What Makes A Real Estate Investment Location Lucrative?

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

A simple Google search on real estate investment locations will throw up hundreds of results. Finding genuine online advice – the kind that can lead you to a truly lucrative real estate investment decision – is like finding the proverbial needle in the haystack.

The Internet’s usefulness as a tool to guide your property investment decisions depends upon the individual’s capacity to read between the lines of a mammoth amount of information which may or may not lead to house one is looking for.

Year 2017 should be a year for residential real estate investment, as the Government is ensuring low interest rates and a slew of incentives via schemes such as the Prime Minister’s Awas Yojana (PMAY).

So, interest in and appetite for real estate investment is back in force – but where should one invest? After all, successful real estate investment is proverbially driven by ‘location, location, location.’

When you are trying to identify the right location to invest in, you are obviously ready to put up a lot of saved or leveraged capital. This is no time to rely on sponsored advice and blanket generalizations.

What must come into play here is some basic knowledge of what makes the real estate market tick, and more specifically what drives demand in any location. The viability of a location is what will result in the hoped-for returns on investment.

So, how does real estate location viability actually work? From a residential property investment perspective, every city – especially if it is a tier 1 city – has its hot investment corridors, and other micro-markets which are simply not working currently.

Some of the important real estate drivers to look for are employment generation, infrastructure creation and historic price growth.

Mumbai, being the country’s financial capital, has been attracting massive investments over the years despite its astronomically high ticket sizes.

Bangalore has become India’s prominent Information Technology capital and been attracting consummate investments.

However, Pune has begun stealing Bangalore’s thunder as a preferred InfoTech destination, owing to:

  • Better real estate affordability
  • Global reputation for Business Process Outsourcing (BPO) services, and
  • Massive wealth of trained workforce.

The third factor is a very important one, and plays a big role in the city’s viability as a real estate investment destination.

Pune Mumbai Bengaluru

Pune – the veritable ‘Oxford of the East’ – has numerous high-quality educational institutes which regularly churn out graduates who are directly absorbed not only into the city’s IT firms but also into its manufacturing belt and services sector.

This directly translates into housing demand across a broad budget band, and in various locations of the city.

All such cities have micro-markets which are suitable for either commercial or residential investment, and others that are probably avoidable right now.

Because of the amount of business Mumbai, Bangalore and Pune generate – and the fact that they are in the cross-sights of many large commercial players – these cities are excellent choices for commercial space investments as long as:

  • One picks one’s location and property size wisely
  • Achieves a reasonable entry point in terms of ticket size

Commercial real estate investment calls for larger capital and longer investment horizons, and ROI is generally derived from rental income.

Areas which are close to relatively affordable residential catchments or at least provide good connectivity to them should be favoured.

When it comes to residential real estate investment, it pays to remember that speculative investments may have played a role in escalating prices beyond affordability in some areas.

Several factors have now combined to drive out speculators from most Indian cities, and price corrections have occurred. If the prices have bottomed out or the location is still in growth mode, it is a good time to invest in it.

One should look for factors like proximity to workplace hubs, infrastructure availability – especially in terms of connectivity and public transport – and a decent saturation of social infrastructure such as shopping outlets, healthcare and schools.

About The Author

Kishor Pate, Chairman & Managing Director of Amit Enterprises Housing Ltd. is the driving force behind one of the most successful real estate development firms in Pune and beyond. Apart from its signature luxury projects like Montecito in Sahakar Nagar and other premium gated townships, AEHL has also launched highly successful affordable housing projects like Astonia Classic and Colori in Undri and the Mediterranean-style township Astonia Royale in Ambegaon.

Quick Tips On Investing In A Property In Pune

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

Should You Buy Or Rent?

People either buy or rent apartments for different reasons. Obviously, it makes sense to rent if one does not intend to settle down in a particular city or area within that city, or if one’s financial circumstances do not support home purchase even via a home loan.

Even if one’s financial status does support the purchase of a mid-segment home, renting is usually the only option if one wishes to reside in a high profile area where property prices are very expensive.

However, if all the circumstances are right, purchasing a home is something every Indian should and does dream of. Owned property is the ultimate investment. Home ownership provides not only shelter and security to one’s family, but also a justified sense of pride.

If one is happy in a certain location, it makes much more sense to pay monthly EMIs towards one’s own home rather than monthly rental, which bring no returns at all.

Can You Face Problems In Getting A Home Loan?

While attempting to procure a loan, customers can certainly run into difficulties. One of them can be lack of eligibility or a bad credit score.

If the bank is not able to satisfy itself that the client has the ability to repay a home loan for any reason, it may ask for more documentation and guarantees or even refuse the loan altogether. This can happen with clients from certain professions which banks perceived to lack steadiness.

Other difficulties which a client can face is not being able to produce all the documents required for home loan approval, or the bank refusing to provide a home loan for purchase of a property which is over-priced, does not have a clear title deed or is in a project for which the developer did not obtain all the necessary clearances.

Things To Check Before Taking A Home Loan

The first thing to be checked is one’s own eligibility for a home loan, and one’s ability to service such a loan consistently. Clients should remember that a home loan is a significant long-term financial commitment.

If these factors are in place, the client should check the rate of interest that a bank is quoting for fixed as well as floating rate-based home loans.

Secondly, one should establish whether the bank has a reputation for flexibility when it comes to renegotiating home loans. It makes sense to contact other people who have availed of home loans from the same bank whenever possible, and to ask them about their own experience.

As a general rule of thumb, the monthly EMI being paid on a property should not exceed 40-45% of the family’s total monthly income after all other loans or recurring financial commitments have been accounted for. If it exceeds this, the likelihood of defaulting on the home loan increases significantly.

Vehicle loans should be paid off within the shortest tenure that banks permit, which is usually three years, and should be prepaid whenever finances permit.

A family should also make sure that it has medical insurance for all family members, and with sufficient coverage for unforeseen medical emergencies, as these can be extremely expensive.

AEHL-proect

How To Arrive At Your Property Purchase Budget

The budget for property purchase should be finalized on the basis of:

• Available savings (which will decide how much down-payment can be made on a home loan)

• Current family income and reasonable expectation of increase in income (based on annual salary hikes)

• The family’s current requirements in terms of space and facilities, and the increased requirements in the future (based on family growth, elders expected to come and live with the family, etc.)

How Has Pune Real Estate Been Affected By The Current Economic Scenario?

Every property market in India has been affected by the changing economic environment to some extent. The cities that have been most affected are those which do not have sufficient economic activity.

The property markets in such cities are affected more by economic downturns because there are not enough well-paying jobs being created. In other cases, the available property stock in the city is over-priced and not affordable to most home buyers.

Pune’s property market also saw a certain degree of slowdown, but it has done much better than most other cities in India because of two important factors:

• Pune has three major industry segments to support its economy – manufacturing, Information Technology (IT), Information Technology-enabled Services (ITeS), industrial and automobile manufacturing and the services industry. These industries have consistently been creating sufficient jobs with good salaries, and this factor supports the property purchase rationale.

• High competition among developers and a healthy supply of projects has ensured that Pune’s property prices have remained affordable to home buyers. Another factor that has maintained affordability is that Pune’s real estate market is mostly driven by end users and not speculators. Though there is also investor activity, investors are not able to quote exorbitant prices because Pune is a price-sensitive market and will therefore not accept unnatural price escalations.

The Small Investor’s Guide To Pune Real Estate

Kishor PateKishor Pate, CMD – Amit Enterprises Housing Ltd.

When it comes to investment in Pune real estate, smaller investors do not enjoy the same bouquet of options as their institutional counterparts. While the latter category of investors can afford to handle portfolios consisting of many properties, smaller investors are limited by the fact that lending institutions will usually not anything over and above a second home loan.

The RBI has imposed these restrictions because it is trying to curb speculation – which is the opportunistic purchase and disposal of properties (also known as ‘flipping’ in markets like the US). This is justifiable, since speculation has, in the past, been the main cause of driving up prices unrealistically in many cities such as Mumbai, Delhi NCR and even Pune.

Of course, smaller investors can still use their personal funds to invest in more than one property. Where this is possible, such investors tend to plug their funds into rent-generating properties which, depending on their choice of location and project, will potentially yield good, regular income.

Is this is wiser option that investing limited funds in gold or the stock market? It certainly is. Investment in a well-chosen residential property in Pune is a perfect way to counter inflation.

Neither gold nor real estate relinquishes their intrinsic market value. But while gold does nothing but sit in the bank locker or the home safe while it appreciates, a residential property bought for investment will earn the owner rental income even as it appreciates.

If the market dynamics in the chosen location are favourable, the rental come on the property will increase in line with the growing demand for rental properties there.

Guidelines To Investment

The first factor to be considered while purchasing an investment property in Pune is location. Pune is a diverse market, and it is possible to get confused by the multitude of options available.

Depending on one’s budget, one can consider luxury housing in established locations and premium or budget housing in upcoming locations. There are two main criteria for making the right decision – the property needs to be either centrally located, or located close to one of Pune’s IT or non-IT commercial hubs.

real estate investment

The second factor to look out for is the legal sanctity of the project. The investor must be sure that there are no litigations or documentation shortfalls involved – either on the project or on the plot on which it has been built.

The third important factor is the right point at which to invest. Many lay investors prefer to wait indefinitely for prices to fall. However, the fact is that the demand for residential property in the most lucrative locations of Pune is only going to rise.

Waiting for the ‘magic price point’ will invariably mean missing out on very good options which were affordable at one time and will be too expensive to invest in a year or even a few months down the line.

The fourth factor is how long one intends to stay invested in the property. The minimum period required for avoiding capital gains tax is three years, but certain locations will require a longer time to gain sufficiently in capital value for profitable resale.

An investor must know when the right time to sell the property comes around. In Pune, a well-chosen property will continue to gain in intrinsic value as well as rental income generation potential. The temptation to exit and make a tidy profit may be strong at times, but it may make more sense to defer such a decision for yet a while longer.

The fifth – and by no means the least important – factor is the professionalism and credibility of a developer on Pune’s residential real estate market. Even with all the above factors attended to, the fact is that many good investment projects in Pune are still under construction.

The developer should have a good record for time-bound project completion. The investor should ensure that he is not dealing with an obscure, unscrupulous and potentially under-funded developer or else the investment could turn into a nightmare situation.

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