This pandemic has truly revealed that our world is connected. People are working together to ensure life goes back to norma. However, as the global economy is plunging towards a recession on account of commercial conflicts and protectionist approach, the economic atmosphere of many countries, including India is affected.
Let us consider the facts, India’s growth was considered to be 7-7.5 percent for this fiscal year, but it has already downgraded to 6 percent. However, the growth fundamentals of the economy are still intact. Therefore, it wouldn’t be wrong to say that what we are witnessing is a slowdown, not a recession. In this regard, the government’s recognition and focus on reforming the business environment, across governance structures - through regulation, policy, and other initiatives (e.g. RERA and GST) combined with a wider government agenda, including Housing for All and smart cities, make it a conducive environment for buying real estate.
Thus the pertinent question arises, is this a good time to invest in real estate? The answer is yes. As prices are falling, bank interest rates are at a record low. For those buyers who were reluctant to buy property due to project delays now have a large ready-to-move-in stock. For example, 16,500 flats are ready in NCR in line with their budget. Therefore, this is the most opportune time to invest in real estate but keeping certain parameters in mind.
Demand-Supply breakthrough: Since this pandemic has affected the economy of many businesses, the demand is low for many properties. Thus, discounted rates on good inventories are available. But once the economic condition will start settling, the bargain will reduce, and demand will also start floating upwards. This means that the rates will not be as low as it is now, amidst the lockdown.
Developer credibility: The developers’ professional strength and finances should be the primary factor to pinpoint upon a property. Therefore, pre-investment, a thorough assessment of a developer’s market credentials, financial strength, past delivery track record, capacity to manage multiple projects, unsold inventories and pending cases is vital. The market is rife with operators, who are ready to take buyers for a ride; given their financially distressed situation.
Project features and attributes: One should keep in mind the location of the project, supporting urban infrastructure, connectivity, future potential of habitation, education and health, and entertainment facilities in the vicinity. These concerns require to be appraised properly, considering RERA, as of now is still to ‘develop teeth’ in terms of registering, monitoring and controlling projects.
Financing plan for the project: The potential investor should not hesitate in asking for a detailed and transparent financing plan for the project. They should be alert in identifying any alarming gaps in the developer’s cash, inflow and outflow.
High Tangible Asset Value: Unlike money which is not tangible, real estate is the asset you can hold tangibly and also rewards you by increasing its reliability and return on investment.
Attractive and Stable Income Return: The rental yield from real estate is much higher than returns on any traditional sources of investment. It has been noted that, commercial investment can yield up to 12% ROI and lowest to 5% ROI (with capital appreciation) depending upon the construction stage and lease terms of the property.
Passive Income: Having multiple sources of income is important in today’s economy. Fortunately, there are various small investment options introduced in the market starting as low as 5 lacs in real estate that too with a rental income. This is again an opportunity to create a separate asset class in your portfolio and start a source of passive income.
Inflation Hedging: The inflation hedging capability of real estate stems from the positive relationship between GDP growth and demand for real estate. As economies expand, the demand for real estate drives rents higher and this, in turn, translates into higher capital values.
Project fundamentals: The objective of RERA is to protect a buyer’s interest. It is imperative that the project chosen for investing should be registered under RERA. This helps demonstrate that the developer has the professional ability to manage the delivery of project covering amenities, site plan, master plan, floor plan, unit plan, utility spaces and project sustainability to its committed time, costs and quality targets as per their RERA registration. It is quite possible that there are tons of discrepancies between the project amenities and specifications promised. So an added factor to ensure is that there should be no pending cases of the developer in RERA or otherwise.
Role and credibility of land transaction agents: it's an unfortunate fact, but land is rampant with players who don't practice ethics and exercise a scarcity of transparency. To avoid being duped, one needs to make sure that he/she only deal with the transaction specialists who are trained and suitably accredited. These agents are instrumental in building client and market trust, aiding confidence and assurance and working to the highest standards and an ethical code of conduct through their reasoned and transparent advice.
Developers association with banks, NBFCs and HFCs: While a buyer may not know what to ask for or be able to verify documents, those buying a property through a home loan are on safer ground. Prior to dispensing a home loan, any bank or financial institution will take the necessary steps to ensure that all documentation is in place. This supports that all aspects of a project have been evaluated and it is a sound investment.
India has already seen its share of challenges in the real estate market, on account of policy reforms, regulations and the NBFC crisis. There were increased instances of uncertainty among end-users, evident from an enormous inventory pile-up in many cities. Despite these issues, the commercial, retail and warehousing sectors seem to be on the uptake in the last year and this swing is likely to continue for next 4-5 years. Given the fact that ‘Housing for all’ requires 25 million houses to be constructed by 2022 and India seems to be on track, At Embassy, we believe that this is a grand opportunity for each one of the prospective home buyers to invest in their dream home today.