Right ideas for making real estate investments

For most of us, real estate is the single largest investment we make in our lives. So, applying thought to better our decisions would help greatly. With this thought in mind, let us look at a few pointers to throw light on the real estate investment decision. Knowledge and understanding of these aspects will help us improve our investing endeavors.

Dealing with the brokers: It is very important to communicate right with the brokers. I was once looking for a property in the Kondapur area of Hyderabad. When I asked brokers what is the buying rate of land there, they would give me prices of Rs1,50,000 for a square yard or Rs 2,00,000 per square yard. Then I thought let me see if I want to sell land there what they would say. When I said I had land to sell, one broker told me he can get me a great price as he just closed a deal last week in that area for Rs75,000 a sq yard. Less than half the rate they were earlier telling me. So, applying our mind at how to deal with a broker is very important. Yes, bargaining is normal, and also it is important not to show one's excitement or feelings unless they help in the deal.

Group investment: A few decades ago, people working in large establishments would come together form a body and together buy and develop land. This helped them get sufficient scale and save money. Even today people can come together and develop land and save a lot on their real estate cost. This saving can be as much as 35 per cent. However sadly this is happening very less these days. This needs to be encouraged and followed more.

Bank auction properties: Real estate buyers can find good deals for real estate purchases if they follow properties auctioned by banks and financial institutions. These are repossessed properties from borrowers who have failed to honour their EMI commitments. This is a large segment of the real estate market and there is enough depth in it to help most people find what they want. Here too like in any real estate transaction they need to check the title and make sure possession will be smooth. The payment here will have to be all in white. In these auctions, normally people get discounts on the prevailing market prices of between 15 to 30 per cent. To be able to get information on good properties coming up for auction, it helps to develop a rapport with the bankers. There are also websites and apps which provide the information, such as - www.foreclosureindia.com, www.findauction.in, www.eauctionsindia.com and www.auctionbankindia.com.

Always take a housing loan: Housing loan is the lowest cost loan an average individual could get. Hence it makes great sense to avail it even if one did not need it for this specific purpose. One could always take it and retire any other loan they may have. The enterprising could even take it and invest in any opportunity they would like. However here it is important not to overstretch oneself and take a higher loan than one can service. This would make the loan a burden.

Correct Timing: The property values like most assets fluctuate in value from time to time. Sometimes doubling/tripling or going down a lot in short periods. Hence, finding the right time to buy can save an investor a lot of money. I know a friend of mine who bought a very valuable property during early Covid when the prices had gone down a lot. Like during the early Covid period, during election periods too real estate prices are known to go down. Please spend time on understanding the market cycles and time your purchase accordingly. This would help you get a better deal.

Understanding the market/your needs/property particulars: Buying real estate for most of us is a once in a lifetime event. So, it is very important to properly think out one's decision. Location, size, design, title, cost of protection/maintenance etc. This is because once a purchase is made, changing specifications could be a very costly affair. So, involve all family members and carefully deliberate before deciding on a purchase. Do check the title documents very carefully and take a good lawyer's help in doing so. Please do note that flats appreciate less in value on an average compared to land – This is if one is having an eye on the property's appreciation potential.

Finished property vs under construction: It is always better to buy a finished property as one knows what one is getting into. Also, in many cases under construction property remains under construction for very long or worse still never gets completed. It is true that finished property normally costs more. If one wants to buy a finished property and still save money, it is better to look at bank auctions.

The claim of total available land per person being limited is wrong: I see a lot of real estate developers claiming that land is a finite resource and the population always increase. Thus, the per person land is shrinking. Is it right? Wrong! Firstly, the population of the world taken as a whole will very soon cease to grow. Also, the correct measurement is total developed land per person. With rapid growth, the available developed land is rapidly increasing. This is thanks to better roads, transport means, communication etc. So, total developed land per person will always be in oversupply.

Black vs white money: One of the problems with the real estate sector is the amount of black money that it involves. This is scary. I would advise all to conduct transactions in white as this would not only be right but would also buy peace of mind. In many cases, one will find that property bought with white money can be more easily safeguarded.

Title issues and cost of holding: Dealing with real estate brings problems such as ascertaining title and safeguarding property. Please do all due diligence before entering a transaction. Also factor in the cost of protecting the property and maintaining it before entering into the transaction

World real estate prices vs Indian prices: In most of the developed countries, real estate has underperformed inflation plus growth. In India, however, we saw a lot of growth in some areas. My guess is that in India too some other assets classes such as stocks and even bonds will outperform real estate, going forward. It is important to note here that real estate is more than about return on investment. A home or two to stay in is clearly very important to own. This gives one great emotional satisfaction. We all need to buy what is needed for comfortable staying.

(The writer is a Hyderabad-based financial consultant)