Scope for small investor

Despite present limitations,there is still scope for small real estate investors. We look at the factors to consider when investing

In India,small real estate investors do not have as much scope as institutional investors at the current time. They can hold multiple properties,but banks will generally not fund beyond a second home loan. That does not mean that they cannot invest from their personal accruals,however. Also,they certainly have the option of investing in rent-generating assets,which can fetch very decent returns if they have been purchased wisely.

Despite the present limitations,a property investment can give the buyer protection against inflation. Like gold,real estate tends to retain its intrinsic value. However,unlike with gold,it is possible to earn rental income on real estate. Depending upon various economic factors,a property owner can increase rent in times of high inflation. Also,real estate is always good investment option because of the possibility of capital appreciation. Of course,an individual must decide on the basis of his own income,existing financial health and risk appetite.

REITS and REMFs

Unfortunately,there is currently no way of predicting when they will become a reality. Small investors will only get real investment power when REITs Real Estate Investment Trusts and REMFs Real Estate Mutual Funds see the light of day in India. These vehicles will present them with a liquid,dividend-paying means of participating in the real estate market. We are all still awaiting clarity on the introduction of REITS and REMFs in India.

Developers Reliability

The extent to which one can rely on the professionalism of a developer depends both on the developers existing credibility in the market and on the strength of enforcement agencies specific to each state. Generally speaking,larger developers are becoming a lot more transparent and professional in their business dealings. There is increased accountability in the organized sectors,brought on by greater awareness among buyers and also increased investments by international investors. However,players in the unorganized parts of the market are often not subject to the same accountability.

Therefore,the safety of an individual real estate investors interests in a property transaction continues to depend a lot on personal research and understanding of the real estate market,especially in local terms,prior to purchase.

Primary Factors

Location,legal non-encumbrance of the property,present and future market drivers in the locality,duration of holding capacity,financial ability and personal investment objectives are the primary factors to keep in mind while investing in property. One should ascertain the correct entry point,which is a challenge in the current times. While it is understandable that buyers wish to wait for prices to fall,there is a definite danger in waiting too long for the perfect opportunity. Much as in the stock market,it is impossible to predict the point of lowest ebb in the real estate market. The buyer may lose out on the best properties and deals by waiting too long.

Individual property investors should be focused on what they are looking for,and should be selective about their purchase. Purchase decision should be based solely on the availability of a good deal in the location of choice.

When to Invest

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The right entry point for property investment is something of an enigma it can usually only be judged in retrospect. At the current time,smaller property investors should realize that certain areas within larger cities like Mumbai may correct in the mid-term; it may be wiser to delay purchase for eight to ten months. In the case of some other cities,the best time would probably be now. One cannot give a blanket judgment on this; the best course is to study the local market and inquire into the prevalent and expected dynamics there.

However,a good yardstick is affordability. One should also know how much of ones wealth can feasibly be invested in a real estate asset. Once determined,and a property with sufficient appreciation potential is available at the desired location and at a good price,an investor should make his move. Taking a speculative watch-and-wait stance should be a game of experts,who are also willing to risk a loss if they time their move wrongly. l

The author is joint managing director capital markets,Jones Lang LaSalle India