Tag Archives: Investing in real estate

Are you considering investing in real estate? Here’s why non-metro cities are your golden ticket!

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Tier 2 cities are outpacing traditional metros in their economic growth, thanks to numerous fields like manufacturing, information technology, education, and healthcare. For example, Nagpur is expanding in manufacturing, logistics, and information technology, whereas  Surat is rising in textiles, petrochemicals, and information technology. 

Real estate markets in non-metros or Tier-2 cities continue to grow swiftly, outperforming many metros in terms of investment and demand. Several factors contribute to the massive increase in real estate investment in non-metros. 

According to a recent analysis by Cushman and Wakefield and the Confederation of Real Estate Developers’ Associations of India (CREDAI), approximately 35% of India’s population currently lives in cities, with projections indicating that this figure will rise to 50% by 2050. 

This population growth is putting a strain on Tier 1 cities, where space is becoming more scarce. As a result, there is a greater emphasis on developing alternative urban areas with the potential to become new economic and real estate hubs. These are classified as Tier-2 cities. According to CREDAI, India’s urbanization rate is expected to exceed 50% by 2050, potentially leading to significant population migration to Tier 2 cities. 

Manaki Parulekar, Co-Founder of Claravest Technologies, shared her insights into the factors driving real estate investment growth in Tier 2 cities. 

According to Parulkar, this rise of integrated townships, which provide a mix of residential and commercial spaces, is helping Tier-2 cities grow. “For example, Panvel in Navi Mumbai is rapidly developing, with townships such as Hiranandani and Godrej, aided by projects such as the Navi Mumbai International Airport and the Atal Setu Bridge (MTHL).” 

The rise of commercial Grade A properties, affordable residential property values, and improved connectivity are driving accelerated growth in other cities like Jaipur, Bhubaneswar, Nagpur, Surat, and Kochi. 

These cities and regions have distinct advantages over traditional metro markets, attracting investors with promising opportunities for Parulekar, the following factors contribute to increased real estate investment in non-metros or Tier 2 cities.  

Diverse economic  development: 

Tier 2 cities are outpacing traditional metros in their economic growth, thanks to many industries such as manufacturing, information technology, education, and healthcare. For example, Nagpur is expanding in manufacturing, logistics, and information technology, whereas Surat is rising in textiles, petrochemicals, and information technology. 

Cost advantages: 

Tier-2 cities are significantly less expensive than Tier-1 cities. Low operational costs in these areas contribute to this advantage, making them appealing to businesses and investors.

Improved Quality of Life: 

Tier-2 cities offer a more relaxed lifestyle than larger metropolitan areas, with less traffic congestion, lower pollution levels, and a generally quieter environment. This improved quality of life appeals to businesses seeking a dedicated workforce and individuals seeking a better work-life balance. 

The government’s initiatives include: 

Government investments in transportation networks, airports, highways, and reliable power and communication systems support the growth of Tier-2 cities. 

Real-estate market growth: 

The real estate market in Tier 2 cities is thriving, particularly in the residential segment. Professionals want to live in larger apartments, remote work is becoming more popular, and there is a growing middle class with more purchasing power. Despite rising property prices, they remain less expensive than those in Tier-1 cities, creating appealing investment opportunities. 

Advancements in education and healthcare: 

Tier 2 cities are increasingly home to reputable educational and healthcare facilities, making them more appealing places to live and work. 

To summarize, these factors make non-metro areas attractive real estate investment destinations, often offering more sustainable growth and profitability than traditional metro areas saturated and high-cost environments.  

A beginner’s comparison between investing in Indian real estate and the stock market

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Purchasing financial instruments has been a method for people to increase their wealth. The stock market and real estate are India’s two main investment options. Each has advantages and disadvantages of their own. Let us compare investing in real estate and the stock market for beginners in India in this article, considering key elements like growth potential, taxation, liquidation, flexibility, emotional connection, control, and return on investment (ROI). 

Return on Investment (ROI)

Real estate: 

Investing in real estate frequently offers a steady, growing return over time. Growth in property values and rental income affects the overall return on investment. Nevertheless, the return might be slower in contrast to other investment options. 

For instance, investing in a residential property in an expanding area may result in rental income and future value growth.  

Stock market: 

A more rapid return on investment is possible by investing in the stock market, which also offers dividends and capital gains. However, unpredictability of volatility can also result in a decline in investment. 

Example: Investing in reputable businesses with a record of paying dividends can increase stock value and provide income. 

Prospects: If investments happen at the right moment, the stock market could yield faster and possibly higher returns, but market trends are unpredictable. Real estate is a long-term wealth-building option because it provides stability and tangible assets. 

Ease of liquidation

Real estate: 

There is more liquidity in stocks than in real estate. Stocks are more liquid than real estate. A house may take a while to sell, and there may be legal complications. The state of the market may take a while to sell, and there may be legal complications. 

The state of the market may also affect how long it takes to find a buyer. However, if you have invested in a suitable property, the market slowdown might not affect it. 

Example: Outside variables like market demand and economic conditions can affect how quickly you sell your real estate investment if you need to liquidate it. 

Stock market: 

Due to their high liquidity, stocks enable investors to buy or sell shares quickly. Online trading platforms also facilitate quick transaction execution.  

Example: Selling stocks is a way to offer liquidity during a financial emergency. 

Prospects for the Future: Stocks are a good option for investors who value quick access to their money because of their superior liquidity. 

Taxation : 

Real estate:

Several taxes, such as capital gains tax, registration fees, and stamp duty, apply to real estate transactions. Although there are deductions for rental income, rental income itself is taxable. 

For instance, if a property sells after being owned for two years, long-term capital gains tax currently at 20% with indexation may be applicable. 

Stock market: 

The taxation of stock market gains varies depending on how long they remain invested. The tax rate on short-term gains (held for less than a year) is higher than that on long-term gains. 

For instance, short-term capital gains from equity investments are subject to 15% tax, whereas long-term capital gains are tax-free up to a certain amount. 

Prospects: There will be significant tax ramifications, and real estate and the stock market are complex. Investors should consider their tax liability based on their investment horizon.   

Flexibility:

Real estate: 

Compared to stocks, real estate investments are typically less flexible. It takes time and work to sell a property, and diversification can be difficult for smaller investors. 

In the real estate industry, for instance, managing several properties or modifying investment strategies might necessitate more work. 

Stock market: 

Investing in the stock market offers low entry barriers and great flexibility. Investing in mutual funds or buying and selling various stocks allows investors to quickly diversify their portfolios. 

As an illustration, an investor can quickly reallocate their portfolio in response to shifts in the market or their goals for their investments. 

Prospects for the future: The stock market offers more flexibility, enabling investors to better manage their portfolios and adjust to shifting market conditions. 

Emotional connect: 

Real estate: 

Investing in tral estate frequently involves tangible assets like residential or commercial buildings, which evoke strong emotions. Making decisions may be influenced by this emotional connection. 

Example: Even though it might be financially wise, an investor may be find it difficult to sell a family home or vacation property due to sentimental value. 

Stock market: 

Investing in the stock market can be less emotional and more abstract than owning physical assets. Market trends and financial analysis are often the driving forces behind decisions. 

Example: Performance metrics, not sentimental attachments, are usually the basis for stock selling decisions. 

Prospects for the future: Depending on the objectives and circumstances of the investor, the emotional attachment to real estate can be either an asset or a liability. 

Control: 

 Real estate: 

Investors in real etate have more direct control over their holdings. They are capable of making decisions about maintenance, renovations, and property enhancements. 

Example: A real estate investor may choose to upgrade a property in order to increase its value and rental potential. 

Stock market: 

Stock market investors have little control over the management and business practices of the companies in which they invest. Because corporate management and market forces have a significant influence on decisions, there is very little that you can do about it. 

Example: The company’s executives run things on a daily basis, but at annual meetings, share holders have the opportunity to vote on certain issues. 

Future prospects: Because real estate allows for more hands-on control, it may appeal to investors seeking for a tangible, actively managed asset. 

Factor of risk relative to the asset: 

Real estate:

In general, real estate is thought to be a less risky investment than the stock market. Long-term property values are typically more stable, and the tangible aspect of an asset lands security. 

Example: The risk of large losses can be reduced in a growing economy by the steady appreciation of real estate values. 

The stock market: 

Because of this inherent risk, investing in stocks is riskier. Stock prices can be impacted by a number of variables, such as world events, industry trends, and economic conditions. 

Example: A sharp drop in stock prices may be caused by external factors like a global economic  downturn.  

Future Prospects: For investors who are risk averse, real estate presents a more stable investment environment. The possibility of greater returns in the stock market is accompain by greater risk, though. 

Potential for growth: 

Real estate: 

Investing in real estate offers the possibility of capital growth and rental income. Well-located properties can see significant value appreciation as demand is driven by urbanization and population growth. 

Example: As infrastructure develops and demand rises, real estate investments in developing areas can result in significant growth. 

Stock market:

The stock market has the potential to expand significantly and quickly, particularly in developing industries or when there are strong individual stocks. 

As an illustration, investing in technology stocks during a time of industry innovation and expansion can result in a sizable increase in portfolio value.

Prospects for the future: Growth is possible in both the stock market and real estate, but the stock market might yield larger return faster. 

When contrasting real estate and stock market investments in India, each path has particular benefits and drawbacks. An investor’s preferences, risk tolerance, and financial goals will determine which option is best for them. While the stock market offers flexibility and liquidity, real estate offers stability, emotional connection, and control. To capitalize on these advantages and reduce risks, a well-balanced investment portfolio may include a combination of stocks and real estate. For wealth management to be successful in India, it will be essential to stay informed and adjust tactics as market conditions and investor preferences change.