- If an investor chooses to invest beyond the traditional way of purchasing the property, he gets an option to invest across multiple locations and property sizes along with different classes of real estate.
- Virtual Real Estate investment makes scouting for off-market properties easier.
- REIT gives the investors an opportunity to invest in real estate as an asset class and generally offers a minimum of 7-8% annual return to small and middle-level investors.
With a decadal low GDP growth of 4.2% in FY 2020, the Indian economy was already reeling under stress and the Covid-19 crisis has further aggravated the pain.
Amid these uncertain times, experts believe that investment in real estate offers relatively lower risks, greater scope of diversification, and an income stream. The stock market volatility and the heightened need for shelter and protection in tough times are likely to make the investment in real estate an attractive option.
But, purchasing a home demands a lot of capital, and the interest rate on loans can weigh too much for a middle-class family.
However, there are other ways to invest in real estate without buying a property where one can earn steady cash flow without ownership.
Sudarshan Lodha, Director, Strata – a data-driven company that uses the latest in real estate analytics to find the best opportunities for investors, told The Blue Circle that this pandemic has brought about a drastic behavioral shift among the masses resulting in a sudden spurt in everything digital. Even the most traditional and conventional clients are now willing to adapt to new age mediums and invest online. This behavioral shift will further accelerate tech-enabled platforms across sectors including real-estate.
Virtual Real Estate Investing
Using real estate investment software you can do property research and investment property analysis and finally invest in a property. It facilitates remote real estate investing, unlike the traditional approach of physically visiting the site. Further, it is a cost-effective way to do out of state real estate scouting and investing that saves time and travel costs.
Fractional Real Estate Investment
“To disrupt the traditional investment methods and change with the new world driven by DATA, Strata was formed,” said Lodha.
At Strata, he is aiming to create India’s largest tech-enabled real-estate investment platform with a fractional investment model which enables investors to buy a portion of a property, so one can get all the benefits of owning a property without the upfront expense and ongoing hassles. This model is more relevant for prime assets in commercial real estate (CRE) where the stakes are really high and an individual investor may not be able to afford the entire asset. Strata also allows an investor to create a diversified CRE portfolio.
One can invest in fractions of premium commercial properties and earn a monthly rental yield & build long-term wealth. It is emerging as an investment avenue for the aspiring middle class and retail investors, an asset class known largely for institutional investments. This concept has been prevalent in Europe and the US and is now picking up in India as well.
Real Estate Investment Trust
Real Estate Investment Trust or popularly known as REITs is a specialised company that makes debt and equity investments in commercial real estate. Introduced in the year 1960, it gives investors an opportunity to invest in real estate as an asset class. REIT generally offers a minimum of 7-8% annual return to small and middle-level investors.
It functions similarly to a mutual fund where investors hold shares of the REIT and earn returns in the form of dividends, depending upon the performance of the investments. As per the REIT guidelines, at least 80% of the value must be invested in revenue-generating assets, the remaining can be invested in under-construction projects. The investors invest in REITs majorly for higher income and long-term growth.
Recently debt MFs and deposits in banks have been seen as rather risky investments, so REIT investments are likely to pick up which would be beneficial to builders as well.
Since its listing in April 2019, till June 25, 2020, Embassy Office Parks REIT has yielded more returns than those generated by the BSE Realty Index.
As per a report by Anarock, REITs yielded 14% returns during the period, outperforming the BSE Realty Index’s negative returns of – 20% by a huge margin.
Lease and rental norms are comparatively simpler in foreign countries than India which is a big reason why REIT is becoming increasingly popular outside India.
Other Ways to Invest
One of the other ways to invest is through real estate wholesaling.It is a form of property-flipping wherein the investor, also called the wholesaler enters into an agreement to buy a property that they believe is under-priced.
After selling the property to the end-user at a profit, the wholesaler earns revenue in the form of a fee that is attached to the transaction – a certain percentage of the overall property cost.
Another attractive way is by investing in Mutual Funds. Real Estate Mutual Funds is a great way to diversify your real estate portfolio. The concept is similar to a mutual fund — the investor owns a portion of the mutual fund while the company itself owns the investment that it makes.
You earn in the form of a dividend or a certain amount of share appreciation. Real estate mutual funds primarily invest in REITs, real estate stocks, and direct purchases of residential, commercial, and industrial units.
The earnings from real estate mutual funds depend on several factors such as demand and supply demographics, market conditions, and interest rates.
Nowadays, online real estate investment platforms are becoming popular. With a focus on both residential and commercial real estate, the online platforms pool funds from several investors and invest in opportunities that otherwise would be expensive for an individual. These range widely in terms of investment offerings, property types, and investment minimums.
Online platforms provide the investors an option to invest both in a single property or a diversified portfolio of real estate. However, the medium is best suited for those who can afford to leave their investments uninterrupted for an extended period of time.
The last is a hard money loan, which is basically a loan by an individual to a real estate investor. It is also known as a bridge loan. It is a short-term lending to finance an investment project. The loan is provided on the basis of the value of the property secured. Usually, the lender provides credit up to 65-75% of the property value and earns by way of interest, which is generally higher as compared to the conventional property loans.
The Covid Impact
According to real estate consultant Knight Frank, private equity (PE) investments in the sector plunged 93% this year till May 31. Between January-May 2020, private equity investors have pumped in $238 million in India’s real estate market from $3.38 billion a year ago. There has been only 1 deal during the same time period this year as compared with 11 deals the previous year. Warehousing and office have also seen 96% and 86% drop in equity investments this year.
However, Lodha believes that the change in investment climate has also brought about a shift in the asset allocation in terms of investors parking their funds. Investors are looking for stable and non-volatile investments considering the uncertainty and volatility in all other asset classes.
“Assets that have greater human density seem to have been hit the hardest. By contrast, self-storage facilities, industrial facilities, warehousing, and data centers have faced less-significant declines and hence make it the most lucrative and resilient asset class in such times,” concluded Lodha.
(Edited by Anu Choudary)
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