10 reasons to invest in real estate

29 JULY 2017
In today’s fast pacing world, there are many kinds of investment opportunities available like mutual funds, buying and selling of public stocks and shares of companies. People often resort to these ways either through their own market sensibilities or through the help of a broker. But the dilemma that eventually everyone faces is the decision making issue as better yields are riskier, while safer bonds return lower yields.

Hence, competitive as it is, investing in real estate has always been a popular investment option among Indians since years. The fact that propagated this notion is that it is one of the most profitable sectors to invest in, with minimum risk to undertake as compared to other arenas of investment. Despite recent downfalls, the Indian real estate market has bloomed significantly and has stayed the most robust in all the investment classes. That being said, here are some reasons to start investing in Indian real estate, now:

Its safe

There’s a reason why ‘safe as houses’ is a well-known phrase: it’s true. Real Estate market stands steadily without the volatility of the share market, making it an all-round safer investment. When you factor in the return and risk associated with buying property and shares, property wins hands down. Shares have [marginally] higher capital growth, but the difference in risk is huge. The risk is measured in variation in returns and capital growth (or loss) on shares can range from +40% in a year to -40% in a week! You don't get that sort of variation in property; hence it is considered a safer investment.

Bricks and mortar:

Another factor which is comforting to many investors is that they’ve invested in something tangible – something they can ‘look at and touch’. Property is one of the few investments which you can actually see and feel, and this often makes it feel more real. You can’t take your friends for a drive on a sunny day past your share portfolio. While much of this may be a psychological comfort, there’s also a monetary benefit. After all, even if the worst happens, the fabric of the property and the land underneath will still have some tangible value – unlike shares in a company that’s gone under.

It’s easy to get started:

You don’t need specialist knowledge to start investing in property: in fact, a lot many property investors didn’t start off intending to make their fortune through property. Instead, they just bought a house to live in. It’s only after seeing the value of their home increase – and realizing how much wealth you can generate – that many investors take the leap and start proactively investing.

It’s an asset you can use:

Investment or not, your property is still just that – a property. So, should events take a turn which means you have to move into that property, you can whether for the short term or the long term – and, if things change again, you can move back out, leaving your investment intact. That’s a hard thing to do with a share certificate or a bar of gold.

It’s easier to research than stocks and shares:

Playing the stock market requires a lot of education. You have to understand how the system works; understand the complex world of trading, including the different kinds of financial instruments used, as well as research brokers and fund managers. Investing in property, meanwhile, is much simpler: at its most basic, you can simply jump online and start looking at properties. Admittedly, there’s more to getting property investing right than just picking a property, but a significant amount of research can be done online or on your own without having to garner reams of specialist knowledge beforehand.

It’s relatively easy to get finance:

It may not feel like it when you’re applying for a mortgage, but lenders like property. Home loans are a major part of any bank’s business model, and lenders are more likely to lend on residential property than any other asset class – as evidenced by the fact that they will lend a higher proportion of the value (up to 95%) and at lower interest rates than any other asset class – including commercial property. This makes it a lot easier to borrow to invest in property than in any other asset class.

You can use leverage:

Borrowing to invest in property also means you get greater access; one of the oldest and most powerful tricks in the financial book: leverage. You can borrow more when using property as security as compared to using a share portfolio. Lenders will lend up to 95% of the value of the property, whereas they may only lend up to 50 or 60% of the value of a share portfolio. This greater borrowing power allows you to benefit from the capital growth of a larger asset.

100% control:

If you invest in the share market, you typically need to hire a broker to handle your trades for you, and the value of any shareholding is reliant on market conditions and the actions of the people running that company –introducing an element of uncertainty. This is much less the case in property: once you’ve settled, you directly own the asset and you have complete control over it. That’s a hugely powerful thing, as it means that you can influence both asset worth (by adding value) and cash flow (e.g. by raising the rent) directly – something that is not possible to do with shares in a company.

You can renovate & add value:

Talking of influencing asset worth, there are a number of strategies you can use to do this, in ascending level of difficulty and cost. One of the most common is cosmetic renovation – buying a tired property and sprucing up the interior and exterior. This can vary from simply repainting and putting in new carpets, to putting in new kitchens and/or bathrooms and landscaping gardens.

It’s a tried and true method of increasing the value of a property – even the outlay of just a few lakhs of rupees can add twice as much to the right property. , The next step up is the structural renovation: adding bedrooms, bathrooms and so on. This is more complex than a simple cosmetic job – with more scope for things to go wrong and costs to blow out – but can also be significantly more profitable.

You can develop:

Biggest risk and biggest reward is taking an existing property or vacant block, subdividing and building upon it – usually units or townhouses. The profits can be substantial – if you can get it right. Buying property that can later be developed can equal massive profits. These types of opportunities cannot be found in other asset classes. So start early to make investments and enjoy the fruits of smart choices!