From the Desk of Ajai Kapoor

2016: Where should one invest?

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2016: Where should one invest?

2015 was a year which was broadly stagnant from an appreciation perspective. Most property investments did not result in any appreciation as such. With the market heading for a stagnant time based correction, which are the sectors one can look at from an investment perspective?

India’s property sector has received a huge $2.8 billion in private equity investments during the first nine months of 2015. This is undoubtedly the highest investment seen in the last 7 years since the peak of 2008.

This proves that investors including private equity, pension and sovereign wealth funds are regaining confidence in India due to strong indicators signaling a revival in the sector on the back of several initiatives by the central government.

What does this mean to all of us? This means that investing in the real estate sector definitely is a focus area for investors looking at good returns. So where should one look at if one is looking at investing in the real estate sector?

We would like to make two suggestions – one based on the sector, and the other based on the location:

Segment Focus: Commercial

The residential sector has been the ‘flavor of the season’ and the preferred asset class for Indians for a long while now. However, with prices continuously rising over the last many years, they are now at a level which is not able to generate sales and hence liquidity, thus affecting appreciation from here on.

The commercial sector has been in a depression for the last many years, but with the new Government coming in 2014, and announcing pro-growth policies, there has renewed interest by corporate India on the commercial sector.

With the inflation now in control, the economy is expected to grow at 7.3 percent, and most sectors are now witnessing gradual growth. Hence, there are many companies which are now looking at expanding or just consolidating their office spaces to be ready for the upcoming positive changes in the economy and business environment.

This has increased the demand for ‘Grade A’ office space, and thus 2015 saw about 35 million sqft of commercial office spaces being transacted, spread over buying and renting transactions. 2016 will now see increased interest from the SME sectors, small and medium ecommerce companies, IT and ITES companies, startup companies and those which provide products and services to the larger corporates which have been busy re-aligning their office spaces in 2015.

While investing in residential has always been from a capital appreciation point of view, investment in commercial offices is usually from a rental return perspective. Hence, the objective of the investment being different, the mode of such transactions and the holding period also changes compared to that of residential real estate.

Investing in commercial real estate can be done by buying an empty office space or one which is already leased out to a quality tenant / Licensee. Both options have their pros and cons, though, with the pick up in demand, most investors are now quite open to buy empty office space and rent it out post the purchase. More information on how one can go about the same is available here. 

Commercial property can be bought with some amount of leveraging which helps the investor get a better bang for his buck due to increased tax efficiency when one takes a loan for a commercial property and pays back the EMI by the rent receivables.

Done in the right manner, a commercial asset of Rs. 100 can be bought with only Rs. 60, the balance being funded by the bank. This Rs. 60 would then appreciate to Rs. 300 in 9 years by virtue of compounding of the income receivable by the rent from the property!

Connect with us to know more about how this can be done – we provide detailed calculations on the same!

Location Focus: BKC

If there is one location in the city of Mumbai, which has shown amazing growth in development, in demand and in infrastructure – it is BKC.  Controlled by MMRDA, BKC has the right mix of road infrastructure, social infrastructure like Schools, Hospitals, Hotels, commercial buildings, Clubs, Restaurants, Night-Clubs etc. No wonder, it is the only location which has seen a consistent growth in its prices over the last few years.

BKC's growth may be accredited to the location advantage that it enjoys, since it's easily accessible by rail and road from the central as well as western suburbs, as well as from Thane and Navi Mumbai. Easy connectivity to the airports as well as South Mumbai via the Bandra-Worli Sea-Link further enhance its appeal and preference amongst the corporates. Recently completed infrastructure projects such as the Kherwadi Flyover and the Santacruz-Chembur Link Road have further improved accessibility to the region. Upcoming connectors include an elevated road from Vakola Junction on the Western Express Highway, and a proposed flyover between Kurla and Vakola with an extension to BKC.

BKC is fast becoming a preferred residential location by many corporates who work in BKC and also by those who want to be centrally located in the city. There are about 10 residential projects in different stages of development to cater to this increasing demand for residential homes in and around BKC. 

With MMRDA and the Government now wanting to make BKC as India’s first Smart City, work has already started on the same and a ‘smart BKC’ will have features like hi-speed internet, smart parking slots with last mile electric car connectivity, motion sensor driven electric lights, and advanced CCTV networks.

We feel that the next 5 years will be a game changer for BKC, which will emerge as the most preferred residential destination (it already is the most preferred commercial destination) in India.

#360degrees has the most comprehensive information on all the projects in BKC – feel free to connect with us on the same. 

- by Ajai Kapoor
#360degrees

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