Real estate- As an asset class !

Share

Real estate, often referred to as an ‘alternative asset ’, is increasingly gaining importance in investors’ portfolio today. Real estate includes land, properties, buildings, apartments, etc. but excludes property for self use like your home.

In a developing country like India, there is a large portion of land where modernization and industrialization is still under way.  Hence there are many investment opportunities available, especially in smaller cities, towns and rural areas, where real estate is significantly undervalued. The key is to identify such opportunities at the right time and reap the benefits of higher value in the future.

 

There are a number of ways you can invest in real estate; directly in property, in stocks of real estate companies or even invest through real estate funds.


Most Indians prefer investing directly in real estate, as not only is it often considered to be a matter of pride and social status but also usually has a very high growth rate. It is a great investment as you can earn regular rental income and also benefit from the expected capital appreciation. As lucrative as it does sound to invest in real estate, it is a risky asset class. We at Fpguru.com suggest a few considerations you should keep in mind before investing in real estate.


Real estate is an asset class that has low liquidity; hence you must take into consideration the timeline of your financial goals at the time of investment. It is very important to exit well in time to meet your financial commitments so that you are not compelled to sell in distress for a lower price.

 

Real estate is considered to be a long term investment, as most often it is expected to give better returns in the longer run, thus you should take your investment time horizon into consideration before investing. Your investment in real estate can generate a regular rental income and provide a steady cash flow. However, it could be risky if you are dependent on your rental income, as there is always a risk of your property being unoccupied for some part of the year. Owning your own property requires more time and effort as maintaining it is your responsibility.

 

You must ensure you purchase your asset from a trustworthy agent or developer/owner and negotiate a fair price. When investing in property, it is essential that you do your due diligence and appraisal of the condition of the property. You must also ensure that the title to the property is clear and is not under any sort of litigation.

 

Investing at an early stage in reliable upcoming projects can provide great capital appreciation as the prices set by builders are generally considerably lower in the initial stages. However it is very important that you do your research of the builder and also request for exhaustive plans and signed documents with all the property details and expected developments.

 

You can also invest in real estate stocks and benefit from the profitability of the real estate companies. Investing in shares of real estate companies can provide potentially high returns if timed well, however you must research the companies well and analyze the fundamental factors that affect their growth as well as profitability.  Real estate stocks can be very volatile and risky, as seen in recent times; they have significantly underperformed the market.

 

Many financial institutions have launched professionally managed real estate funds that invest in projects of developers and share profits or earn interest. Although, these funds are typically meant for High Net worth Individuals (HNI’s) and corporate investors and not suitable for retail investors, as the entry level is generally very high.

 

As investors, our portfolio most often consist of stocks, bonds, and other securities hence investing in real estate can be a great diversification strategy. You should take into consideration your risk appetite and investment capacity before deciding on the kind of real estate investment. Most importantly you must ensure that your prospective investment in real estate is in sync with your financial goals and also fits in your comprehensive financial plan.

 

By Riddhi Agarwal

The writer is working with Fpguru.com


 

 

Comments  

 
0 #2 Fpguru 2011-11-22 11:44
@ harsh thank you for your comments.
Quote
 
 
0 #1 harsh 2011-11-22 11:40
very informative !!
must read for real estate investors
Quote
 

Add comment


Security code
Refresh

Related Articles