A Guide to Investments in Indian Real Estate

Traditionally, real estate has been an one of the most lucrative investment avenues as a whole and an investment opportunity for those with high net worth, Financial institutions and those looking for alternatives to invest money into the property market, bullion, stocks and many other avenues.

Investment in property for its income and capital growth will provide steady and predictable income yields comparable to bonds. They offer both a regular return on investment, in the event that properties are rented, as well as possibility of capital appreciation. As with all investment options Real estate investment is prone to risks. it that are different from other investment options. Investment options can broadly be categorized into residential, commercial retail and office spaces. Visit:- https://bdsreview.com/

Investment scenario in real estate

Any investor before considering investing in real estate should be aware of the potential risk involved. This investment requires the highest price for entry but also suffers from a lack of liquidity, and a shaky time frame for gestation. In order to be illiquid the investor is unable to sell pieces of his property (as you might do by selling units of equities, debts, or mutual funds) when in immediate need for money.

The maturity period of properties is uncertain. Investor also has to check the validity of the title to the property particularly for investments in India. The experts on this issue say that property investment should be made by people with a larger budget and a more long-term vision of their investments. From a long-term perspective, financial returns viewpoint, it’s advisable to invest in commercial properties.

The returns from property market are similar to those of some index funds and equities over the long term. Any investor looking for balancing his portfolio can now consider the real estate sector as a safe method of investing with a certain amount of risk and volatility. The quality of the tenant, the geographical location, segmental categories of property, segmental categories of the Indian property market, as well as individual risk preferences will determine the main factors for achieving the intended yields from the investments.

The plan to introduce REMF (Real Estate Mutual Funds) and REIT (Real Estate Investment Trust) will boost the value of real estate investments from the small investors’ viewpoint. This will also allow small investors to join the market of real estate for contribution as less as INR 10,000.

Additionally, there is a demand and need from various market players of the property segment to gradually relax certain norms for FDI within this sector. Foreign investments could bring higher standards of quality infrastructure, which would impact the entire market scenario in terms of competition and professionalism that market players.

Overall, real estate is anticipated to be a good investment alternative to bonds and stocks in the next couple of years. The attractiveness of investing in real estate would be further enhanced on account of the favorable inflation rate and low interest rate regime.

In the near future, it’s possible that as we move towards the possible opening up of the real estate mutual funds industry and the participation of financial institutions to the property investment business this will open the way for more organized investment real estate in India that would be an ideal way an investor could gain an alternative to invest in property portfolios with a minimal levels.

Investor’s Profile

The two active investor segments are The High Net Worth Individuals (HNIs) and Financial Institutions. Although the financial institutions typically tend to favor commercial investment, the high net worth investors show interest to invest in homes as well as commercial properties.

Other than that, it is the third type of non-resident Indians (NRIs). There is a strong preference towards investing in residential properties in comparison to commercial properties by NRIs and this can be explained by the emotional bond and a future sense of security desired by NRIs. Since the documents and formalities for buying immovable properties other than agricultural and plantation properties are simple, and the rental income is freely repatriable from outside India, NRIs have increased their role as investors in real estate.

Foreign direct investment (FDIs) within real estate make up a tiny portion of the total investments since there are some restrictions, like an initial lock-in for three years. There is also a certain size of property to be developed , and a conditional exit. Beyond these restrictions the foreign investor will have to deal with various government agencies and interpret a variety of complex laws/bylaws.

The idea of Real Estate Investment Trust (REIT) is at the point of introduction in India. Like many other innovative financial instruments, there will to be issues that will make it difficult for this idea to be accepted.

Real Estate Investment Trust (REIT) could be structured as a business that is devoted to owning and, in most cases operating income-producing real estate including shops, apartments office buildings, warehouses and offices. An REIT is a firm that purchases, develops, manages and sells real estate assets, and allows participants to invest in a professionally-managed portfolio of properties.

Some REITs also are engaged in the financing of real estate. REITs are pass-through companies that are able to share the majority of flow to investors without taxation, at levels at the corporation level. The main purpose of REITs is to transfer the earnings to investors in the most efficient manner as is possible. So, initially, the REIT’s operations would normally be limited to the generation of rental income from properties.

The role of the investor is vital in instances where the interest of the seller and buyer do not align. For instance, if the seller is keen to sell the property but the identified occupier intends to lease the property, they is not likely to be successful However, an investor may be able to earn high yields when they purchase the property and renting it out to the owner.

 

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