When it comes to real estate in India, most buyers take a long view: they intend to hold onto the property for years or even decades, anticipating that the value of their asset will gradually appreciate. The importance of time is therefore fairly well understood. What is less understood – but arguably far more essential from an investment perspective – is to get the timing of the purchase right. While existing flats and houses as well as gleaming show homes in new developments capture the attention of many prospective buyers, shrewd investors seek out less visible opportunities. Specifically, today’s savvy buyers look for units in planned developments long before the first shovel hits the ground, or they search for rural land along the periphery of a growing city.
A vivid illustration is the story of Bangalore’s Outer Ring Road area. Before the city’s rapid expansion got underway, Bangalore was surrounded by a periphery of coconut plantations and farmland. Fifteen years ago this land went for approximately Rs 50 lakhs per acre. Within a couple of years, when work began on the major beltway road, prices had doubled. Subsequently, as tech parks, hotels, malls, and residences began dotting the city’s periphery, prices continued to skyrocket. Today, that same land sells for an eye-popping 25 crore per acre – about 50 times the price in 2000. In fact, those stretches are no longer considered to be on the outskirts at all: they are part of the greater metropolitan area.
The geographical expansion of Bangalore is a dramatic case, but the same phenomenon is occurring to a significant degree all along the outskirts of major Indian cities. The crux of the matter is this: land that might seem far away from the city today will actually be described as part of the city tomorrow. As India continues its remarkable rate of economic and demographic growth, urban areas are expanding geographically, making rural land purchases an attractive long-term play.
For nearer-term investments, units in residential developments can yield excellent returns if purchased early enough and at the right price. According to experts, the ideal time to purchase these flats and houses is 6 to 12 months prior to the official launch of a project. As promising as this type of investment can be, buyers must also be cognizant of the risks, including construction delays and land title uncertainties.
An innovative business model has emerged as a way to enable investors to make such near-term investments in Indian residential communities profitably and safely. Known as property crowdfunding services or real estate aggregators, companies such as SmartOwner help investors obtain the best prices in upcoming developments while mitigating the risks. Specifically, a reputable property aggregator assists investors by ensuring the following:
• Deep discounts: Because of its large purchasing power, a financially strong property aggregator can negotiate far lower rates on upcoming properties than an investor would able to secure on his or her own. This is crucial to the overall return on investment.
• Reputation of developer: The only projects an investor should consider are those backed by reputed developers. This is important not only to ensure a high quality of construction and design, but also because of the brand value that a well-regarded company can offer. A good aggregating service will filter out developers whose previous work does not meet high standards.
• Legal due diligence: The investor must be certain that the property title is clear and also that the contract features robust penalty clauses in case of delays. There have been numerous instances in which developers have deliberately delayed construction; in one particularly high-profile case, a developer in the National Capital Region was fined Rs 630 crore for tying up investors’ money. A trusted advisor can help identify harmful clauses and make contracts investor-friendly.
• Market due diligence: A reliable property crowdfunding service will know the market pricing and geography well and thus will be able to steer investors toward projects that are most likely to yield strong returns.
• Flexible investment amounts: A key trait of an aggregating service is that it allows an investor to purchase according to his or her wishes. Many clients of crowdfunding services opt to invest smaller amounts in different properties and thus diversify their risk.
• Escrow services: A final way that reputable crowdfunding companies reduce investors’ risk is to use third-party accounts for fund transfers. While this is standard practice in many countries, in India is not yet commonplace. Using an escrow account affords an extra degree of safety to investors.
Real estate has long been regarded as a sound investment in India. Today, with the country experiencing transformative growth and with new options emerging through property crowdfunding services, clever investors are well positioned to grow their money safely and quickly. If “getting in on the ground floor” is traditional wisdom, today’s investor can do even better – by getting in before that ground floor even exists.