In India, real estate features high on the agenda of an average investor. While multiple categories such as bonds, stocks, mutual funds, gold, etc. are popular among investors, real estate still holds a strong and unique position. The tangible nature of the asset coupled with the higher IRR (internal rate of return) potential and concurrent rental income stream, makes real estate a promising asset to look into. The interest will further rise in 2024 when contingencies in the global market are making investors look out for risk-mitigated options.
While investing in residential properties is a widely popular choice, there are multiple other categories which are gaining prominence in recent years. These asset classes can give elevated yields, contain risks, and can be a prudent choice to diversify portfolios.
Listed below are some of the popular investment strategies, if one wishes to go beyond residential properties.
1. High street retail
Organised retail comprises less than one-fifth of the overall market in India, which is sized at around USD $1.3 trillion. Yet fuelled by the rise in disposable income, rapid urbanisation, and expansive middle class, organised retail is thriving. The accelerated growth is not just limited to large metros but also tier II and III cities. The country has close to 600+ operational malls. It is a fertile ground for new malls, arcades, shopping centers, food courts, etc., with a future pipeline of around 85 new malls as per the report by Anarock. One can easily make a rental yield of 8-9% by owning a retail unit in a good location. Other advantages of retail are that one makes rental income from the initial days and the resell market is also attractive.
2. Holiday homes
This is one of the fastest-growing segments after the pandemic. Holiday homes, second homes, and farmstays are becoming widely popular ways to connect with nature. From picturesque hill stations to tranquil seashores to verdant urban peripheries, holiday home communities are proliferating. In addition to personal use, holiday homes can ensure constant rental income in the range of 5.5 to 7.5% from workcations, staycations, long leases, etc. Such properties are in high demand and can also be sold at a later stage rendering an average annual ROI (return on investment) of around 7-25%.
3. Warehousing and cold chains
As e-commerce, manufacturing, third-party logistics, food processing, freight forwarding, etc., are growing, there is heightened demand for warehousing and cold chains all over the country. As per the research by Knight and Frank, India has over 412 million sq.ft. of warehousing space across the eight major cities. In the first half of 2023, India recorded a total warehouse absorption of over 22 million sq.ft., of which 75% is concentrated in tier I cities. The overall segment is slated to grow vigorously and cross 700 million sq.ft. by 2030. One can hope for an average annual yield of around 8-12% by investing in warehouses and cold chains, as it is touted as the sunrise segment.
4. Fractional real estate
Owning a piece of Grade-A office or other commercial asset is always a profitable option. However, the higher cost of assets creates a formidable entry barrier, and investment in such assets has been mostly enjoyed by HNIs and investment houses. This, however, can change with the advent of fractional space, as even with a budget of ₹15-25 lakh one can invest in top-notch commercial spaces and own a faction of the total property. Fractional real estate investors can make targeted IRR of up to 16% annually. The present size of the fractional market as per industry estimates is around ₹4,000 crores, but will grow manifold in the times to come.
The writer is Director, Goel Ganga Developments.
Published - February 23, 2024 04:01 pm IST
