Is It The Right Time To Invest In Real Estate?
September 2017


For people who have been in two minds whether to invest in real estate or not, there’s some news which will bring clarity. According to a report by Knight Frank, prices in the residential real estate market in India appreciated 10.5% in 12 months and 70% (absolute) in 5 years ending June 2017. The findings of this report are completely contrary to what the general perception has been about the real estate sector in the country for the past couple of years. Mostly, it was believed that the real estate sector is going through a bad phase with huge unsold inventory. However, the findings of the report present a completely different scenario.

For the past couple of months, due to various policies and initiatives of the present government, such as demonetization, implementation of GST (Goods & Services Tax) as well as Real Estate (Regulation and Development) Act, 2016 (RERA), real estate sector experienced a temporary slowdown. Although, real estate has always been a favorite investment avenue, these policy initiatives made it unattractive in the short term. Numerous prospective buyers postponed their decision to invest as they were still speculating on how these policies will pan out in the long run. According to the findings of this report by Knight Frank, the residential real estate prices have seen tremendous growth from June 2016 to June 2017. Due to this, India has found a place for itself amongst the top 10 international real estate markets in the past 12 months.

Things To Consider While Investing in Real Estate

The returns on any real estate investment depend on a number of factors, such as location, nearby infrastructure, type of construction, prevailing economic conditions and so on. The returns vary from city to city and within the city itself they vary from one area to another. Certain Indian cities like Mumbai, Bangalore and Pune have micro-markets that have performed better than other areas due to affordability, connectivity, infrastructure development and job creation. They have yielded as much as 15-18% (absolute) returns in the past one year. At the same time, there are micro-markets in the same cities that have witnessed depreciation in value.

Although, real estate sector has seen an overall growth in the last one year, the returns are very city and micro-market specific. The general trend has been that the residential prices in tier II cities increased much more compared to the metros and tier I cities during the last one year. The tier II cities like Lucknow and Kanpur saw infrastructure projects, metro constructions, etc. and thus the real estate prices appreciated. That’s why, before making an investment decision, it is important to keep all these factors in mind.

According to the industry experts, policy initiatives of the present government will have a positive impact on the sector in the coming 5 years. Due to RERA, there is more transparency in the sector and the projects are being completed on time. The government is pumping in a lot of money in infrastructure projects, which would soon lead to better connectivity, ultimately resulting in higher growth in both commercial and residential real estate. The commercial office space sector will get a big boost from REITs (Real Estate investment Trusts). Government initiatives like Make in India, Startup India and Skill India combined with an expected increase in foreign direct investment, India’s real estate is all set for some real time growth. This is the right time to invest in the sector as higher returns are expected in the coming years, provided the right city, location and property is chosen for investment.