Enter residential real estate with a horizon of five to six years

With prices and loan rates at low levels, this is a good time to invest. But moderate your return expectations

The residential real estate segment is witnessing frenzied activity. According to data released by JLL on January 24, 2022, sales of residential properties in the fourth quarter of 2021 was the highest in eight-and-a-half years, an increase of 114 per cent year-on-year across India’s 7 major metros. Which begs the question whether this an right time to buy residential real estate as an investment.

Experts say this is the best time in the past decade to invest. “Housing affordability is at its peak because of record low home loan interest rates, and reduction in circle rates and stamp duty charges in several states,” says Vikas Wadhawan, group chief financial officer, Housing.com. Buyers, according to him, are in a good position to bargain with developers. Prices, too, are at low levels. “Since rates can only move up from here, it makes perfect sense to invest now,” adds Wadhawan.

Bigger homes are in demand

The extended work-from-home (WFH) has altered buyers’ preferences. “Most buyers today want homes that are large enough to accommodate both WFH and e-schooling. Mid-range and premium homes in well-connected suburban locations are currently seeing highest demand,” says Anuj Puri, chairman, ANAROCK Group.

Housing.com’s IRIS index, which tracks online property search volume on the platform, shows that queries for apartments with a 3-BHK or above configuration grew by 15 per cent year-on-year in 2021.

Invest for the long haul

Investors must, however, be prepared to hold on to a property for a long time to earn meaningful returns. “No residential property will yield spectacularly high capital appreciation. It is not possible to make a speculative killing. The market is now driven by end-users who are price sensitive and resistant to price escalations. The days when one could buy a property only to flip it a few months later are over,” says Puri. He advises that only serious investors with a minimum five-six-year horizon should invest.

Moderate your return expectations

Increased sales volumes can push up prices, especially in areas with low inventory overhang. “Price appreciation can range from 5 to 15 per cent, depending on the city and the project,” says Anupam Rastogi, co-founder and head-NRI sales, Square Yards. He adds that those who are investing for rental returns should opt for affordable homes, where the yields are higher – closer to 3 per cent. Liquidity tends to be a challenge in the premium segment.

Adds Wadhawan, “Investors can expect to earn 2.5-3 per cent rental yield and 5-6 per cent capital appreciation, which would amount to an overall return of 8-9 over a longer period.”

How to maximise returns

Choose the property carefully to maximise rental yield and capital appreciation. “Invest in new properties within modern projects by reputed, branded developers, as these are in high demand,” says Puri.

Location matters a lot. “Investors should accurately gauge the demand in the area and whether it will sustain over the next four-five years,” says Puri. Areas that have employment avenues in the vicinity usually enjoy high demand.

Adds Rastogi, “Factors like proximity to the airport and railway station, access to highway, availability of utility centres, entertainment zones and schools all have a bearing on future saleability.”

Rastogi advises getting an inspection of the property done before purchase. “Get a check done on whether the structure of the house is sturdy and reliable and whether it requires renovation. This will save you time and money in the long run.”

Finally, don’t purchase a property just because it is cheaper than other comparable offerings. “Prices are often low due to deficiencies in the property or in the location. Developers who have invested sufficiently in land, project infrastructure, and quality construction normally don’t offer their properties at a lower rate,” says Puri.