Indian Real Estate has made a strong comeback after the big downtrend caused by the pandemic. Conducive market conditions, lower home loan rates and changing economic dynamic have fueled the growth of realty sector across the country. The current acceleration in the market has also revived the interest of investors towards the largest sector of India. Apart from the home buyers, several big investors have also drawn to the real estate market in search of getting better returns. Amid this unprecedent rise, it is important for the investors to know the risks involved in their real estate investment. There are several kinds of risks such as market, economic, and developer-related risks involved in this sector and an investor should conduct proper due-diligence before putting his money in any asset. Having said that, here are some useful tips that can help you to manage and systematically reduce the risks involved real estate investments.
1 . Market research
First and foremost thing to do before making any substantive investment in the real estate is analyzing the market. An investor should know everything about the market dynamics such as demand-supply, potential demands, future PropTech trends etc.in order to make an informed decision. Likewise, he also needs to learn about the condition of the physical infrastructure – upcoming projects in the vicinity, business catchments, new building etc. A thorough market research can offer a valuable insight to the real estate investor, especially who is going to invest for the first time.
2. Geographical diversification
By diversifying the real estate investments through different markets, an investor can easily reduce the risk of losses. Geographical diversification means holding securities from different regions or countries. Thus, if you are planning to invest in more than one real estate asset, it is advisable invest across geography, rather than concentrating on a single market. Diversifying your investment geographically can also give you higher ROI.
So, don’t put all your eggs in one basket!!
3. Asset diversification
Diversification is a very important process for the investors. In order to reduce the overall risk from different markets, many investors spread their money in different types of investments. Just like the geographical diversification, a real estate investor can put his money in multiple assets to mitigate the financial and economic risks. If you are looking to invest in real estate, spread your money across different assets such as commercial, residential, warehouses etc. In this way, the overall impact of any possible downtrend in a particular category will be limited and you will not witness huge amount of loss.
4. Check developer’s credibility
Credibility of developer is one of the most important aspects you should look for while investing in real estate. Several instances in the past have shown how projects from non-credible developers get demolished by the government. Going with a credible name will not only help you in getting a decent property but can also reduce the risk to a great extent.
Besides the credibility, one should also check specifications related to the project such as floor plan, utilities, infrastructure etc. A good quality project will attract large number of investors, buyers, and tenants, which leads to rendering better returns on the property.
5. Evaluate Time Horizon
Real Estate is a tangible asset and investing in it requires a lot of patience. Unlike the stock market, an investor has to wait for a long time in order to reap rewards from his real estate investment. Thus, if you can hold the property for long, then the downside risk of cyclic pitfalls will be greatly averted and you can divest the asset at the right time to get the higher returns.