T he Indian real estate industry constantly remains a dynamic environment and experiences changes throughout the year.
Arriving at an evaluation of a particular city or location in terms of what investment potential it holds for you can be a daunting task because of the constant change of flux.
Here are a few important tips to create a smart analysis of your local housing market.
1. Pricing trends
A very useful method of acquiring knowledge about a certain city or location’s real estate market is to track the way prices are moving. Obtain exact information about the existing pricing trends and compare this information with pricing trends in the past — say, over a period of three years. This will help you evaluate the growth the market has witnessed in this period and allow you to arrive at quite a reliable estimate for the future.
Even if you’re primarily interested in residential property investment, study changes in the pricing of a larger cross-section of real estate segments — residential, commercial, industrial and even farmland property — situated in areas and various micro-locations within the market.
This will yield valuable insights into the highs and lows that the areas have experienced, and help chart their growth potential.
2. Growth factors
Once you have identified residential investment opportunities a certain market presents you with, the next thing to understand is the factors that have influenced pricing changes within the market.
Property value grows on the back of both macro and micro-economic factors that influence the development and expansion of the market.
The addition of civic and social infrastructure and other public services in an area tends to induce an almost immediate increase in market growth.
Apart from these, factors affecting the state and local economies such as regional regulatory guidelines, tax reforms and interest rates also play a major role in either propelling or subduing market growth.
3. Buying activity
Going by the rate at which apartments are being sold and bought, it is possible to establish if a certain locality represents a buyer’s or seller’s market. While it may not be easy to gauge the number of properties on the market and understand how many properties are sold on a regular basis, it is definitely possible even for a layperson to find out how long properties listed by developers or owners tend to stay on the market before being sold.
This trend, called ‘Days on Market’ or the DoM, can be studied with the help of simple excel sheets over a period of two or three months based on online property listings.
It can be applied for several locations at the same time, and is a reliable method for researching existing supply and demand. More importantly, it will help you make a fairly accurate estimate of future buying trends in those areas.
4. Compare locations
If you have been primarily focusing on properties in central locations, extend your field of research to the adjoining suburbs and even the further outskirts around this area.
Often, the growth in central locations stagnates because they eventually reach their peak capacity for new developments. This automatically translates into faster growth of the adjoining locations which still have a capacity for development, both in terms of real estate projects and infrastructure.
These are some of the time-tested and proven fundamentals of successful residential real estate investment.
While market dynamics certainly change all the time, the rules that govern returns on investment do not.
Once studying real estate markets in a structured and method-driven manner becomes second nature to an investor, it is only a matter of time before his or her portfolio becomes very profitable.
The writer is Chairman – Pharande Spaces
