12 OCTOBER, 2022

Real estate investment in India can be a great way of getting guaranteed returns on investment, unlike stocks and bonds, which are more unpredictable. With bond or stock purchases, you have to make full payment to buy them and then make a sale, while property purchases can be made by paying only a portion of the total cost, and you can pay the rest through EMIs.

Moreover, homeowners offer their space for rent to make extra income or live themselves in the place without the hassles of paying monthly rent. Also, owners can sell their real estate for a higher market price that can be 2-10 times more than the purchase price. Also, loan against property interest rates is lower than other types of unsecured loan interest rates, making property investment in India worthwhile. The best aspect of property investment in India is that there is no one way to invest. There can be numerous many in which you can invest in real estate and make good money. Here are five innovative property investment ideas you can adopt to make a good return on investments in the long run.

Five Innovative Property Investment Ideas that can Bring Great ROI

1. Rental Properties

When someone asks how to invest in real estate in India, the first option is to invest in rental properties. It is a viable option to earn money regularly. As per RICS-Knight Frank Report, approximately 30% of the Indian population lives in rented houses, which is relatively less compared to developed countries like Germany, the UK, the US, etc.

However, making property investments in India for rental purposes also has some drawbacks. Sometimes managing tenants, like getting timely rent, ensuring they don't damage the property, etc., can be tedious, requiring regular follow-up and preparing a scrupulous rental agreement. However, incorporating a detailed screening process can help you filter out bad tenant candidates from renting your property and help you earn a substantial income through their years of stay.

2. Fix-and-Flip the House

This type of property investment in India has been gaining traction with people with good enough experience in general contracting. If you have enough funding, you can invest in a residential or commercial property that requires repair, renovation, and maintenance. You can fix it up, make it occupiable, and later sell it at a high market price to property management firms. Although the ownership of such properties is for a limited period if done right can bring good returns on investment, making it a lucrative property investment idea.

Compared to owning a residential or commercial property forever, this option has fewer hassles in terms of maintenance, property tax, registration work, etc. However, you must be well versed with the real estate market's demand and supply and manage the renovation work expenses that can vary based on the damage a property has suffered. Partnering with an individual with experience in this field can be beneficial.

3. Property investment in India through ETFs, REITs, and Mutual Funds

Although ETFs, REITs and Mutual Funds are not the same real estate investment methods in India, they can be combined into a similar category. You can purchase ETFs (Exchange-traded funds) and mutual funds invested in real estate. It is possible to buy ETFs invested in real estate stocks through publicly-traded house builders. Also, ETFs are used for investing in REITs (Real Estate Investment Trusts). You can purchase mutual funds that invest in property management firms and real estate developers. Mutual funds are actively managed, whereas a fund manager passively handles ETFs.

Mutual funds and ETFs provide excellent liquidity and can be purchased at relatively lower costs. However, you may not earn monthly dividends and returns until you sell at a higher price.

On the other hand, REITs enable multiple real estate investments in India in one payment. Therefore, numerous investors can pool their funds together into a REIT, and the dividends earned will be distributed to each investor based on the percentage of investment made on the purchase. While REITs allow relatively smaller investments, they don't provide yields that can match or exceed equity-based products. Also, the investor has no authority over how the REIT investment is distributed across all the assets.

Although ETFs, REITs and Mutual Funds options are attached to real estate and returns are relatively stable, the expected returns may not be suitable for long-term investment goals.

4. Online Real Estate Platforms

 Nowadays, online real estate investing platforms are making rapid progress in India. The objective involves allowing small investors to get substantial residential or commercial property deals. Here, the property purchase investment is made through online platforms, also known as real estate crowdfunding. This type of property investment in India also requires capital, relatively lower than required for properties purchased directly. Furthermore, this property investment idea offers geographical diversification, and one individual can invest in single or multiple real estate projects.

5. Fractional Ownership

REITs success has prompted the rise of the fractional ownership approach for real estate investments in India. It facilitates people to invest their money in real estate while reducing investment costs.

Similar to REITs, fractional ownership also needs multiple investors, but the difference is that it focuses only on one property at a time. Real estate investment companies, working in fractional ownership, look for assets identified through detailed market analysis and historical rent data in the chosen area. The property is further analysed based on the ROI of the future. After the returns and growth prospects are deemed satisfactory, the property is listed as open for investments.

The property firm creates a Special Purpose Vehicle (SPV) that handles the investments and other processes with a particular property listed as available for Fractional ownership. The maintenance and additional costs are also included within SPV's management. The acquisition is usually made for commercial properties with 3- or more years of lease agreements. Fractional ownership enables investors to diversify their investment portfolio across multiple property sub-classes, including commercial office spaces, labs, warehouses, parking lots, industrial floors, etc.

Real estate investments in India may look overwhelming for someone new to the real estate market. However, using the above property investment ideas paired with proper guidance, you can make substantial investment returns, helping you reach your long-term financial goals.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.