I think this is the most common or debatable question I have come across in my 10+ years of experience in real estate. Although every one has his or her own favourite and opinion and I believe it depends upon the investors and its financial goals. Some just want monthly rentals and sum think long term for exponential capital gains and some want both. So if you are not sure which asset will be right for you to invest then this article will surely clear all your doubts and help you choosing the right asset class for as per your need.
So without wasting much of your time lets quickly look into the different real estate asset classes and its Pros and cons.
COMMERCIAL REAL ESTATE (CRE)
CRE is something which is purely meant for the commercial and buisness activities such as shops , showrooms , office , godowns, factories , hotels , hospitals etc.
1)Retail /Shops /Showroom - This is one of the most commonly known and the oldest asset class comes under CRE category. Now a days most of the builders are offering retail spaces in malls , high streets and various other new cash and carry models are coming in and these seems to be one of the most attractive investment venue to most of us as Some builders also offers leased guarantee with assured returns. But is it really offers as attractive returns as it seems to be? Here we need to look at the past , current growth and future projections of retail industry. During pandemic this is one of the most hurt sector world wide because of the lockdown no one is allowed to move out and we were entirely depended on e-commerce platforms and online stores which gradually changed our behaviour and trust from offline to online. Hence this industry doesn’t seems very promising at least for next 8-10 years from now.
So investing in such asset class at this time might be risky as your money might get stuck for long as these assets are highly illiquid and also do not grow much in its value as well.
PROS
i)good supply and variety of options in Prime locations & ticket sizes are available.
ii)Stable asset class
iii)Assured monthly rentals
CONS
i)Highly illiquid
ii)Average Rental yield 4-6%
iii)Low capital appreciation Upto 5%
2)Office Space/IT Parks- This is also seems to be old and traditional asset class but now a days very new innovative models has ventured into this asset class with variety of offerings and concepts. However it is really tough to predict their stability and growth in rapidly changing world. It’s been said a lot that Indian office space rentals are one of the cheapest in the world that’s the reason big tech companies prefers to have their big offices in city like Bengaluru , Hydrabad , Pune , Mumbai , Gurgaon and NCR region and this is the big attraction for investors to get their hands on these assets type. At the same time we also need to consider the after pandemic most of the big tech companies have enabled themselves for remote working entirely and some reports also shown that in work from home model employees productivity has been increased significantly as they have saved much of commute time and this also helps companies to save lots money spent of rents and other perks offered in work from office model.
So the future is uncertain but as its offer good monthly returns people who are simply looking for passive income and not a much fan of value appreciation can invest in such assets directly or various other options are also available and invest through fractional ownership platforms or can go for REIT as well.
PROS
i)Good and Steady monthly rentals 7-9%
ii)Can Invest as low as 15000 via REIT
iii)Grade A tenants
iiii)Global Demand
CONS
i)Future Uncertainty
ii)Low Capital Appreciation upto 5%
iii)Limited Choices
3)Warehousing/Data Centres /Institutional-
This is something being a buzz of the country since last few years as this has been unaffected by pandemic and even seen growth during the pandemic due to hi growth in e-commerce industry. This asset class is really the best among all the CRE options seeing the current and future situations and behavioural change happens during pandemic. As all the big tech giant are establishing their data centres in India due strict government policies and warehousing demand is all time high as e-commerce needs lots of space to store and manage their inventories.
This is surely something to invest your money if you really have deep pockets because this is a high ticket size real estate asset and you need good amount of money to start with, plus its something you should invest with a minimum horizon of 10-15 years to reap good benefits from it.
PROS
i)High Rental Yields 8-12%
ii)Good Capital Appreciation 10-15%
iii)Long Duration Lease agreements
iiii)Fractional Ownership Options available
CONS
i)Very Highly illiquid
ii)Very Long Investment Cycle
iii)Extensive Knowledge and Paperwork needed
RESIDENTIAL REAL ESTATE (RRE)
RRE is something meant for living purpose solely however use-case and utilities can vary such as Primary Home , PG’s /Hostels, Holiday/Vacation/BNB homes etc. A place where you can stay , live or relax.
1)Residential Plots- This is something which interest the most and everyone want a piece of it by all means and why not this is something which no one can manufacture any more. but wait in this I am talking about only RERA approved gated plotted development. This is the assets which gives the sense of financial security as it is easy to liquidate and give exponential value appreciation. If this is so good why everyone is not buying it. But its actually opposite of it everybody wants to buy it but there is no availability in the primary market. Recently Brands like Lodha, Godrej and Tata Realty has launched big plotted projects of 100’s of acres at outskirts of Goa , Mumbai and Banglore And all got sold out with a flash in less than 7 days, would you believe it? Believe it or not but this is the bitter truth there is hardly any proper lands or plots available in approved gated society with basic infrastructure and amenities such as Water, Sever, Electricity etc. Hence always keep looking for such opportunities minimum 800 Sqft plot recommended.
PROS
i)Easy to liquidate
ii)Exponential Capital Gain
iii)Very High Demand
CONS
i)Rare to find
ii)Procurement
2)Apartments/Villas - This is most widely invested and bought asset class and dominate the real estate sector with more than 83% of the total market size. The two major reasons for this are the growing population and urbanisation. Currently the urbanisation is only 40% in India and expected to reach 80% by 2040 just double in just next 18 years and everyone needs a home as its a basic necessity. India need 25million new homes by 2030 itself can u imagine this number and demand side of this asset class. Only not this now after pandemic and work from home culture also increased the demand of bigger sizes home from 2bhk people upgrading to 3bhk and so on. So it will not be wrong if we say that this sector is all ready to explode and property prices has already started moving upside with significant price hikes by the builders in last 2 quarters.
So if you are looking for your primary home and have enough money to buy one without a home loan then this is a great time to go for it as it will become really difficult for a common man to buy a house in India and its not advisable also to buy your primary home via home loan as the rental yields of these assets are very low.
PROS
i)High Capital Gains
ii)Various options and ticket sizes
iii)Good supply in Primary Markets
iiii)High Future Demand
CONS
i)Very Low Rental Yields 1.5-3%
ii)Saturated Market
iii)Tough to liquidate
iiii)Lots of ancillary cost involved.(Maintainence/furnishing/utilities etc)
3)Holiday /Vacation/BNB Homes- Last but not the least, This is my personal favourite asset class but I won’t be bias here will tell you the facts only. This is not only my favourite assets but of all the rich and famous as this is something which You can show off to your family , friends and relatives and also enjoy the place and reap great returns and financial benefits. Over all you can call this asset as a Rolls Royce of Real Estate with all the upside of a top class investment. As fundamentally this is an residential asset either a apartment or a Villa but utility wise it completely different as its a leisure property located at top holiday destinations where one can generate 4-5x rentals through short term renting and listing the property at all OTA’s platform like Airbnb , MMT, booking.com etc in comparison to primary residential unit this is what which make this my favourite and one of the best asset class to own.
So if you are looking to put your money on work where you can reap its maximum yield and benefits then this asset class has got it all to impress you.
PROS
i)High Rental Yield 8-10%
ii)High Capital Gains- Upto 16%
iii)Versatile Utility
iiii)Top Locations
iiiii)Most Cherished Asset Class
iiiiii)Fractional Ownership Option available
CONS
i)Limited Supply
ii)Buying Complication’s
iii)Tough to maintain
iiii)Under Utilisation.
I hope you found above article helpful and informative which help you in investing real estate with more profound information and knowledge. So If you really wanted to be rich and financially free then Real Estate is the best asset class to invest your hard earned money in.
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