Things To Keep in Mind When Investing in Residential Property

Since time immemorial, property purchase, whether as an investment or as a dream home, has been an important milestone in one’s life. In India, the significance of ownership of residential real estate has grown over the recent years with increasing income levels, especially of the urban populace. 

While commercial real estate has been quite popular with high net worth individuals (HNIs) as it helps provide a way to earn regular income, residential real estate is relatively more accessible and easier to manage for a majority of investors. 

With the size of investment being much larger than a typical investment in capital market instruments, one needs to carefully study some of the important factors prior to deploying hard-earned savings accumulated over many years into a residential property purchase.

Factors To Keep In Mind When Selecting Your Residential Property

Choose the City Wisely

If one is looking for the right property to add to his or her portfolio and not to live in, the choice of city is the first factor that needs to be considered. Real estate in India is not monolithic in nature, with each city experiencing varied demand-supply dynamics. For this reason one needs to primarily look at cities that are witnessing rapid demand growth. 

The gestation period of a typical real estate project in India, prior to the open market launch, and the quantum of capital involved may result in periods of excess supply. In cities that do not generate the appropriate number and type of job opportunities, leading to slower population and demand growth, developers end up opting to reduce prices to cope with slower supply absorption. 

However, in cities that attract talent with better job opportunities leading to faster population and demand growth, developers tend to hold on to prices, thereby making investments in these cities safer. Thus, demand growth in a city not only aids the growth of market value, but also makes the investment safer.

Growth in Household Income of a City

Property prices are not only pegged to inflation but also to the growth of median household income of the city’s workforce. This growth in income level is another important factor that one needs to study while considering a city for investment. A reliable method to evaluate this is a study of the demography of jobs in a city. 

One needs to look at cities with their economies driven by knowledge-based sectors such as technology and its related sectors, as the median salaries in these sectors are much higher than those in sectors such as manufacturing. 

Accessible Socio-cultural Amenities

Choosing the right city only marks the start of the process of selection of an investment destination. Micro-markets within each city tend to have different trajectories of growth based on various dynamics. 

Locations closer to those with a high density of knowledge-based jobs have larger internal migration of people working in this segment, which drives demand for homes. With people preferring that their kids not travel long distances on a daily basis, proximity to good schools is another important factor that gets considered while buying homes and should be high on the list for those looking at a property investment in the area. 

Connectivity 

Micro markets with easy access to wide roads and public transport, especially metro are expected to be increasingly favored by buyers in future. Metro connectivity enables one to work and commute to anywhere in the city while staying in the location of their choice. 

Homes in close proximity to metro stations will add a huge impetus to their demand especially in cities with congested roads, making them appreciate in value at a pace faster than homes that do not have this connectivity advantage. Projects near metro stations will give investors a better return on their investments compared to equivalent projects that are not within walking distance of the stations.

Architecture and Design 

The multiple waves of the pandemic and the ensuing lockdowns have resulted in people in major cities spending longer hours in their homes. This has elevated the need for larger and flexible spaces within one’s home in addition to large open spaces and amenities within one’s community. 

Typically, buyers consider the numbers mentioned as the carpet area of a home, without delving much into how the carpet area has been laid out. A buyer needs to study both, master and floor plans thoroughly to understand the practical usability of design and magnitude of usable spaces in the project. 

With respect to floor plans of homes, one needs to evaluate if all of one’s furniture can be accommodated while also keeping in mind the availability of adequate spaces for one’s family. Only if the plans have adequate spaces for everyone to work or study independently, will the homes have demand in the end-user market. 

The importance of large open deck areas within the privacy of one’s home can also not be ignored for the family to relax without having to step out. 

Outdoor Spaces and Density of Amenities 

In addition to superior floor plans of homes, adequate outdoor spaces and amenities within one’s community need to be high on the buyer’s priority list while shortlisting projects. Not only during the extended periods of lockdowns, but also from a long-term perspective, most home buyers prefer to have all the leisure and sports amenities easily accessible within their own communities. 

This is a trend that is more evident with the growing income levels in high-growth cities which leads to higher priority being given to fitness and leisure in these cities. While an investor needs to look at the range of amenities in a project, the finer aspect of the functional usability of these amenities needs to be studied in detail. 

The per-capita density of the amenities decide how accessible they are when the demand for the amenities is at its highest, say, for instance, on a Sunday. Communities that have a wide range of amenities that are functionally more usable are bound to witness superior growth in demand in the long run, thereby providing superior investor value.

Take Note of Underlying Reality Before Investing

For many years in the past, most developers focused on ironing out the inefficiencies in the system, while building projects that weren’t designed thoughtfully. These projects soon became obsolete with the buyers feeling the need to upgrade within a few years of moving in. 

  1. With the industry getting more mature and organized, there is an increase in design-focused developers in the market, and one needs to look at this segment while purchasing residential property. 
  1. Projects by these categories of developers are bound to witness superior value appreciation for both investors and end users alike, having incorporated functional usability in their designs making them future proof as a result.
  1. Transparency and fairness in pricing is a very important aspect one needs to look at prior to purchasing a property from any developer in the market. The pursuit of getting the “best deal” for a property may not always be pleasant, speckled with complex and variable pricing for investors and end users. 
  1. This may lead to units being offloaded at lower prices by buyers who were able to negotiate a lower price, affecting the profitability of others. For these reasons one needs to delve deeper into the pricing and sales practices of developers and shortlist projects of only those offering comprehensive transparency. 
  1. This will not only ensure saving precious time, but also avoids unnecessary stress, enabling one to allocate their time towards considering other features of the project listed earlier.

Bottom Line

The Indian market currently offers a wide range of options for investors in residential real estate. If one is willing to invest sufficient time to research the right property based on the above mentioned factors and also give the investment sufficient time to perform, residential real estate could prove to be an apt investment avenue for those seeking safe and predictable asset classes.