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Property is a long-term bet
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The changing environment in the property sector means fresh strategies for the investor.
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Every time equity markets slip into corrective mood, investors tend to realign their investment strategies. Surprisingly, you do not find this knee-jerk reaction when it comes to property. One of the reasons can be that property is considered a long-term bet and investors often tend to believe that property prices move only in one direction — upwards. However, the changing economic environment, both on the property front and on the borrowing front, necessitates a cor
rective course of action. Here are some tips for fresh investors.
Mid-sized property
There has been a growing concern on the supply side with metros and bigger cities having expanded capacity in the past three or four years. This is particularly true of three- and four-bedroom flats on the outskirts of cities and this has also put pressure on the rentals. While there has been a significant price correction in many of these properties, fresh investors should focus on investing in mid-sized flats, as they can prove beneficial in the long term. Also, the percentage of population which looks at investing in such property is always higher than that going for luxury flats, and even the rentals are not highly price sensitive in this segment.
Every property boom is followed by a huge shake-out, and in the coming days, you can see a number of small builders falling by the side. The growing liquidity crunch is putting pressure on small- and mid-sized builders who are deprived of earlier sources of funds, such as bank finance. The Reserve Bank of India has been tightening its grip on the property segment through tough lending measures and this has begun to take its toll. There are reports that even private equity funds are walking out of agreements in a few property deals. With the stock market too facing a rough patch, there may not be too many initial public offerings in the coming days. While bigger builders with good staying power may be able to tide over the crisis, coming months can prove tough for small- and mid-sized builders. That means inordinate delays in project completion and, hence, investors should exercise caution with respect to choice of property. Needless to say, a large company will be able to manage pressure of funding and liquidity crunch in a better way.
The second phase of the economic boom will be felt in tier II cities of India and that will be applicable to the property sector too. A number of information-technology-enabled-services companies have begun to step up their presence in smaller cities to take advantage of cost arbitrage and this will fuel demand for property. Investors with a horizon of over five years can look at some of the tier II cities.
Exposure to real-estate funds can be another investment opportunity. There has been plenty of action on this front with the Securities and Exchange Board of India announcing norms for the same. Income from these funds has been declared-tax free.
SRIKALA BHASHYAM
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Property Plus
Bangalore
Chennai
Hyderabad
Kochi
Malabar
Thiruvananthapuram
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