DELHI: Affordability is the need of the hour. However, with an increase in the cost of material and high land prices, many developers have already voiced their concern over offering affordable homes. Thus, going ahead, the real estate scenario may best be described in one word – ‘unaffordable’. This is applicable for commercial as well as residential properties. This scenario is giving a push to rental markets in the country and opening up broad vistas for people who cannot afford to buy their own home.
However, the approach of Indian investors is quite inexplicable at times. Despite knowing that investment in real estate requires a minimum stay of 5 to 10 years to reap good returns, they want percentage rental returns of ten years ago and the capital appreciation of today. That is something which is not possible.
As an increasing number of people are unable to afford commercial or residential places, demand for rentals is going to increase. However, expecting a certain percentage return on property as rental income is impractical.
The way to view rental income is actually very simple. If in a given market, rental takes care of all outgoings such as taxes and society charges, repairs and maintenance and also leaves a decent surplus, it is good enough. The absolute rental value is more important than percentage. This is simply because a rental customer is one who either cannot afford a property or does not want a property in a specific city in the first place. So, it is very unrealistic to peg a return to it.
We can liken this to the stock markets. If we buy a share of a company at Rs 100 and the dividend declared is Rs 2 on a face value of Rs 10, we do not calculate the return and say the share or the company is bad. We are investing for a longer term capital appreciation or quick upswings in prices. Similarly, a property is a good long term investment giving high capital appreciation.
Thus, it makes sense to take a property and ensure it is ideally not kept vacant at any point of time. Commercial spaces command higher rentals as a percentage, but it is only a matter of time before these also start dropping. So, just rent out your property, make money and wait for capital appreciation.