How to earn more from the real estate rental segment
Rental solutions have been key to addressing India’s housing challenges, and the country’s rental real estate holds immense potential. In 2017, the rental real estate market was pegged at one crore units and was valued at $22 billion (Rs 1.53 lakh crore). By 2023, its volume is expected to be 1.8 crores and valuation $41 billion (Rs 2.85 lakh crore). However, maximizing rental yields has been a challenge for the rental real estate market. Low rental yield and poor capital appreciation, especially in the past two-three years, have hurt investors. However, smart choice of investments, value-added services and a host of online rental disrupters can be a game-changing recipe for India’s rental real estate market and investors. You can earn a higher rental yield if you keep the following factors in mind:
Invest in affordable homes: Magicbricks data suggests that yields in the affordable homes segment are higher compared to the mid-level or luxury segment. There is also a significant variation between yields based on their capital values (₹/sq. ft). We have observed across cities that properties priced below ₹6,000/sqft have an average rental yield of more than 3%. On the other hand, properties priced at ₹6,000 per sq ft or more had rental yields between 2.4% and 3%. Hence, from a rental income perspective, it makes more sense to invest in affordable properties. This trend holds across most cities. Invest in affordable real estate markets: Homebuyers must keep in mind that while the broader real estate market has remained flat, there are some micro-markets across metros and large cities where property prices are reasonable and investors can expect good returns. On a pan-India level, the average yield per sq ft stands at 3%, but there are some micro-markets where the rental yield can go up to almost 4.5%.
Luxe in Flux
Knight Frank in its recent report – Global Outlook 2019 revealed that luxury homes in Mumbai could cost less by the end of the calendar year 2019 (CY19). The city is likely to witness a drop of five percent in luxury home prices in CY19 with the global average standing at one percent. Experts believe that this statement would be music to the ears of buyers and developers. After all, the demand has been nothing but subdued. “The luxury market in Greater Mumbai has been under stress for almost five years now as evident from the stagnant prices, which have grown at a CAGR of less than two percent since 2014. Also, this segment has always been sensitive to macro-economic scenarios; hence, with the ongoing NBFC liquidity crisis, we foresee a correction in this particular segment as builders will try to stay afloat. Further, our research suggests that a lot of top-grade developers are planning to bring in new supply in Worli and Mahalakshmi with smaller sizes and lower rates,” says Pankaj Kapoor, MD, Liases Foras.
Today, luxury housing, in addition to the usual string of good quality amenities, has also gone ahead and partnered with global icons in different segments such as sports, fitness, and beauty, whose services are provided to the end-users. Builders, too, are offering discounts and incentives in the form of a waiver of additional charges like floor rise, parking, etc. “Now, luxury homes are not relying, as much as they did in the past, on celebrity endorsements but are focusing on product differentiation, the quality, the bespoke services on offer and location. In fact, according to our research, India is expected to see a rise in the Ultra High Net Worth Individuals (UHNWIs) by 39 percent across key markets in the next five years, which could provide a fillip to this segment,” says Girish Shah, executive director – residential services, Knight Frank India.
Source: Times Property, Saturday 20 April 2019
Tax incidence of REIT’s is complex
Real estate is one of the vital sectors of the Indian economy. It’s the second largest employer in the country if you consider its four cornerstones – housing, retail, hospitality, and commercial spaces. The sector is expected to be a $650 billion sector, and its share in India’s gross domestic product (GDP) is projected to double from the current 7 percent by 2040. Real estate investment trust (REIT), therefore, is an excellent opportunity for investors who want to get a slice of the growing reality pie.
REITs allow good income from high-end properties: REIT is an investment vehicle which enables individual investors to earn income through the underlying commercial real estate, without directly owning it. The market experts speculate that REIT would act as a game changer since it can bring the much-required liquidity in the market with investment from retail and institutional investors. It is difficult for a retail investor to get exposure to commercial real estate directly as the investment required is very high. For grade-A commercial property, it could be Rs.5 crore and above. Exiting such large investments can also be time-consuming. Many of these challenges of investing in commercial real estate get taken care of when an investor takes the REIT route. Investors can enter REITs with just Rs.2 lakh investment. Exiting these investments should also be less difficult as units of REITs are listed on the stock exchanges.
High Court quashes BMC’s capital value rules as basis for property tax
The Bombay High Court on Wednesday struck down certain rules enacted by the Brihanmumbai Municipal Corporation (BMC) for assessment of the capital value of a property, based on which property tax could be levied. The high court said all assessments and bills issued under these rules stand quashed. A division bench of justice Abhay Oka and justice Riyaz Chagla, however, upheld the constitutional validity of the 2009 amendment to the Maharashtra Municipal Corporation Act that had changed the levying of the property tax basis in Mumbai from the rateable value on standard rent to capital value. “Rules 20, 21 and 22 of the Capital Value Rules of 2010 and 2015 are struck down as they are ultra vires to the Corporation Act. All assessments and bills issued under these rules stand quashed and set aside,” the bench said in its order. The court said the civic body would have to give a fresh hearing to the complaints. The bench stayed its order till August 31 to enable the BMC to approach the Supreme Court in appeal.
Besides basic amenities, every home-buyer should ensure certain infrastructure details before he takes the big buying decision. Having a home in the hub of the city with fully equipped infrastructure to boast of is what every home buyer aspires for. In a city like Mumbai, it is easier to do so. But when you are looking for a home beyond the city limits, you have to take a close look at not just the basic amenities and markets that fulfill your daily requirement, but much more than that. While projects in prime locations may seem alluring, buyers should also consider the future prospects of the project and the infrastructure developments in the location.
Residential versus Commercial: It is important to gauge, if the location that you are considering, will be developed as a residential or commercial area. A fully residential area with a fair mix of commercial centers offers good living conditions. However, a residential property in a fully commercial area may not be a wise choice in the long run. ‘Green’ quotient: With global warming now a reality and most metropolitan cities facing problems of pollution, a home that offers more ‘green’ aspects have several advantages. Buyers can check if the property is equipped to conserve energy and has enough natural light, as such provisions will help to save power and money in the long run. Proximity to a highway or an infrastructure project: While proximity to an upcoming highway can boost the property’s price, there can be other associated problems. Regular pollution from the busy highway can cause health problems.
Source: Mid-Day, Friday26 April 2019
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