The Year of The Band Wagon!

Blue skies smiling at me. Nothing but blue skies do I see. - Irving Berlin

Optimism is the what the future indicators point to for Indian Real Estate in 2008. But Guarded Optimism is what it takes to succeed today as the market still needs to self regulate and organize.

According to Economic Times predictions for Year 2008,

“The realty sector in the country is all set to enter into a new era in 2008 with a plethora of investment options lined up in the coming months. Investors may invariably be in a dilemma as to where to invest and what percentage should be earmarked for each category in the investment portfolio. It is one area where both yield and capital appreciation is assured for investors. What is more, today, one can use the asset acquired over the years to raise short term funds for a rainy day through multiple options like mortgage loan against immovable property , loans against rental income and reverse mortgage for senior citizens.

Those looking at residential property should remember there are three pertinent factors which are beyond investors’ control like increase in land cost, input cost and registration fee. They are moving up at regular intervals irrespective of the government in power and its policies to supplement the revenue for the exchequer . Though the return on investment may not be relatively lucrative in the short term, capital appreciation in the long-term will compensate the investors well.

For commercial property, developers themselves want to retain the premises and are keen on leasing. This is because they can realise substantial investments through rent discounting scheme offered by various banks. Leased commercial properties are sought-after and ideal for high net worth individuals. The yield varies from 10 percent and more, depending on the location, amenities offered, specification and proximity to landmark areas.

Investments in Tier II cities would be a viable proposition due to anticipated improvement in connectivity levels and infrastructure. Commercial property is currently exempt from the purview of payment of wealth tax and it is hoped that it would continue to remain so in the coming budget as well.

Rentals of office space in most of the markets of metropolis like NCR, Mumbai and Chennai went up by around 80%. CB Richard Ellis pointed out that amidst all the hype in the Indian real estate market, there are concerns now being raised about the viability of cost, amongst the MNC ranks, and all eyes are now intently looking at where rentals will move in 2008. The increased availability of office space in NCR and other metropolises will help bring down the prices in near future. The overheated markets of Mumbai and Gurgaon are in for a marginal rationalization in 2008.”

But come to think about it, there are lingering concerns about the credit markets for both residential and commercial real estate. Fact remains, that availability of finance remains crucial so does the policy. High interest rates and global liquidity crisis in all asset classes that is going to make financing much more difficult. Earlier anyone with his hear ticking could get a loan and could buy real estate, but now the loans have made even breathing that much more difficult. In addition to healthy fundamentals, commercial property valuations are well-supported by replacement costs. Because it still costs far more to build a building than it does to buy an existing one, not to mention the difficult approval process in most markets. The robust re-sale of existing supply is the key to the continued sustainability of the market. Also read Never Tell Me Odds! to know how speculators always have an important role in boasting the prices with their underwriting and long holding skills.