SIP – Staggered Investment Plan
Keeping in mind the inflation rate, the present day Financial Market scenario, investing in Under Construction Properties gives you the best of all the worlds.
Property buying is usually done for 2 reasons one for the fact you need a roof over your head and the other one being investment. While for buying the roof over your head or buying the First Home for yourself the criteria’s are simple and straight typically translating that it should fit in the Budgets you have, it should be in the right location which is in close proximity to your daily life style be it a commute to work, proximity to station, highway, schools, hospital or the mother-in-law in the neighbourhood. You might just smile at the last Mother-In-law bit but that is very important for couples who are both working and the MIL factor comes in handy big time to support the kids or having just a backup plan or a help handy.
While it is relatively easy to find a Home and settle down, it is very important that you understand the dynamics of the real estate market when it comes down to Investments and that too with soaring real estate prices all across, one finds himself really humbled when a call is made to a local agent or to a developer asking the prices of an apartment and when the figure comes out in Millions all the dreams burst like a bubble in a second and the decision then is revoked.
I can only say that real estate investment is a far more deep and interesting topic and if one studies it hard then you can definitely think of owning that investment (please read I am not calling a home) which will give you both capital appreciation as well as recurring returns. The real estate investment logic is simple that the First Home is for your self-use and once you are settled with that then you can plan your finances and distribute them over different asset classes and make the maximum of your capital by putting it to work on an everyday basis. The future is bright but we need to light the right candles.
Let us take a step by step approach to this and then we can analyse if it is worth investing and you will get an answer to this yourself:
- You need to define how much money you are willing to invest in an asset class where the returns will be there but over a period of at least 3-5 years and not recurring like some of the products available in the financial markets.
- Based on the above you should relate that where are the under construction options of the best developers in town and which locations have the potential to grow over the next 3/5 years.
- What is the infrastructure and development planned in the neighbourhood?
- What are the current market rates in the location and what are the rates in the radius of say 5 KM in each direction?
- What is the USP of each location and each project?
- What are the features in the project which you choose are superior to the next best available?
- What is the down payment?
- What is the completion time as this means that the payments are staggered over a period of 3 -5 Years. A good idea is always to enter day one into a project at the time of launch..as the returns will be the best then as you have entered at the base price.
This is the typical flow of investment one has to do per year for investment which means that this can also be serviced by a Home loan with a lower EMI and gradually when the property market grows your investment also grows. Any Safe money market product of a debt fund gives you a return of 7-10% on an average. The property market has given returns of more than 300% over the past 4 years and God Knows how many % in South Mumbai locations in 30 years. We cannot predict that each year you will get 10% or 50% but this depends on lot of factors and look at the past so many years, the real estate market goes in cycles, but if you do not have all the funds at one go you have the financial market only for your rescue and you can forget about the real estate market then.
The simple logic is that if you invest like a SIP which is Staggered Investment Plan (you can call it systematic) but I would say staggered because you are making the payment over a period of 3 to 4 years which is helping you build an asset which you could not otherwise purchase. So typically, if you were to invest in an apartment of 50 Lacs you can say be ready with a down payment of 10 Lacs and then pay the balance through a home loan or inward savings etc. The risk factors like all other asset classes are there but if you go in for a reputed developer and a good location in good proximity to the Central Business Districts, you cannot go wrong as Mumbai as a city is growing and so as other Metros and other 2 Tier cities.
Any property, which you pick up young in the property market is bound to bear you fruit and the dividends you would yield would be satisfying. Ofcourse, you cannot compare with Stock Markets, but we have seen that again the people who understand real estate are also people who understand stock markets. It is best to spread your capital over different asset classes and maximise and over 5 years you will see a stark difference in your Balance Sheet. So think about SIP in real estate and of course when the property is ready you can always sell after 3 years, use your money to invest in another property and that too Tax Free and reap more returns and continue the cycle.
If you choose to lease then also you will get a yield of 3-5% maximum for residential but the capital gains are far more and more over with SIP you been able to create a good A class asset. Happy Investing.
Sandeep Sadh
Mumbai Property Exchange.com