Investing your money in real estate in India compared to other types of investments is probably the most profitable, least risky and the most stable way of increasing your wealth. This is because no matter what problems happen in the world including the current Coronavirus pandemic that is sweeping the world, people need a shelter for their families where they can feel safe and secure. This is why in spite of the Coronavirus pandemic, real estate sales are still going strong. Real estate will always be in demand at all times thus making it an ideal part of every financial investor’s portfolio. When you hear the term “real estate investing” the very first thing that comes to your mind might be purchasing properties for renting out to tenants. Or you may think of house flipping, which is becoming increasingly popular in India. Agreed that these are forms of real estate investing but they are not the only ones. You can also choose from the below options if you are looking to invest in real estate:
- Real Estate Mutual Funds
- Real Estate Investment Trusts (REITs)
- Exchange-traded funds (ETF’s)
- Crowdfunded real estate
With so many ways to get started as a real estate investor in India today, it is easier than ever to start building your real estate empire which has time and again always proved to be a path to creating serious wealth without taking on huge risk. Whether you are starting out in the world of real estate investing or you’ve had some amount of experience read on to gain some valuable insights. You may even want to try real estate investing as a side thing and want to dip your toes just to see how far you can go. Either ways you might need the advice that we offer from time to time through our widely-read real estate blog.
What Real Estate Is
Most people when the think of the term “Real Estate” visions of apartments and bungalows come up in their minds but real estate is much more than that. There are many different types of real estate and there are even more options when it comes to investing in real estate. At the heart of the matter, real estate consists of land and the buildings that are on top of it as well as anything that grows on the land and such as farm or agro-products and what is found directly underground (such as oil). Unlike personal property, real estate cannot be moved so it’s value is tied to geography.
Residential Real Estate
Everyone is familiar with the term – residential real estate – it is where we all live. Residential real estate is governed by laws stipulated by the Central and State Governments of India. These regulations define the heights of buildings and liveable space that can be built in a specific area and may also control things such as whether it is a purely residential area or a mix use of residential and commercial. Under the umbrella of residential real estate, real estate is bifurcated into divisions such as existing homes (also called resale homes) and new constructions (primary market). Traditionally single family homes were and continue to be the most common properties in this category. But that is still one option out of many. Other types of residential real estate in India include:
- Condominiums or Condos: privately owned units that are part of a larger structure that is collectively owned
- Cooperatives: Individual residents own shares of the building and obtain the right to live in their own units
- Multi-living / Co-living: a new concept where the developer / investor creates shared accommodation for bachelors / couples / college students
The two ways to directly invest in residential real estate projects are renting out properties which are a long term investment and flipping properties which is a short term investment. One can also invest in these type of properties indirectly through real estate investment trusts (REITs) and other real estate funds.
Already a Real Estate Investor
If you a home owner then you are already a real estate investor! A home is the biggest asset owned by any home owner. As with other investment assets, your home’s value will increase over time.
The most basic type of real estate is Land but even “land” comprises of more than just undeveloped vacant lots in a city. Within this category you can also find “working land” which refers to properties such as:
- Cattle Land
Land also includes ownership of anything that is found on the property such as trees, water streams, oil or minerals (for mining).
Unimproved or undeveloped land refers to the raw land and property that has no basic services. Which means that there is no gas, power, water supply, phone service and most times no connecting roads. This type of property may be very remote and hard to get to. Such land parcels can also be found in rural areas such as old farmland that has not been developed and transformed yet into housing projects or commercial buildings.
Use a lot of caution when buying unimproved land in India. It can be difficult to obtain a clear title viz. proof of ownership. Also if you plan to develop the property you have to ensure that rights are granted to the developer for bringing utilities into the land including environmental clearances. And even though taxes on such land is quite low, many state governments in India asses property taxes even on Unimproved land.
In Development Land
Land that is in the process of being improved is called “In Development Land”. This includes improved land meaning it has access to roads and basic utilities, land in early development stages, subdivisions and land being transformed for reuse (such as former government land like railways or ports authority land being converted into residential or commercial areas). The most common way to invest in such properties in India is through individual builder stocks or through funds that specialise in investing in construction-related projects.
Commercial Real Estate
Commercial Real Estate includes a lot of different types of properties such as:
- Malls & Shopping Centers
- Hospitals & Medical Buildings
- Office Parks / IT Parks
- Hotels and Multiplexes
- Educational Centers
From a strictly investment investment point of view, commercial real estate has a few immediate benefits over residential real estate:
- More stable income
- Longer leases ( usually 5 – 10 years)
- More opportunity for cash flow (more rental units available for the investor in a building to buy)
- Economies of scale (lower per-cost unit when buying in bulk)
Since it takes a larger amount of cash to invest in commercial real estate directly, most beginner investors are advised to start investing in commercial real estate in India through REITs and other specialized commercial real estate funds in India.
Industrial Real Estate in India
Industrial real estate category would include manufacturing plants, warehouses, distribution centers, cold storage and self-storage facilities. Though traditionally not the most interesting for real estate investors, this category of real estate investing is a rising star for real estate investors in India and NRI’s because of the skyrocketing business of e-commerce firms like Amazon and Big Basket. As more and more people shop online and demand same day or next day delivery, warehouses are being constructed all over the place to help facilitate e-commerce businesses. Also with the Make in India initiative by the Indian government and now post the India-China faceoff at Galwan Valley, the central government and state governments in state such as UP, Maharashtra, Andhra Pradesh are encouraging large scale manufacturing with the result that manufacturing activity has been resurging in India thus holding great promise for investors and NRI’s who want to hold industrial real estate in their portfolio.
Cheaper to Operate
Industrial Real Estate is usually cheaper to operate because it costs much less to buy and maintain as compared to properties such as hotels and commercial office buildings. Let’s look at why industrial real estate costs less to maintain:
- Less cleanup and fix-up between tenants
- Cheaper vacancy costs (insurance, property taxes, heat)
- Less turnover
These lower costs add up and translate into higher profits for investors.
Predictable Investment Income Stream
As with commercial real estate but with even longer lease commitments, industrial real estate means steady and stable cash flows for investors. Also these kind of properties house the backbone of the economic engines of prosperity – pretty much everything that we use has to be made, shipped and stored. Also it is easier to attract different types of tenants because industrial space is flexible and can be customized to the needs of a company’s needs. For e.g. a warehouse that used to house an earlier tenant can be quickly and cheaply altered to become a warehouse + office space for a new incoming tenant. The best part is that this type of property offers the most income potential for investors because of lower costs and long-term locked-in leases. Industrial real estate on an average tends to have lower vacancy rates than other property types. So such properties spend less time (if any) remaining empty and generating no income.