Saturday, April 18, 2009

Is this the right time to invest in Indian Real Estate?

This issue, I am answering a question about real estate investment, which has been asked by Ms. Rajni from Jaipur. She wants to know is this the right time to invest in Real Estate? And if so, then where?

Dear Rajni,

Thanks for asking your question. I think quite a few people might be having this same question in mind, but are confused about the answer, more so after reading all kinds of reports in the newspaper. Let me try and help.

Based on my experience in Real Estate industry in India, almost all real estate developers were, so far, earning a ridiculous margin of ~30%. Nowhere in a developed nation, does a developer earn such a huge margin – typically there the margin varies anywhere between 8 – 12%.

Therefore, what the global recession & meltdown has caused is that it has actually brought the Real Estate pricing in India to a more realistic level. However, it is also to be understood here that the Indian developers, who are so used to taking the Indian customers for a ride, for so long, will still find out some very ingenious ways of fooling people.

Therefore, when you are looking at buying a real estate property, please ensure that:

1. You have done enough study about the financial condition of the developers in the market before you have zeroed on a couple of them
2. You need to read the brochure and all documents carefully, more so the fine prints, and show that to a lawyer who deals with real estate. More often than not, a developer only sells a bare shell apartment without even the door frames or switch boards, but the buyers don’t understand that as they are given a very different picture by the developer in the form of brochure and model apartments.
3. And most importantly, do proper due diligence of the project, ownership of land, viability of completion as mentioned, financing structure, etc.

Now, going back to the question - is this the right time to invest? Yes, it is. But not without a proper negotiation. All developers shall give you additional 10-15% discount on price quoted by them if you can negotiate well, without any changes in the payment terms.

But what are the markets that you can invest into? Based on the question I am assuming that you are looking at Real estate as an investment and not for residential purpose. In that case, Bangalore is looking quite good. Sobha developers, and I strongly recommend them, has come up with some new projects that fits perfectly into our bill. Chennai, particularly the OMR side, is again a good option – all major developers here have slashed prices like anything. Gurgaon is also a good option, so is NOIDA. I would suggest that you stay away from Delhi though, since the land price here would be quite high.
Another good option is Kolkata - this is one city which is not much affected by the recession in terms of its real estate, though some segments like Rajarhat, New Town, is quite badly hit. Areas to invest would be South 24 Parganas, or along the Hoogly river.

Among the 2nd tier cities, Bhubaneswar is a good option. Leave Cochin, but can bet on Trichy. Jaipur is avoidable, but Indore is a good option