Real Estate 101: Understanding Property Types And Investment Opportunities

By Sanjoo Bhadana

Investing in the stock market is a game-changer for people who can keep an eye on it regularly, as it requires the full attention of investors from 8:30 am until the market closes. Due to its volatile nature, gone are the days when investing in equity was one of the best options. Now, people have turned towards the real estate sector as it is showing long term gains. It is considered to be the right move, especially when the sector is experiencing its peak.

For example, Gurugram has broken all records despite the water crisis in the area, and the prices of properties are soaring high. Delhi/NCR has become the most preferred destination for people who work in the IT sector due to the proximity of offices in nearby areas. Many big projects have moved to Noida, Greater Noida West, and New Noida as demand is increasing in these regions.

Why Prices Increase

As the government has announced multiple infra projects in Uttar Pradesh, it is shown that NCR is going to be a new residential and source of rental income for many people. During the E&Y Infrastructure Roundtable, Ajit Krishnan, EY India Partner International Tax and Transaction Services, said, “Investments in renewable energy and roads drive India’s infrastructure growth, paving the way for sustainable development.”

During the state assembly on 8 Feb 2024, Uttar Pradesh Chief Minister Yogi Adityanath unveiled the development of infrastructure projects and public welfare schemes that included plans for 21 new airports in the city. Post Ram Mandir opening, tourism has already witnessed its peak in Ayodhya, with 1.12 crore visitors until the temple was opened for all.

When such developments and announcements take place, property prices in certain areas increase, as people require proper connectivity, roads, water, and electricity.

Certainly, this isn’t the only factor impacting the current state of the real estate market. The geopolitical landscape has exerted significant pressure on the sector. According to Anarock Capital’s Flux report for the first nine months of FY24, PE investments experienced a decline of approximately 26 per cent. Both foreign and domestic investors recorded decreased activity during this period.

Despite the many bankrupt builders, Noida and Greater Noida West have attracted many big projects to the region. It shows that the real sector offers the potential for both regular income and significant lump sum gains. Now, Gurugram has become a dream for those who earn between Rs 15 lakh to Rs 20 lakh per annum, as property prices are skyrocketing. To match and dilute the huge price gap within Delhi/NCR, the Uttar Pradesh state has also increased the infrastructural development with basic amenities in the region to attract more buyers.

To understand this investment opportunity better, just take a look at Uttar Pradesh. The ups and downs in property values over a few years show how real estate investment can be dynamic, with both growth and risk involved.

Profitable Investment

After all the study and consideration of prices, buying a single room set is not as affordable as it was five years ago, but it is still a good investment proposition.

Rental income has also seen an all-time high in 2024. Yes, two-bedroom flats or three-bedroom flats used to provide rental incomes of Rs 10,000-12,000 in 2020. However, they have increased to Rs 19,000-25,000, respectively.

As an adjacent city to Delhi, people are migrating to earn their bread and butter and need a home to reside in. Buying or renting a home in Delhi has become an expensive affair, which opens the door for the NCR area.

Consider this scenario to understand the investment and income: Let’s say someone invests Rs 10-12 lakh to build a one-bedroom kitchen set. In just seven months, this newly constructed 1BHK apartment starts earning an average monthly rental income of Rs 15,000-16,000. With an initial investment of Rs 10-12 lakh, the return on investment (ROI) can range from 15-18 percent on average.

This example demonstrates the potential profitability of investing in single-family homes. Even with relatively modest investments, significant returns can be achieved through rental income, making them an appealing choice for real estate investors seeking stable cash flow and long-term appreciation.

Residential Properties:

During unprecedented times, the real estate sector faced significant challenges. However, the post-COVID scenario presented a starkly different landscape. With many companies reverting to in-office work setups and halting work-from-home arrangements, the residential real estate sector experienced a notable resurgence.

Despite the uptick in home loan interest rates, the residential market maintained a robust performance, reflecting a positive industry sentiment. One of the key drivers of this demand surge is the escalating rental values observed across various markets, as highlighted in recent studies.

Buyers are increasingly recognising the value proposition offered by ready-to-move projects over investing in new developments. This insight stems from past experiences, indicating that opting for ready-to-move properties presents a win-win situation. In contrast to the uncertainties associated with new projects, where possession timelines may be uncertain, investing in ready-to-move projects offers immediate gratification and peace of mind.

Prime examples illustrating this point can be found in projects along the Gurugram-Dwarka Expressway and Greater Noida West, serving as valuable case studies for investors evaluating their options.

According to a report, over 40 per cent of approx. 4.77 lakh homes sold in 2023 were in newly launched projects. The share of newly launched supply sales in pre-pandemic 2019 was much lower at 26 percent of approx. 2.61 lakh homes sold the same year.

An Anarock real estate report said that among the top 7 cities, NCR saw the lowest absorption of newly launched homes – of 65,625 units sold in 2023, about 27 per cent were launched during the year. The remaining units were sold in projects launched before 2023. Interestingly, Gurugram outperformed other markets in the NCR region – of 36,970 units sold in Millennium City in 2023, at least 35 per cent were newly launched.

– The author is MD of 4S Developers, a Gurugram-based real estate company. Views expressed are personal.

first published: April 28, 2024, 13:52 IST