Advantages of Real Estate Investing
In almost any economy, real estate investment is a sound financial decision. It is low risk and has the potential for significant reward. From the increased value of a property over time to access to cash flow, there are a wide range of advantages of real estate investing. There are many people out there who find themselves interested in real estate as an investment, but they are just not sure whether or not it is for them. When you think about investing, you are probably concerned with your financial future.
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Real estate has traditionally been an avenue for considerable investment and investment opportunity for High Net-worth Individuals, Financial institutions as well as individuals looking at viable alternatives for investing money among stocks, bullion, property and other avenues. Money invested in property for its income and capital growth provides stable and predictable income returns, similar to that of bonds offering both a regular return on investment, if property is rented as well as possibility of capital appreciation. Like all other investment options, real estate investment also has certain risks attached to it, which is quite different from other investments. The available investment opportunities can broadly be categorized into residential, commercial office space and retail sectors.
Any investor before considering real estate investments should consider the risk involved in it. This investment option demands a high entry price, suffers from lack of liquidity and an uncertain gestation period. The maturity period of property investment is uncertain. Investor also has to check the clear property title, especially for the investments in India. The industry experts in this regard claim that property investment should be done by persons who have deeper pockets and longer-term view of their investments. From a long-term financial returns perspective, it is advisable to invest in higher-grade commercial properties. If you have some issues with qualifying for a conventional commercial mortgage, try finding properties where the seller is motivated and will offer seller financing. If the seller objects because they need their cash now rather than waiting 10, 20 or more years, offer a very nice down payment and tell them they can sell the note to one of several commercial note buyers.
Overall, real estate is expected to offer a good investment alternative to stocks and bonds over the coming years. This attractiveness of real estate investment would be further enhanced on account of favorable inflation and low interest rate regime. Looking forward, it is possible that with the progress towards the possible opening up of the real estate mutual funds industry and the participation of financial institutions into property investment business, it will pave the way for more organized investment real estate in India, which would be an apt way for investors to get an alternative to invest in property portfolios at marginal level.The returns from property market are comparable to that of certain equities and index funds in longer term. Any investor looking for balancing his portfolio can now look at the real estate sector as a secure means of investment with a certain degree of volatility and risk. A right tenant, location, segmental categories of the Indian property market and individual risk preferences will hence forth prove to be key indicators in achieving the target yields from investments.
The two most active investor segments are High Net Worth Individuals (HNIs) and Financial Institutions. While the institutions traditionally show a preference to commercial investment, the high net worth individuals show interest in investing in residential as well as commercial properties. Apart from these, is the third category of Non-Resident Indians (NRIs). There is a clear bias towards investing in residential properties than commercial properties by the NRIs, the fact could be reasoned as emotional attachment and future security sought by the NRIs.
The role of the investor is instrumental in scenarios where the interest of the seller and the buyer do not match. For example, if the seller is keen to sell the property and the identified occupier intends to lease the property, between them, the deal will never be fructified; however, an investor can have competitive yields by buying the property and leasing it out to the occupier.
The following are the ADVANTAGES FOR INVESTING IN REAL ESTATE Investment Schemes
• As an asset class, property is distinct from the other investment avenues available to a small as well as large investor. Investment in property has its own methodology, advantages, and risk factors that are unlike those for conventional investments.
• Historically, over a longer term, real estate provides returns that are comparable with returns on equities. However, the volatility in prices of realty is lower than equities leading to a better risk management to return trade-off for the investment.
• Real estate returns also show a high correlation with inflation. Therefore, real estate investments made over long periods of time provide an inflation hedge and yield real returns.
The real estate market is witnessing a heightened activity from year 2000 both in terms of magnitude of space being developed as well as rational increase in price. Easy availability of housing loans at much lesser rates has encouraged people who are small investors to buy their own house, which may well be their second home too. High net worth individuals have also demonstrated greater zeal in investing in residential real estate with an intention of reaping capital appreciation and simultaneously securing regular returns.
In the wake of strong economic growth, real estate market should continue to gain momentum resulting in falling vacancies in CBD areas and more development in suburbs; it is unlikely that commercial property prices will rise or fall significantly, beyond rational reasoning. As the stamp duty on leave and license agreements has been further reduced, it should further attract to deal in this manner encouraging the investors and the occupiers. With current budget focusing on infrastructure, it will attract quality tenants and add to market growth. Heighten retail activity will give upward push for space requirement.
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