In India, Is This Best Time For You To Invest In Real Estate?

Housing sales and new supply increased 22% and 86%, respectively, during January-March this year on better demand, according to residential brokerage firm PropTiger.com.

Housing sales rose to 85,850 units across eight cities in January-March 2023 from 70,630 units in the year-ago period. New launches grew 86% to 1,47,780 units — highest in a quarter — from 79,530 units.

The report added that the surge in new launches also provides evidence of real estate developers’ confidence in the market and their commitment to cater to the rising demand.

However, the report underlined that in Delhi-NCR, housing sales dipped 24% to 3,800 units in the March quarter from 5,010 units a year ago. Bengaluru witnessed a 3% decline to 7,440 units from 7,680 units.

Similarly, housing sales in Kolkata dipped 22% to 2,230 units in the period under review from 2,860 units in the corresponding months of the previous year.

For an investor, is this the right time to buy a property? Also, is commercial investment better or one should park their money in residential projects?

Real estate outlook

Vishal Raheja, MD, InvestoXpert.com, feels the Indian real estate market has finally begun to look up after facing the turbulence caused by pandemic globally.

Raheja added favouring policies and solid infrastructural developments have definitely backed the sector that is reflecting in the form of burgeoning demand in the market.

“Current positive outlook makes real estate an ideal investment option and also outperforms other assets in terms of value appreciation.”

According to Raheja, investment in real estate is a long-term endeavour therefore consumer’s perspective is prime key and real estate investment is considered to be rock-solid because of the higher returns in the long run.

Furthermore, it is not as open to short-term volatility as the stock market.

“We obtain a physical and usable asset even if the property is rented out for income or to buy a home. Hence, real estate is always preferred as the best asset class because it’s not about investment timing in the larger sense but it’s more about timing in the sense of finding and buying properties that meet consumer’s investment goals,” Raheja underlined.

Commercial or residential?

Experts like Vivek Rathi, director research, Knight Frank India, highlighted various aspects from commercial and residential investment.

“Returns from commercial real estate accrue in two components which are annuity returns emanating from the recurring rental income and other is the capital appreciation. In the case of commercial real estate, depending on the nature of the commercial asset and investment vehicle, investors can expect 7 – 8% yield from the annuity portion and 5% growth from contracted annual escalation. Quality assets with high quality tenants are expected to deliver this even in this tough economic environment,” Rathi said.

For real estate investment in case of residential real estate, Rathi said the recurring rental income is typically 2-3% per annum and the other portion accruing through capital appreciation forms the major portion of the total return in this segment.

Rathi feels in the current landscape, the housing sector particularly has been witnessing strong end user demand on the back of positive sentiment for home ownership and supportive affordability. This has also positively influenced property prices leading to better returns compared to many years in the last 6-7 year down cycle.

He added that the gap between home loan rate and rental yield serves as a good indicator for the potential. This gap, when on the lower side, makes it attractive in favour of investors, and was at its best level of 4% in 2022 when mortgage rate was around 6.5% and rental yield at 2.5%. The same has increased to 6% now with increased mortgage rates.

However, Rathi highlighted, considering that the consumer desire to purchase a house remains intact and affordability is in right shape even after the increased home loan interest rates, which itself is close to peak levels in this cycle, the housing market is expected to do well on both volume and price growth. Albeit, depending on the intensity of headwinds like price growth and interest rate increases, the growth rate can moderate compared to 2022, he added.

In another report by Colliers, institutional investments in real estate remained strong during the first quarter of 2023 (January-March 2023) at $1.7 billion, led by the office sector, lending an optimistic outlook for the year.

The office sector continued to drive the investment inflows accounting for 55% of the total inflows during the quarter, followed by the residential sector at a 22% share.

The office sector continues to drive the investment inflows accounting for 55% of the total inflows during January-March 2023.

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