How to profit by investing in residential property

Properties in central locations in Bengaluru have seen appreciation as there is a lot of scope for more development.

Real estate has historically been acknowledged as a potentially lucrative investment asset class. In India, the real estate sector is also the second-largest employer and is estimated to grow by 30 per cent in volume and scope over the coming decade. Forbes pegged the growth of the Indian real estate industry at seven per cent in 2017, and the housing sector alone has been contributing to between five and six per cent of the nation's gross domestic product (GDP) over the past couple of years.

All of this sounds good if you are a real estate investor or planning to become a part of the industry. But making money out of real estate can still be tricky territory. It is worth investing your time into understanding the market and the factors that can help make residential property investment profitable for you.

To start off, let's stick to exploring the opportunities in residential property investment in India that lie in front of you.

The most common and popular source of residential real estate investment profit in India comes from appreciation. Appreciation is the increase in the value of the residential property you own. Residential property for investment appreciates according to its location. In India, cities such as Mumbai, Pune and Bengaluru have been garnering the most satisfactory returns on residential investment.

However, it is not the cities as a whole that you should consider, but their growth corridors. Residential property values appreciate in good neighbourhoods which are complemented by easy transit routes, public transport nodes, shopping centres, schools, hospitals, parks and other public spaces, and more. The more the number of amenities a location offers, the greater is the incremental growth in residential real estate values.

For this reason, Mumbai's most lucrative residential property investment hotbeds have been areas such as Wadala, Chembur, Andheri, Mulund, Kanjurmarg and Ghodbunder Road in Thane. These are not necessarily the most expensive areas in Mumbai, but they offer property buyers the advantages of good properties by reputed builders, excellent connectivity with various important parts of the city and decent social infrastructure.

In Bengaluru, areas such as Nayandahalli, Hebbal, Yelahanka, HSR Layout and Sarjapur Road have seen the fastest appreciation for the same reasons, apart from the fact that there is a lot of scope for more development. These areas are also relatively affordable and well-connected to the city's commercial hubs, predominantly those in the infotech sector.

In Pune, the best locations to invest in residential property include the slightly pricier Wanowrie and Kharadi and the more affordable Undri, Wakad and Ambegaon. The latter three locations have the advantages of competitive property prices, fairly rapid appreciation because of new infrastructure coming in, and excellent connectivity to Pune's many workplace hubs. Residential projects by reputed developers are in great demand here, not only for purchase but also from rental housing seekers.

The scope for rental income must always be considered while making a residential property investment, even if the primary objective is capital appreciation. Many people purchase their investment properties with bank loans, and rental income helps pay for some of the monthly EMI outgoings. Another benefit of putting an investment residential property out on rent is that the property remains in use, and this ensures that the fittings, fixtures and plumbing are regularly maintained.

Every growing location needs time to come into its own and become a full-fledged flourishing market. In the process of getting upgraded, it also draws increasing demand from homebuyers. Meanwhile, every property market goes through its ups and downs. This is why in India, the ideal 'investment horizon' is between four to five years or longer if possible.

In this time, considerable growth in a property's value is more or less assured regardless of market fluctuations. For the patient investor who has chosen his or her property after enough market research, turning a profit is never an issue. This is why in India, residential property remains such a popular route to growing one's wealth while simultaneously attaining financial stability.

The writer is chairman and managing director of Amit Enterprises Housing Ltd. Views expressed are his own and do not reflect the newspaper's policy.