If you haven’t cleaned up your existing real estate portfolio in the hope that 2019 will give you better prices, get real. Sell.
A new year should begin with choices. So that’s what I’m going to do. Break down this year’s customary forward-looking piece into a simple to-do sort of laundry list. After all, come hell or high water, prices up or down, most of us crave to own at least one fabulous piece of property or more.
My opening disclaimer:
Making money in residential property will be a sideshow in 2019. There hasn’t been any sudden collapse in India’s home market. It’s a desperate lull. So please ignore the spiel about fancy sales and new launches looking better in 2019. Anything will look better after the rock bottom we hit post demonetisation.
So what should you do?
For all those (erstwhile) savvy investors sitting on a couple or more residential properties bought in the heydays of a rising market, I’m sure you’ve already hit your moment of truth. By now, you should have cleaned up your real estate portfolio. If you haven’t, in the hope that 2019 will fetch you better prices, please get real. Sell. Anything more than one home you live in and one as an asset diversification is an outright sell. And hold on to the second property ONLY if you can rent it.
Sure, rental returns on apartments and homes are disappointingly low at 1-3 percent. But a vacant property locked up is sheer stupidity. At least your home is lived in, looked after and maintenance paid. If you want to avoid the headache of being a landlord, there are enough smart professional rental services such as Nestaway, Housewise and Potiqo that will do it for you. You can even Airbnb your home. Just don’t let it gather dust.
In case you’re wondering who does that — I mean who leaves a flat vacant and locks it up — you’ll be surprised. Such is the distrust of leasing out homes in India that this is not a minority group. NRI (Non-Resident Indian) property owners make up for a big chunk of this section.
“Of course I want to rent my apartment. I’m not stupid, but there are no takers.” Buddy, if this is your grouse, then bring the rent down. And if there are still no takers, SELL! You’ve obviously bought an apartment where job creation, connectivity, facilities or quality of living are less than desirable. You clearly don’t have a knack of picking a winning property. So stay away from this asset class till you wise up.
Enough of being a killjoy. It’s a new year and a pretty good year for all of you with a clean portfolio – meaning there is no dragging real estate in it.
Prices haven’t gone anywhere in three years, people! So yes, if you want to buy, you should buy. At the very least, you won’t be buying at ridiculously expensive prices.
Where you buy shouldn’t matter if it’s your first home. Right? Wrong. It should. No one views real estate as a utility purchase. It’s too big a chunk of one’s life savings.
For that very reason, avoid getting emotional about property. Say no to buying property in Gurgaon, while you’re working in Chennai, because you’re from NCR and your friends and family live here. What’s the hurry? When you move to live in Gurgaon, buy in Gurgaon. That FOMO (fear of missing out) should once and for all be put to rest.
Don’t even think of buying property where your siblings/friends might be so that you can all live happily after retirement, which might be a good 5-10 years away. There will be enough choices to buy closer to the R-Day. I failed to convince a friend’s NRI relative against buying a villa in a ghost township near the Hyderabad airport. She bought with no definite plans of ever returning to India, just because her sisters bought there. Logic simply didn’t work.
Second disclaimer: The above wisdom is in hindsight. I too have fallen and fallen hard at that into the emotional buying trap. Thankfully, I cleaned up my portfolio pretty quick. Amazing isn’t it, how many of us put our hearts on our sleeves when it comes to real estate?
If 2019 is your year of purchase, keep these rules handy.
The Affordability Rule: You buy what you can afford. You want to stretch a bit to discipline your spending habits, go ahead. But stretching too much is never a good idea. Your home loan EMI should not exceed 30 percent of your post tax income.
If it’s a pure investment and a second property is what you’re looking for, I guess you have a problem of plenty of free cash and don’t know what to do with it. Even then, property shouldn’t be more than 25 percent of your total investment portfolio. Many of us have shunned real estate in recent years and parked all our savings into equity, direct or through mutual funds. The New Year is looking iffy even for that asset class.
So if you want to return to the excitement of property hunting as an asset diversifier and pride yourself at finding great deals, 2019-20 is not a bad year to do so. Expect some distress sales to come into the market. The holding power of erstwhile investors and leveraged builders is thinning out.
The Location Rule: You buy as close to employment hubs as you can afford. Make sure your chosen location ranks high on connectivity and social infrastructure like schools, hospitals and entertainment zones. There’s a reason why Hinjewadi (Pune), Gachibowli (Hyderabad), Thane (MMR) Electronic City (Bengaluru) and Golf Course Extension (Gurgaon), according to Propequity data, have been the most resilient markets of 2018. If you keep an eye on office leasing trends, or where big companies are taking up space to set shop, you can make some smart bets in real estate.
The Trust Rule: When it comes to India, you should buy real estate from a name you absolutely trust. A developer who has a very strong track record. Don’t go fishing in unknown waters just because it’s a RERA-registered project. And make sure you don’t buy from a builder who is sitting on a huge pile of debt. With easy access to news, it’s not hard to gather those names.
The year 2019 is a sure shot buy for the first-time home buyer. Don’t hesitate. The credit linked subsidy scheme for middle income housing has now been extended to March 2020. Make the most of tax breaks, subsidy and moderate prices.
But an investment call? Not 2019. I promise to give an unconditional buy call on India’s housing market the day rental returns from residential touch even a modest 5 percent. But you won’t need my wisdom then. You’ll be smart enough to take that call.
Until then, we all have something else to look forward to. The Blackstone-Embassy REIT, India’s first. With a 6.5-7 percent likely annual yield plus asset value appreciation, this investment could potentially offer strong double-digit returns. And all you will need is Rs 2 lakh to diversify and own a sliver of the country’s most coveted office space. That’s the big 2019 story for investors.
Manisha Natarajan is Group Editor, Real Estate & Urban Development, Network 18 and has been watching real estate closely for 7 years.
First Published: IST