Invest in residential realty with at least a seven-year horizon: Experts

While market is on the mend, a steep increase in prices may not happen in near future

After about a decade, when sales were slow and housing prices largely stagnant, the market appears to be on the growth path once again. The big question before investors is whether after a long downturn, this is the start of a new upward cycle, and if they should enter this asset class now to reap the maximum benefit.    

Sales, prices picking up

Sales volumes are recovering.

According to Santhosh Kumar, vice chairman, ANAROCK Group: “In calendar year 2020, when Covid-19 was at its peak, 1.27 lakh new units were added across the top seven cities, while 1.38 lakh units were sold. In 2021, new launches rose to 2.37 lakh units (an 87 per cent increase) and sales to 2.37 lakh units (72 per cent increase). The momentum has continued in 2022 with 1.7 lakh new units being launched and 1.84 lakh units being sold during the first half of the calendar year.”

Property registration figures, too, point to a recovery. According to Subhankar Mitra, managing director, advisory services, Colliers India, “In the April-June quarter, property registration rose 13 per cent year-on-year (YoY) in Hyderabad, 15 per cent in the Mumbai Metropolitan Region (MMR), and around 10-12 per cent in Pune.”

Prices rose between 5 and 9 per cent YoY, on an average, in the top eight cities, according to Proptiger Research’s April-June quarter report on residential realty.   

“The market is still largely end-user driven. The kind of price rise one witnessed around 2010 is now a thing of the past. Price rise will be more sedate in the future,” says Ankita Sood, head of research, Housing.com.

Sood adds that in recent times, steep price rise has been witnessed in Gurugram in the ready-to-move (RTM) segment for apartments in quality locations. “This has happened due to the dearth of RTM inventory in such locations. But in under-construction properties, the pace has been more gradual,” she says.

Attractive micro markets

According to the PropTiger Research, micro markets, where demand was buoyant in the April-June quarter, include Thane West, Dombivali, Vasai, and Panvel in Mumbai; Tellapur and Kokapet in Hyderabad; Ravet in Pune; sectors 79 and 150 in Noida and sectors 89 and 106 in Gurgaon.

Pay heed to location, infrastructure

The investor must evaluate the target micro market’s stage of evolution. “Check whether it has already reached a peak, or is in an early stage of development, and hence offers more scope for growth,” says Mitra.  

Infrastructure also determines price growth. “The existing, upcoming, and planned physical and social infrastructure developments around a project decide growth prospects,” says Kumar.

Highways, flyovers, metro rail, airport, and even office complexes and IT parks improve an area’s profile. Their completion can provide a one-time boost to prices.

At the time of investing, however, the basic infrastructure — connectivity, social and healthcare facilities — must be in place. “Don’t go just by promises that infrastructure will come up soon. If you buy at a high price, based on the premise that the completion of a project will boost prices further, and it doesn’t come up for years, you may have to exit at a loss,” says Sood.

“Proximity to a central business district (CBD) or an educational hub also improves the occupancy of housing in the vicinity,” says Mitra.

An investor can earn 3-4 per cent rental yield from such a property. Once its capital value has appreciated, he can sell it.

Check developer’s credentials

Next, zero in on the right project and developer.

“All the necessary approvals along with RERA (Real Estate Regulatory Authority) registration are necessary to mitigate execution risk,” says Kumar.

The developer must have clear title to the land and there should be no encumbrances on the apartments. “Ensure that the developer hasn’t mortgaged the project to a lender. If that’s the case and he defaults on his loan, the bank could take over the apartment,” says Mitra.

Check the developer’s track record. Speak to people who have purchased a property in his earlier projects. Ask them whether he had offered possession on time and had delivered all the amenities and specifications as promised.

Finally, according to Sood, those entering residential realty right now mustn’t expect quick gains and should have a long-term horizon.