Re­alty sec­tor on pos­i­tive tra­jec­tory

A pru­dent strat­egy to min­imise risk and in­crease prob­a­bil­ity of returns in re­alty is to di­ver­sify in­vest­ments

Hindustan Times (Chandigarh) - Estates - - ESTATES - Mu­niesh­wer A Sa­gar mu­niesh­wer.sa­gar@hin­dus­tan­times.com

The real es­tate sec­tor af­ter be­ing dor­mant for years in terms of re­alty growth and gov­ern­ment pol­icy ini­tia­tives is ex­pe­ri­enc­ing ma­jor changes.

On the pol­icy front, the set­ting up of the Real Es­tate Reg­u­la­tory Au­thor­ity in April will have far reach­ing im­pact on the re­alty sec­tor. Sim­i­larly, the im­ple­men­ta­tion of the Pro­hi­bi­tion of the Be­nami Prop­erty Trans­ac­tions Act is ex­pected to trans­form the tra­di­tional way of re­alty trans­ac­tions. The full im­pact of de­mon­eti­sa­tion on the re­alty sec­tor is yet to be ex­pe­ri­enced.

The re­alty slow­down for five years has changed de­vel­oper and in­vestor mind­sets and per­cep­tions about the sec­tor. Re­alty as­sets have con­sis­tently lost value in the past five years. Fall­ing hous­ing prices and the sub­dued mar­ket sen­ti­ment has di­min­ished the re­alty mar­ket’s at­trac­tion as an

in­vest­ment des­ti­na­tion. Ear­lier con­sid­ered a rel­a­tively safer in­vest­ment, now the per­ceived risk with an in­vest­ment in the sec­tor has in­creased.

So, should an in­vestor stay pes­simistic about the re­alty mar­ket and forgo the in­vest­ment op­tion? Or, should an in­vestor con­tinue to opt for the hous­ing mar­ket, and to counter the in­creased risk now as­so­ci­ated with a re­alty in­vest­ment, ex­plore strate­gies to min­imise it?

Up­heavals in the re­alty sec­tor are real. But the in­vest­ment prospects in the sec­tor are ex­pected to steadily be­come more at­trac­tive in the medium and long terms. “The re­alty sec­tor is chang­ing fast. There are uncer­tain­ties cre­ated by re­cent pol­icy de­ci­sions but the tra­jec­tory of the sec­tor seems to be pos­i­tive. We can ex­pect greater trans­parency and ac­count­abil­ity in the sec­tor. The op­por­tu­ni­ties for the end-user and the in­vestor will in­crease as sup­ply na­ture and vol­umes change in re­sponse to pol­icy changes and de­mand re­quire­ments. Sim­i­larly, cheaper credit op­tions will boost re­alty op­por­tu­ni­ties,” says Col RS Per­har, 59, a Chandi­garh-based real es­tate an­a­lyst. To make most of the re­alty op­por­tu­ni­ties, the re­alty buyer should di­ver­sify his port­fo­lio, sug­gest ex­perts. The di­ver­si­fi­ca­tion op­tions will de­pend on the hold­ing ca­pac­ity of the in­vestor, the exit op­tions he is look­ing for and his pref­er­ence for cap­i­tal ap­pre­ci­a­tion of the as­set at the end of the hold­ing pe­riod or re­cur­ring returns from ren­tal in­come over the hold­ing pe­riod.

Project stage

In­vestors should also ex­plore the dif­fer­ing op­tions in terms of the stage of con­struc­tion in a project. Projects where pos­ses­sion is ready of­fer the op­por­tu­nity for earn­ing con­stant ren­tal over the hold­ing pe­riod, while the cap­i­tal gain re­mains sta­ble or in de­cline. But these ex­tract higher pre­mium from the buyer.

With the set­ting up of RERA, the un­der-con­struc­tion projects and newly launched projects will come un­der it purview. De­vel­op­ers of such projects wikk have to reg­is­ter with the RERA, and ful­fil all con­di­tions and reg­u­la­tion that will come along with it. So, these projects are ex­pected to of­fer greater trans­parency and de­vel­oper ac­count­abil­ity. “Ear­lier, the risk as­so­ci­ated with the un­der­con­struc­tion prop­er­ties rel­a­tively higher be­cause of pos­si­bil­i­ties of pos­ses­sion de­lays or cost over­runs. Though, at the same time, these were rel­a­tively cheaper and de­liv­ered higher cap­i­tal gains af­ter pos­ses­sion was de­liv­ered,” says Vikas Sharma, 42, a Panchkula-based real es­tate con­sul­tant.

De­vel­oped or up­com­ing

An in­vestor should di­ver­sify his re­alty in­vest­ments in terms of lo­ca­tion. The choice or the mix can be be­tween new up­com­ing ar­eas and well-de­vel­oped cen­tres. Rahul Singla, 38, run­ning an in­vest­ment con­sul­tancy com­pany, says, “Prop­er­ties in a green­field lo­ca­tion are cheaper than the Grade A lo­ca­tion prop­er­ties. An in­vestor through pru­dent mix of prop­er­ties in these dif­fer­ent lo­ca­tions can bal­ance his re­alty in­vest­ment port­fo­lio and min­imise his risk while stay­ing in­vested in the prop­erty mar­ket.”

Num­ber ques­tion

An in­vestor can opt be­tween a num­ber of smaller prop­er­ties or a big­ger prop­erty. For in­stance, an in­vestor with Rs 60 lakh can in­vest in three smaller prop­er­ties in dif­fer­ent lo­ca­tions or a sin­gle prop­erty worth Rs 60 lakh at a lo­ca­tion. “Spread­ing one’s in­vest­ment in dif­fer­ent prop­er­ties min­imises the risk for the in­vestor. One can ex­pect that a loss in prop­erty can be off­set by profit in an­other. Sim­i­larly, in­vest­ing in a num­ber of prop­er­ties al­lows for bet­ter exit op­tions and higher ac­ces­si­bil­ity to liq­uid­ity. Buy­ing three prop­er­ties of Rs 20 lakh each in Dera Bassi, Kar­nal and Zi­rakpur is a bet­ter in­vest­ment strat­egy than in­vest­ing in a sin­gle one of Rs 60 lakh in one lo­ca­tion say Zi­rakpur,” says Per­har.

Seg­ment watch

The in­vestor can in­clude prop­er­ties from two prop­erty seg­ments – res­i­den­tial and com­mer­cial. Gen­er­ally, though now al­ways, the two seg­ments have dif­fer­ent growth po­ten­tial in terms of cap­i­tal gains and ren­tal in­comes from prop­er­ties. “Within a seg­ment also, there are mul­ti­ple sub-seg­ments to choose from. For in­stance, in the res­i­den­tial seg­ment, one can opt for a mix of apart­ment and plot­ted prop­er­ties. While sim­i­lar­sized apart­ments are rel­a­tively cheaper than plots, plots of­fer rel­a­tively sta­ble returns. Also, it eas­ier to exit plots than apart­ments though over­all it de­pends on the lo­ca­tion,” says Sharma.

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