Sudhir Pai’s Post

Transcript

What would you say is the first step for someone looking to invest in real estate for the first time and how do they go about the process of making a purchase? You're likely to make what is going to be the most important or one of the most important financial decisions of your life. So at first pays to build conviction into why you're buying a house. Now, there are of course many reasons for wanting to buy a property. There's economic security, you might want to build a lifestyle around it. You might have an investment objective. But one must be able to answer the question for yourself on what is the reason why you're looking to buy a house and build a high degree of conviction behind it. Second step, determine your requirement. Now there are 4 parameters that are essential to make a basic requirement. First, what can you afford? What's your budget? 2nd Which part of the city do you really want to live in? 3rd How big a house do you want? And 4th when do you want the house? Do you want something which is ready to move in or can you wait for a few years while you get possession? Now be mindful that these 4 parameters one will have to make tradeoffs. For example, if you want a big house but you're constrained on budget, you might have to compromise a bit on distance. Or if you want the property which has the latest amenities, then you might have to wait a few years to get possession, right? So basis what? And if you don't know where to find information or how to decide on what your budget is or which part of the city to stay, I mean, there's a lot of help available online Portals like us, for example, carry a lot of tools and calculators that can help you decide how much you can afford bases your income and basis what your current outstandings are. There are tools available. Which should give you a locality reviews, pros and cons of one locality versus another. There are distance calculators which can tell you. The optimal distance between the point of interest that you have in mind versus the locality where you want to stay. So there's a lot of online help available that can help you research and get the answers to what your requirement is. 3rd, I think you should make a list of what are non negotiables for yourself and what are good to haves. But Mr. Pie, you did speak about yields and that is something that I want to base my next question for you on. For someone considering investing in an apartment, how should they evaluate the rental yield that they are expecting? What's a good rental yield to aim for and even if they're not taking it to rent, they're taking it to reside in that apartment. What's a good return rate that they should be expecting in the future? When they make a sale and overall, just what would be an ideal of good rental yield to aim for? First of all, let's define what yield is. Yield is actually your annual rental less the maintenance costs divided by the current capital value of the property. For example, if you own apartment which the market price is about 1,00,00, 000 today, and if your monthly rental is 25,000 less the maintenance fees, your annual rental is going to be ���3,00, 000. So ���3,00,000 / 1,00,00,000 your current rent rental yield becomes 3%. That's the way yield is computed now. Why is yield important? Yield is important because it is a good indicator of what is the underlying genuine demand for houses in that particular pocket, right? So if you're not planning to stay yourself and you're planning to give it up for rent, then a yield is a good indicator of how much that property is in demand. Because if there are a lot of people seeking to take the property on rent, you yield is likely to be higher. If not, it's likely to be lower. Now, Indian markets have typically delivered a yield of about 2 1/2 to 3%. At this point of time, markets are on a much stronger wicket. There are cities where the yield is going all the way up to 4%, but generally we would reckon that a yield of anything upwards of 2 1/2 percent is a good yield to have. Now 1 should be worried if the yield of a property is lower than 1%. Or maybe even lower than 1 1/2 percent, because then you should evaluate it a little more stringently to make sure that you're not buying a property where the prices are inflated or the particular market is not very frothy. So I think that's the way to look at yield, but please also bear in mind yield is like the dividend returns of. Of an equity script, right. So over the long term, if real estate is going to deliver at 10 or 11% return for you, then 7 to 8% of that return is going to come from capital gains and maybe 2 to 3% is going to come out of the rental yields. So do bear in mind that while yield is important for the reasons that I just mentioned, the larger return is going to come from capital gains.