#1

Retail Investors guide

in Guide for All the Investors Wed Dec 04, 2013 10:57 pm
by varinder • 34 Posts

INVESTMENT ROUTES: There are three ways to invest in commercial real estate directly buy office space from a developer, buy shares of a commercial developer from the stock market, or invest in a real estate fund focused on commercial real estate. As the quantum of investment is usually huge, the prospective buyer needs to take more informed decisions. Another option, which is investing in Real Estate Investment Trusts, is expected to be opened up shortly by the government. REITs are pooled investment entities where the corpus is invested primarily in completed, income yielding real estate assets and distribute a major part of the revenue/income generated among their investors. Many developers, especially in cities such as Mumbai, are today offering smaller units of space (as small as 500-1000 square feet) in Grade A buildings given the higher vacancy and pressure on pricing. This is in sharp contrast to the scenario a few years back, where only much larger units were available making it tough for a small investor to invest in office real estate. Investors considering retail space can now consider a multitude of affordable options in free-standing high street outlets or shops in malls. The advantages of smaller units are two-fold: * It is easier to find tenants for them * The premises can also be used for business by their owners if they happen to be of an entrepreneurial bent of mind Today, even professionals like doctors, auditors, stock brokers and lawyers are buying commercial properties for investment and self-use. Of course, HNIs also continue to plug huge amounts of money into high-ticket commercial properties in the quest for yield. Private bankers and wealth management firms confirm that their clients have actively started investing in commercial properties after staying away in 2009 and 2010. These investors have bought into commercial properties because they seek assets that can protect their portfolios from inflation and stock market volatility. On their side, banks are willing to lend up to 50-60% of the LTV to buy commercial properties, subject to the borrower’s adequate net worth and established ability to repay. The investor should focus on a few carefully selected markets with a diverse economic base, deep pool of tenants and tenants who like quality buildings. While looking at under construction projects, the investor should look at developers who have a track record of delivering high quality projects on schedule.

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#2

RE: Retail Investors guide

in Guide for All the Investors Thu Dec 05, 2013 5:27 pm
by varinder • 34 Posts

Real estate investment advice: Bungalows versus flats


Arvind Jain Pride Group Assuming that one has the financial wherewithal for this to be an option at all, the question of whether to invest in a bungalow or a flat is indeed pertinent. As always, location plays an important role. In an established area of a large city like Pune, a bungalow costs a lot more than a flat. This means that the rental market for such a property shrinks proportionately. However, the income segment that remains can definitely afford to rent such a unit, so demand would remain more or less consistent. Moreover, bungalows in established locations have a high chance of attracting long-term corporate leases. Bungalows Established Vs. Upcoming Locations Investing in a bungalow in an upcoming location usually involves a lower (though still sizeable) capital investment. The rental yield is lower, but the size of the rental market for such a property increases proportionately. Investment in a bungalow in such a location can make a lot of sense if the area, despite being non-prime, is still well-connected to some of the city’s major economic drivers, such the airport or employment hubs such as IT parks and manufacturing zones. One major advantage of investing in a bungalow in an upcoming location is that it will gain steadily in value as the area’s profiling in terms of social and civic infrastructure improves. However, regardless of location, the maintenance costs and property taxes involved in a bungalow are a lot higher than those of flats. This long-term financial implication must necessarily be factored while investment in a bungalow is considered. Share Of Land If we set the considerations of location, ticket size and potential rental yield aside, the primary advantage of investing in a bungalow rather than a flat is that one secures more land. In any location, it is the value of land which determines the value of built-up property. Unlike a flat, a bungalow and its compound lock in a significant piece of tangible land. This fact gives a bungalow a higher value in real estate terms. Also, the investor must have a suitably long investment horizon and not be looking for short-term returns. Investing in flats Flats offer a slightly different value proposition than stand-alone units such as bungalows. In the first place, the share of land that is legally allotted to each flat in a project is much lower than that of a bungalow. The primary value of a flat lies in the space that it occupies, which is why larger configurations such as 3 and 4 BHK attract higher rents. As before, location will dictate the ticket size as well as rental income. The rental market for flats is much larger than that of bungalows, so finding tenants is easier even if one factors in a certain degree of tenant churn. However, one must ensure that one is investing in a flat whose size dovetails with the median income profile of the location. The highest demand will always be from the locality itself, and from people working in offices and industries close to the area. Buying a flat whose size puts it out of the largest local demand profile can be a self-defeating and costly mistake. Generally, the 1, 2 and 2.5 BHK configurations are the safest investment bet in any area, since the rental demand for them is always the highest. With ultra-premium flats as a logical exception, maintenance and property tax for apartments is significantly lower than for bungalows. Flats Established Vs. Upcoming Locations In terms of location, investors into flats must consider all the pertinent factors carefully. Flats in established locations are costlier and involve a higher capital expense. They will attract rental interest from a segment of higher economic profile. However, it must be borne in mind that capital appreciation of flats in centrally located projects is slower than in many upcoming areas. This is because high-end locations tend to hit an appreciation plateau, which can persist for long periods. Upcoming locations appreciate faster because their market viability is being enhanced with increasing accessibility as well as social and civic infrastructure. They attract more people, since any city’s growing population tends to move into areas which are affordable. For that reason, emerging locations also tend to attract a lot of commercial establishments which further boosts the residential segment. To ensure that growth factors such as assured infrastructure and social amenities are indeed locked into place, investors into apartments should ensure that they choose projects that fall within the local municipal limits. If a project falls outside the city's corporation limits, there is no guarantee that the location will receive proper infrastructure such as roads and regular water and electricity supply. Without such infrastructure, a location does not appreciate thereby rendering it unsuitable for smart property investment.

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