September 6, 2013
With the rupee touching all-time lows against the dollar, it appears to be a great time for non-resident Indians (NRIs) to remit funds to India for investment. And for most NRIs, the preferred asset class continues to be real estate. But with the India story looking a little bleak, is property a good investment right now?
September 6, 2013
With the rupee touching all-time lows against the dollar, it appears to be a great time for non-resident Indians (NRIs) to remit funds to India for investment. And for most NRIs, the preferred asset class continues to be real estate. But with the India story looking a little bleak, is property a good investment right now?
It's great time for NRIs to invest in real estate, with rupee at all-time low.
The answer is yes, provided you are patient and cautious. "There has been price correction in India to a certain extent and developers are sitting on huge inventory. However, I estimate that the entire correction will take up to 2 years. So NRIs must be particular in their investments and pick and choose after due research," says Pankaj Kapoor, founder and managing director at Liases Foras Real Estate Rating & Research Pvt Ltd.
So if you are ready to take that challenging road, here are a few tips to help you along the way.
Top locations and price points
"In the last few months, we have witnessed good closures specifically emerging from NRIs in cities where value deals are available – namely cities like Bangalore, Hyderabad, Chennai and Pune. Demand in the mid-income and budget segments is robust across cities where job creation is the key driver. In light of the rupee's depreciation, we are confident that the IT/ITeS sector will generate further job creation and strengthen the confidence of employees from this sector who are aspiring to buy first or second homes," says Om Ahuja – CEO – Residential Services, Jones Lang LaSalle India.
Kapoor adds, "In the Mumbai Metropolitan Region and the National Capital Region, the secondary market is appearing very attractive. Investors are exiting these markets and in the past 15 days, prices have corrected up to 25% in some of the cities. So this might be a good time to pick up investor's stock. Apart from these two key regions, properties in cities like Hyderabad and Kochi are undervalued and it may be a good time to look at these places."
According to Ahuja, the segment where good demand is being witnessed is in the price range of Rs 60 lakh to Rs 1.5 crore.
Investment time horizon and returns
Here is where investors need to be patient. "I think the price correction is going to go on for another 2 years," Kapoor explains, "which means investors should expect their asset value to remain more or less flat over the next two years."
Ahuja expects potential returns from current levels to be 10-20% annualized returns over 6-8 years in Bangalore, Chennai, Pune, Gurgaon and Navi Mumbai and 20-30% in Hyderabad.
Tips to buy the right property
Buying property in a market like this can be quite challenging. So here are some parameters that you should look at:
Rental yield
Rental yield is nothing but the annual rent divided by the property value. "Often, buyers tend to ignore rental yield and instead focus only on capital appreciation. However, rental yield is a very important parameter as it represents productivity of the price. When you buy a property, make sure that you can get a rental yield of at least 3.5-4%. An yield of less than that means the property is overvalued," Kapoor explains.
Months of inventory
Months of inventory is specific to a particular project and is the amount of time the developer takes to sell all available units at the current price.
"An efficient market maintains 8-10 months of inventory. A longer time means that units are not selling at current price and a price correction may happen. Today, Mumbai and NCR carry 44 months of inventory on an average while Bangalore carries 12 months. So this is another aspect you can check to see how inventory is moving," says Kapoor.
Location
"Right now, a lot of investors are exiting the market so NRIs might find many investor held property up for sale. However, a lot of these investor properties may be in uninhabited markets where the investor may have purchased the property thinking that the area would develop but expected development may not have happened. NRIs need to be wary of such locations," Kapoor explains.
Developer track record
"Developers' track record in terms of delivery and quality must be verified before investing. Ensure that all approvals in place. Attractive advertisements with celebrity endorsements and futuristic promises should not be the only factor for shortlisting the project for investment. NRIs very often get carried away with good sales pitches and so-called 'premium projects'. NRIs should also be very cautious when it comes to investing with developers who are over leveraged and carry risk of project not getting completed on time," Ahuja cautions.
Infact, Kapoor suggests that now may not be a good time to opt for launch properties. "Instead, opting for secondary properties might be a good option at this point. Buying secondary properties has its own advantages. Apart from being well priced, there is no execution risk as the property is already completed. Further, there is no service tax so NRIs can save on that as well," he says.
To sum up
So while there are buying opportunities in the current market, experts suggest that NRIs tread with caution. Don't jump on deals but do a thorough research before investing.
Courtesy: TOI
