Is there anyone in India or anywhere else, who does not dream of owning a piece of land? Real estate in India has its origins extending beyond several millennia. From time immemorial, both men and women had been drawn towards the possession of two objects over everything else, namely gold and land. The glitter of gold and the attraction of land had even led to murders and wars on innumerable occasions. It is not only the pride of holding something invaluable and indestructible but also the protection of investment value and undeniable capital appreciation that had been the driving force behind the huge appeal of both these commodities to human beings for long. However, there is one difference between gold and land. While gold provides long-term appreciation, regular income is not possible with it. On the other hand, real estate provides us with opportunities of regular returns along with value appreciation.
Deterrents to Real Estate Investment in India
Rich people and institutional investors have a definite edge over small investors when it comes to real estate investment in India. The following strong deterrents had been hampering small investors in making lucrative real estate investments in India.
- Rampant corruption in land registration offices with collusion between officials and unscrupulous elements in selling lands to multiple owners or in fleecing genuine land buyers and sellers at the time of land registration
- Under-pricing or over-pricing of land values by buyers, sellers and intermediate brokers according to situations
- Unbridled speculative dealings in land prices pushing up prices
- Lack of transparency in land dealings
- Significant role of black money in real estate investments
- Absence of proper guidelines by central and local governments
- Forceful land grabbing by anti-social elements and people in power
- Lack of accountability from many developers
- Difficulty in obtaining financial support for real estate investments from banks and financial institutions, particularly for small investors due to conservative outlook of banks in India
However, we should appreciate that the conservative approach of banks in lending to land and building purchases had been the main factor in preventing a collapse like the one that occurred in the United States in August 2008. Still, rich people and institutional investors are able to obtain bank loans easily for such dealings, while it is the small investor and average buyer that find difficulty in getting finance for real estate investment in India.
Tips on Benefitting from Real Estate Investment in India
The following tips on correct investment approach in real estate in India should prove useful to you.
1) If you wish to make investment in real estate in India, the amount of investment is the first deciding factor. You should be clear about how much you can invest on your own from cash or other assets available with you and how much you can borrow from financial institutions that you can repay without strain. The amount of your personal investment and the amount you can borrow will depend solely on your regular income, the risk level in property value appreciation and your future financial prospects.
2) The second factor is the local real estate conditions. In India, real estate buying and selling is purely a local business, except in certain areas of large metros. The norms for saleable and buyable areas, stamp duties, property taxes, building approval norms, FSI regulations, etc. are invariably decided by local laws and regulations. Hence, you should be fully aware of all these rules and regulations and it is ideal to purchase or sell only in areas in which you are familiar and in which you can obtain adequate knowledge.
3) Even though reputed property developers conduct their business with greater transparency, most of the local developers do not follow strict accountability norms. Since majority of the real estate market in India is still in the hands of the unorganised sector, you cannot expect full transparency and it is up to you to delve deep and dig out all the information and facts related to the real estate transaction. The verification of the title deed, the actual ownership by the person selling you the property, the encumbrance certificate, the ruling price of similar properties in that area, potential appreciation in near future and long-term, etc. should be carefully found out and evaluated by you before you finalise the transaction.
4) If you wish to be the owner of multiple properties, you should remember that you are not likely to obtain finance for more than a couple of properties. You should arrange for funds for purchase of extra properties on your own.
5) Deciding when to buy a property or when to sell it is also very important for successful real estate investment and getting substantial returns from it. This is very much similar to buy and sell of stocks in share markets. You never know when the prices have hit rock bottom or when they have peaked. You should do the necessary search and research of all factors related to the real estate transaction to protect yourself regarding all the above aspects and to remain on top of your real estate investment in India.
Conclusion
We believe that the above tips regarding real estate investment in India will be useful to you in your property purchase and selling prudently. Until real estate investment trusts (REITs) and real estate mutual funds (REMFs) arrive in Indian markets and offer you alternative safe investment plans in the Indian real estate market, you will have to use your own research and judgement in real estate investment. If you have any further doubts or questions on this fascinating and important subject, you can contact us without any hesitation and we will help you with the necessary clarifications and details. We only wish to caution you to keep all your real estate transactions within your financial capability and never try to overstretch your investment levels beyond safe limits.