all necessary construction approvals.

How sturdy is the structure?

Construction can be done right only once; therefore, everything beginning from the type of foundation that is laid, to the quality of raw materials used, the technology applied to construct, the levels of accuracy maintained and finally the manner in which the services (plumbing electrical and mechanical) are laid out all come together to determine the true value of the end product. If there is any major setback in any of the above-mentioned aspects of construction, no amount of window dressing will help. Therefore, it is essential as an investor to understand the quality of the real estate product you wish to invest in and assess the capabilities of the people engaged in delivering that product to you.

What is above ground is visible and therefore always easy to understand. However, when it comes to investments of this nature, the critical factors are never the obvious ones. Like an iceberg, most of what makes your real estate investment bankable are aspects that are not advertised on brochures and hoardings and cannot be seen with a naked eye. For this reason, it is crucial that you begin your journey with research and not simply a search. For most of us, it is challenging to understand and interpret the data available accurately, and so it is advisable to seek the opinion of experts or procure a report from a real estate research specialist before putting your money down on anything.

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

To view the original blog post visit www.realinvesting.org

Next (The Science of Investing)

The roots of RE Investing

Archives

Overview

Explore

Join Us