Housing never loses its appeal as an investment bet in India. At the current juncture, housing may not be as lucrative as equities but Indians do not invest in residential real estate just for return on investment. Own residential property has tremendous psychological value. It is the foundation of financial security for the owner's family. One can either use it for either living or for putting it on rent — it always retains its value. This is why second homes are very popular in the country.
However, one cannot make quick profits on a residential property. In the past years, Indian residential investors would try the Western approach of flipping' properties, buying low and selling high within a year. But that doesn't work anymore. Those were years when the Indian housing sector was less regulated, and many parts of the country were hotbeds of speculative buying and selling.
Today, such investors have vanished from the market almost completely. Like in the matured markets of the West, investors have become more realistic when it comes to their expectations of property investment returns. Earlier, they could often get an annual RoI of more than 100 percent in the property market. Today, supply-demand adjustments and stricter regulations keep housing prices in check. You can expect capital appreciation of no more than 4-5 percent per annum on good properties in most cases.
Other than for a residential purpose, a key reason for investing in a residential property is to earn regular rental income. If you are buying a second home for the purpose of earning rent, it is important to understand the kind of house that will be in most demand among tenants.
Here are five qualities that can generate good rental income:
Location
The most important quality of a good rental property is location. The property must be close to or adequately connected to the city's major office districts. For instance, Pune's Hinjawadi is a major workplace hub. This means that areas like Punawale and Moshi, which are well-connected with Hinjawadi, are in high demand among IT employees looking for rental homes.
Size
In most Indian cities, two- and three-BHK flats are generally affordable, and most sought after by middle-class tenants. It makes little sense to invest in a bungalow or villa located in an area where there is no demand for homes that are too costly to rent. If you want to invest in a big luxury property, look at areas where people can afford to rent such a home.
Price
If you have paid too much for a property, you will find it very difficult to earn enough to cover your initial costs and make a rental profit. But one should not look for the cheapest of homes. Such flats are either too small to be interesting to tenants or located in low-demand areas. One should compare a property's price now with where it stood 4-5 years ago. If you decide to sell the property after 5-6 years, you will want to profit from the sale.
Infrastructure
One must take a good look at the infrastructure in the area surrounding the property: everything from road and rail connectivity to availability of schools, hospitals and shopping districts. Think like a tenant and ask yourself the right questions to decide whether a property can get a good rental income.
For instance, here are some important questions that one can keep in mind:
Project type
Some projects and properties are more attractive than others, even in the same location, because they have better amenities and facilities. A two-BHK apartment in an integrated township offers a much better lifestyle than a a counterpart from a smaller project. A project with a clubhouse, a swimming pool and a jogging track is more interesting to tenants compared with one that lacks such facilities.
Buying a good residential property is still the best investment decision you can make in India.
—Anil Pharande is Chairman of Pharande Spaces. The views expressed in this article are his own.
(Edited by : Ajay Vaishnav)
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
Supreme Court says it may consider interim bail for Arvind Kejriwal due to ongoing Lok Sabha polls
May 3, 2024 4:57 PM
10% discount on fare on Mumbai Metro lines 2 and 7A on May 20
May 3, 2024 2:40 PM