Monthly Archives: March 2013

How to locate a good option for property investment?

Everyone works hard within the given parameters and with one owns capability. The results can vary as per the opportunity you get and the amount of effort put in to seize & convert ‘that’ opportunity in your favor.

The same holds true for the money that you want to invest. You would want it to work for you each passing hour & day if possible and earn superior returns on it.

So are the returns subject to sheer luck as many people call it or a well informed move? I would rather say its 70:30 more skewed towards hard work that would help achieve your goal provided it’s realistic.          (<<< please refer to my previous article)

Below are the factors that can take your closer to your returns by 70% if not more…..

1. Location: Location & Location should be the first factor to be considered while investing money in property. How well is your property located currently, in the main district or in suburbs, accessibility to public transport, railway stations, airport etc. An investor could choose a little far off location and wait for it to develop over 4-5 years thereby giving you above average returns.

2. Infrastructure Development: pace of infrastructure development around the area is an important indicator of how the property would eventually give your returns. Infra dev such as roads, bridges, malls, commercial establishments.

3. Job Creation: for any area to do well it has to be surrounded by a lot of job opportunities. To cut down on travelling time people would prefer to work & stay close to their homes therefore the rent ability & capital appreciation is good.

4. Builder credibility: track record of builder is important factor too as delivery of your apartment in time & with good quality work is very important.

There would definitely be a lot of other factors driving high returns besides the above mentioned and would have worked for an individual/entity, but for a first time or amateur investor these factors can act as a support function to make a smart & informed decision.


Real Estate Investment: Expectation Vs Reality

Real estate over the past few years have been on the upswing. The highs of 2007-08 have been surpassed and few areas are currently quoting at even 40-50% premium than previous highs. It has indeed been the most preferred asset class for Indian Households, so the million dollar question is whether you would continue to see such sharp up moves in real estate?

The answer to this question is not simple. It’s more to do with your expectation of the returns. Historically, it’s seen that over the past 25 years real estate has given a compounded annualized return in the range of 17-18% as compared to equities which has give returns in the range of 15-16%, Gold in the range of 7-8% & fixed deposits which in the range of 6-7%.

Rs. 1,00,000/- invested 25 years ago in real estate would have become 50 times i.e. Rs.50,00,000/-

The thumb rule for expecting return by investing your money in a riskier asset (real estate/equities) should yield atleast 5-6% in excess of the least risky Bank Fixed Deposits. Therefore the targeted return should be around 14-15% p.a with 7-8% net return after adjusting inflation & other taxes.

Having witnessed such huge rallies over the past few years in real estate even as high as 50-60%p.a in some areas keeps us wondering that whether we have we missed out on rally?? What these returns have typically done to investors is, raised their expectations which makes it even difficult for them to accept any return less than average 25-30%p.a. These are clearly aberrations therefore any asset class over a period of time attains its fair value and the returns look more reasonable. The same happened during stock market rally from 2005-2008 when everything looked so promising and even today in 2013 we haven’t revisited those highs yet.

Expectations from your investments should be reasonable (in line with long term averages) to enjoy good returns from it and avoid any situation of panic & stress.

Real estate as an asset class is unique it’s in own way. It’s a tangible asset class that’s productive and yields you dividend in the form of rent along with capital appreciation.

Land is a commodity that is limited and can’t be produced or multiplied. As the population grows so does the requirement of land and so on the prices depending on several other factors.

It will continue to make money for investors but the only question to ask yourself is about your expectation of the return!!!

originally published at