The prevalent idea in India is that investment in real estate requires a hefty amount of capital.
Even seasoned investment advisors often think so.
Although it is true in the case of investment in properties, there are far more diversified ways to invest in the real estate sector even with a modest amount.
In fact, you may be surprised to know that you can invest in real estate with as low as Rs 10,000.00.
In fact, there are different avenues to invest in the property sector in India for decent to substantial financial gains.
At this point in time, when the equity and the fixed income investment opportunities are facing some headwinds, the real estate sector is showing huge promise.
We will discuss multiple opportunities to invest in this sector and how you can gain from it, but before that, let’s see why this is the right time to invest in the real estate sector.
Why Should You Invest in the Real Estate Sector Now?
The real estate sector is showing tremendous promise of a massive comeback after a somewhat muted performance in the last two years due to the pandemic.
In the last two years, there were various problems that affected the sector.
Uncertainty in the minds of the homebuyers, labour shortage, etc. prevented developers from aggressive new project launches.
Now that those issues are firmly behind us, a wave of demand has hit the industry.
If you watch the financial results of the listed property development companies, you will notice that most of them have reported excellent results. Their results are much better than last year. Almost every company has reported higher sales and profit.
Industry watchers are saying that the real estate sector will increasingly do well in the near future because of various factors, with higher demand, inventory decline, and price increase being the key factors.
The higher demand is not a flash in the pan.
Demand is robust in India now for other high-value industries also.
Even MNC companies are buying large offices in India looking at the impending explosive economic growth.
You can invest in the sector now and reap awesome benefits.
What are Good Real Estate Sector Investment Opportunities?
You can invest in real estate in many forms. You can invest directly by buying a property or indirectly through REITs.
Now, let us see how you can take advantage of different opportunities toward your goals.
Buying a Shop
The biggest advantage of investing in a shop is that the initial investment is often lower than what is required for a residential or commercial property. Even maintenance costs are rather low, especially in the case of a shop on a high street.
There is little chance of encroachment if the shop is in a shopping centre/mall as they have good security arrangements. However, it requires considerably more money to invest in a shop in a shopping mall than in a shop on a high street. The advantage is that a shop in a shopping mall with good footfall has higher resale value.
Retail participation is growing in India and even in tier-2 or tier-3 cities going out shopping is becoming a trend. Therefore it is a good idea to invest in shops.
Investing in a Residential Property
Purchasing a residential property is the easiest way to invest in the property sector. But you must remember these factors for the best returns on your investment.
It is preferable to invest in an apartment in a gated community and not so much in a standalone building.
Flats in residential complexes are in higher demand for rentals because of the higher livability quotient, and even the amount of rent is generally higher.
Additionally, if you decide to sell your flat, you will find that it is easier to sell a home in a complex than one in a standalone building. Customers’ preference is always higher for residential complexes for buying or renting flats.
Investing in a Commercial Property
This is probably the best time to invest in a commercial property because the demand for commercial properties is growing by leaps and bounds for a variety of reasons.
India is currently in a sweet spot as the fastest-growing economy and major businesses are maneuvering to grow their presence here. Apart from the corporates, India is also seeing the rise of many start-ups including unicorns.
Moreover, the explosive growth of e-commerce is also increasing the demand for warehouses all over India.
All these businesses are pushing the demand for office/warehouse spaces rather fast and you can take advantage of it if you keep in mind a few factors.
Commercial real estate is a favoured investment choice since it gives higher rental yields.
But you must carefully choose to invest in good office complexes at or near the business district. The complex must have great facilities.
Avoid old, decrepit buildings with dissatisfied tenants. It is a good idea to talk to current tenants if the building is old and offices in the neighbourhood if the building is new.
Investing in Commercial Real Estate through REIT
The concept of REIT is very similar to that of mutual funds — it gathers money from several investors and then invests those funds in income-generating properties. The returns are paid out from monthly rent from the properties invested in.
Investors in REIT (Real Estate Investment Trust) receive rental income in the form of dividends annually.
Currently, there are three REITs offering units in the Indian market, and all three offer commercial real estate, which is leased out to large companies for their office space.
Their tenants are stable companies on long-term leases, and rental amounts increase as years go by.
This arrangement ensures that you get a regular income from REIT investments. Usually, you can expect an annual return of about 8%.
However, your investment is not likely to grow substantially because REITs are mandated to distribute at least 90% of their cash flow to the unit holders, which severely restricts their ability to invest in future growth prospects.
Further, they are also allowed to hold a maximum of only 20% of under-construction property. While this reduces the risk of investing, it also makes growth pretty stagnant.
Investing in Mutual Funds & Equities
Another good way to get the benefit of the good profit growth of the listed real estate companies is to invest in a real estate sector fund. The fund manager invests in good real estate companies after thorough research.
You can also directly invest in companies that serve the real estate industry.
You can invest in real estate development companies, housing finance companies, banks, paint, cement, sanitaryware, tiles, and white goods companies through the equity route.
Good companies in these sectors have given excellent returns for a long time, and they have a long runway ahead of them as the Indian economy grows.
However, please consult your investment advisor before you take the plunge.
The real sector offers a variety of investment opportunities. You can take advantage of the huge untapped potential of this sector in different ways even with a modest allocation.
