Preferred Investment Asset Classes In Real Estate For 2020

Preferred Investment Asset Classes In Real Estate For 2020
Anurag Mathur - 08 February 2020

Investing a part of one’s income is deemed to be a prudent practice. Every individual has a large set of options to choose from while making this decision. One such avenue that regularly invokes the interest of investors is an investment in the realty space. The year 2019 saw economic headwinds build-up, however, commercial real estate continued to be on a firm footing. This was mainly led by significant demand from occupiers in the technology sector, apart from flexible space operators.

It is usually not viable for retail investors to consider purchasing real estate as a regular investment since it is a large-ticket investment. However, it is interesting to note that several options are emerging in this ever-growing sector. One such option would be to look at the derivatives to earn good returns in terms of annual yields and capital appreciation.

Here are a few choices which can be exercised for investments in 2020:

Affordable residential properties

These include properties that fall in the Rs 50 to 60 lakh bracket. In the past two years, the growth in this segment of residential properties has been consistently accelerating even as other residential segments tread a difficult path. From a real estate ticket-size perspective, they are not only affordable but can be reckoned as the best form of long-term investment. The high demand in the market for this constituent of residential properties is primarily on account of the income dynamics of the large middle class. As it is still in the early stages, the possibility of capital appreciation remains high. However, as is the case with any real estate investment, due-diligence is a cardinal principle, which must be followed here too. One must factor a host of elements, such as quality of the property, credibility of the developer, their financial performance and such others, before making an investment decision.

Co-working spaces

Flexible-space formats - colloquially, co-working or shared office spaces have been game-changers in the industry, and investors are evaluating these assets. Among various investment experiments, investors are buying large floor plates and handing them over to established co-working managers on a revenue-share model. In a situation where business cycles have considerably reduced, and companies need to continually focus on not merely cost-cutting but operational flexibility, where co-working provides an optimal solution.

Real Estate Investment Trust (REIT)

India has only one REIT listed right now. However, there would be more in the market soon. REIT has a unique advantage of lowering the investment size and relying on professional managers to manage risks, much like other funds. A retail investor in real estate should look at REITs as a viable investment option.

Student housing

It is a lucrative proposition for both the parties involved - people with an appetite to invest and developers who can rely on its rental revenue stream. A large number of players have started participating in this segment, considering the large demand-supply gap. Further, with India’s growing young population and its constant migration to urban centres, the promise of growth does attract investors’ attention.

The author is CEO, Savills India