Real estate isn’t a good choice for speculation, warns Sarita Hunt, Managing Director of Chennai and Coimbatore regions at Jones Long LaSalle (JLL) India, a global real estate advisory firm. Here’s her take on the markets and segments one could consider and those to avoid:
Given the lull in the market, how would you advise first-time home buyers and investors?
For instance, a collection of buyers can get together and ask for group discounts from the developer. Scrutinising the builder’s track record carefully is essential; if you are buying from a new developer, buy only when the project nears completion.
When buying a home as an investment, capitalise on the fact that the pre-launch phase typically has attractive pricing, which would steadily increase after the official launch of the project. Investments in land used to be attractive for self-development or eventual joint ventures. Today, land values in central and peripheral areas are invariably too expensive for retail investors.
What is your view on real estate as an investment?
It is prudent to include real estate investments, as it is a safe bet for wealth creation through appreciation over the long term. It can be an on-going alternate income source and also your retirement fund.
However, if you are looking at it for short-term speculative gains, real estate may not be the right choice. It is not as liquid as other investments, such as equity, and requires thorough due diligence before buying.
Your returns depend largely on local market factors, in addition to the global or national economic situation. Since the sector is very cyclical in nature, be prepared to ride out low periods.
What is your view on the commercial real estate space for investments?
Smaller office spaces in the Central Business District are always in demand, and likely to be good investment in terms of rental yield. Invest in properties already on a locked lease, though they would be at a premium, due to the guaranteed returns.
High net worth individuals can look at specific micro-markets such as the pre-toll section of OMR road in Chennai to buy rented assets to get guaranteed returns in the next 24-36 months. An alternative is to buy vacant office space at much lower capital values and take advantage of the increasing demand.
Any trends in property investment among women?
As more women join the work force, there is an increasing trend of women looking at buying at least one house. The reasons for investment could vary from asset creation to avoiding the intrusive behaviour of a landlord. Single, financially-independent women are seriously looking at investments that show value appreciation over the long term.
Among married couples, while husbands tend to do the ground work, research and initial negotiations, the sale rarely closes without the wife’s final approval.
What are your property investments?
All my property investments are residential, although I would have ideally liked to have land for future development and a portfolio of retail or commercial assets for better returns. Earlier, I had bought an apartment in Bangalore on the basis of ‘informed advice’ rather than visiting it and asking relevant questions. Thankfully, it was not a bad investment; however, in retrospect, I feel more due diligence was essential. I also discovered that investing outside one’s city of residence makes the logistics, overseeing, maintenance and so on a challenge.
My recent investment in Perumbakkam near Chennai was after multiple site visits, understanding the key facts and market conditions. I am confident this is one asset where my money is well invested. Likewise, I am confident of my investment in Porur and Padur in Chennai.
What will aid the sector’s growth in the next decade?
We see a majority of real estate development happening without much attention being paid to sustainability. For example, resources such as water are being used up without any thought given to renewing the depleting water table.
A greater push towards sustainable and renewable energy sources for commercial, retail and residential developments and restoration of the delicate eco-systems are needed to sustain future growth and market viability.