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Property is considered a long- term bet
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The changing environment in the property sector means fresh strategies for property investors, says SRIKALA BHASHYAM
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Every time equity markets slip into the corrective mood, investors tend to realign their investment strategies. Surprisingly, you don’t find the same knee-jerk reaction when it comes to property. One of the reasons could 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, nec
essitates a corrective course of action. Here are some tips for fresh investors.
Bet on mid-sized property
There has been a growing concern on the supply side with metros and bigger cities having expanded capacity in the last 3-4 years. This is particularly true of 3-4 bedroom flats on the city outskirts and this has also put pressure on the rentals. While there has been a significant price correction in many of these property, 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 the luxury flats and even the rentals are not highly price sensitive in this segment.
Stick to well-known names
Every property boom is followed by a huge shake-out and in the coming days, you could see a number of small builders falling by the wayside. The growing liquidity crunch is putting pressure on small and mid-sized builders who are deprived of earlier sources of funds (like bank finance). The Reserve Bank 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 away from their earlier agreements in the case of few property deals. With the stock market too facing a rough patch, there may not be too many IPOs (Initial Public Offering) in the coming days. While bigger builders with good staying power may be able to tide over the crisis, the coming months could prove tough for small and mid-sized property builders. That could mean 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.
Tier II for investment
There is a growing belief that the second phase of economic boom would be felt in tier II cities of India and that would be applicable to the property sector too. As you are aware, a number of ITES companies have begun to step up their presence in smaller cities to take advantage of cost arbitrage and this would 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 for those who look beyond physical property investments. There has been plenty of action on this front with the capital market regulator, Securities and Exchange Board of India, announcing norms for the same. The good news is that income from real estate funds has been declared tax free and investors looking to invest in property with liquidity features can invest in real estate front. A couple of funds have already launched the product and more are expected to join the bandwagon.
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Property Plus
Bangalore
Chennai
Hyderabad
Kochi
Malabar
Thiruvananthapuram
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