Investing in Real Estate
In this episode of Dhan ki Baat, Anurag Solanki, Senior Vice President - Fund Manager-Real Estate at IIFL discusses how the real estate industry is now back on track and is a valuable investment option.
Indian Real Estate on the road to recovery
The Indian real estate market is the second largest employer in the country, while the agriculture sector takes the first place. The real estate sector may have taken a hit due to demonetization and recent government policy decisions, but the industry is well poised to grow in the next 10 years. The Indian real estate market's growth is well complemented by a growing demand for office space and the growth of corporate environment. It remains the most sought-after investment avenue for Indian citizens.
Why Real Estate?Strong market fundamentals
The last year was bad for the Indian real estate sector in terms of overall valuation due to demonetization and more interference of the government in cash transactions. But because of strong fundamentals, price correction and rising demand in the housing sector, it is very likely that the real estate sector will lead the revival of India economic growth in the coming years.Regulatory reforms
The introduction of regulatory reforms like RERA and GST in April 2017, coupled with the effects of demonetization have begun to shape up the sector with new standards of accountability, transparency and delivery. These reforms will further have a positive impact on the revival of the Indian real estate sector, resulting in price correction and increasing the investment potential of the sector.Buyer's market
While demonetization had an adverse affect on the real estate business, it also resulted in slashing land prices, making it a perfect market for new buyers. As the housing sector provides heavy discounts, home loan interest rates are at all-time low. Due to the amendments in the FDI policy by the government, there has been a steady revival of interests from global investment fraternity, too.Government schemes
Government schemes like PMAY-CLSS and the announcement of 'Housing for All' scheme have also given a boost to the real estate sector. In addition to these schemes, the government has also made affordable housing projects GST exempt. This means that an investor can save a huge amount of tax on real estate investments.
Investment Avenues in Indian Real Estate
You can invest in real estate either through a residential or -commercial property.Residential real estate
You can invest in the residential real estate by adopting a 'value investing' strategy in ready to move projects. As urban towns have seen an increase in their share from 23% to 29.7% over the last decade and the number of metro cities have risen from 35 to 53, investing in residential properties at present can allow you to earn rental income and higher returns through appreciation. The urbanization growth is likely to reach 50.3% by 2050 as a result of development in India, which will further increase the profit margin in the residential sector.Commercial real estate
For commercial real estate, the rental value in retail space has risen to 27% in metros only over the last four years, providing higher returns because of rising demand and supply shortfall. Total sales surpassed the 64 lakh crore mark in 2016 and are poised to double in size by 2020. The consumer expenditure is also estimated to increase to 231 lakh crore from the 40 lakh crore in 2017, making it a safe and profitable investment option.
IIFL's contribution towards Real Estate
- IIFL AMC and Finance has invested in over 100 transactions and has developed skills for legal, technical and credit due diligence.
- IIFL Finance and Housing Finance provide finance for construction and working capital requirements of residential and commercial projects across India.
- IIFL Retail Distribution has a strong network across India with 4 million customers across 1,200 locations with the addition of assisting clients in buying and selling of properties across several locations.
- IIFL's total loan AUM stands at $3.4 billion with a fast-growing mortgage finance book of Rs11,000cr. More than Rs450cr has been disbursed under PMAY-CLSS scheme in last 2 years.
Mr. Anurag Solanki brings over 17 years of exposure in Real Estate, Telecom & Banking services with names like GE Capital, Vodafone, ABN Amro Bank and Standard Chartered Bank in Direct, Corporate and Government Sales. Anurag heads Developer Funding for Northern India at IIFL and has overseen investments exceeding USD 600 million across NCR, Jaipur, Chandigarh and Lucknow.
Ask an Expert
Should I invest in real estate given the current market conditions?
Demonetization resulted in a dip in prices of real estate properties in India. The home loan interest rates are at all-time low. A series of regulatory reforms such as RERA and GST, the introduction of schemes like Housing for all, PMAY-CLSS and tax exemption for affordable housing projects by the government have made the real estate market one of the safest investment options.
What documents should I look at before buying a property?
You should look at the building plan ownership, approved plan layout, ownership documents, visit the RERA website and see the RERA Registration in case of new properties, carry out title search in case of resale properties etc.
What are capital gains on the purchased property?
The profit you make on the sale of property is called capital gains. As the property is considered as a capital asset, the profit you make is taxed under the capital gains tax.
Can I claim tax deductions on my capital gains from the sale of a property?
Yes, tax deductions can be claimed under Section 54 (EC) or if you buy or construct a new home within two years of the sale of property from the capital gains.
What is meant by a sale deed?
A sale deed is a document made on the basis of previous ownership for transferring property from the seller to the buyer. Once it is made, it gives the sole ownership of the property to the buyer.
What have been the contributions of IIFL towards financing real estate projects?
IIFL AMC and Finance has invested in over 100 transactions over the last few years and has developed skills for legal, technical and credit due diligence while completing the investments.
Does IIFL provide loans for construction and completion of real estate projects?
Yes, IIFL Finance and Housing Finance provide finance for construction and working capital requirements of residential and commercial projects across various geographies, which can be taken at an affordable price.
Does IIFL has a distribution network?
IIFL Retail Distribution has a strong network across India with 4 million customers across 1,200 locations with the addition of assisting clients in buying and selling of properties across several locations.
Can I take a loan under the PMAY-CLSS scheme from IIFL?
Yes, IIFL provides finance under the PMAY-CLSS scheme and has disbursed more than Rs450cr under the scheme in the last two years.