Real Estate Success: Key Factors to Consider and How Government Policies Influence Investments

✍️ Opinions

Muskaan Kapoor

Jan 16, 2024 — 4 min read

Key Factors to Consider and How Government Policies Influence Investments in Real Estate Sector

This article has been contributed by Mr. Karan Shetty, Co-Founder, Claravest Technologies Pvt. Limited.

Investing in real estate is not merely a financial transaction; it's a journey that requires careful navigation through many factors, particularly in the ever-evolving landscape of the Indian real estate market. As one embarks on this path, several critical considerations should shape your investment decisions.

Factors Guiding Real Estate Investment Decisions in India

Investment Goals: Before you begin investing, define your investment goals. Find out what you intend to achieve by investing in real estate. Ask yourself whether you are looking for a steady flow of income, a lucrative flip or long-term appreciation. This will help you better strategize your investments and decisions.
Financial Health: Assessing your financial situation by evaluating your credit score, debt-income ratio, and available capital will improve investment decisions related to real estate.
Property Type: The outcome of the above factors will help you decide whether you want to invest in a residential, commercial, vacation rental, or land. Each of the property types has its pros and cons.
Market Trends: Educate yourself by understanding the market trends both on a macroeconomic and microeconomic level. An understanding of demand and supply dynamics, price trends, and emerging market shifts empowers investors to make informed decisions. Read research reports and study data and insights available via various platforms to decipher local trends.
Location: Location is paramount when it comes to real estate. Proximity to essential amenities, educational institutions, healthcare facilities, business parks, and transportation hubs significantly influences property value. Additionally, areas witnessing infrastructural development or slated for future projects often become hotbeds for real estate growth.
Capital Appreciation vs. Rental Yields: Striking a balance between short-term gains and long-term value is crucial. While capital appreciation reflects the potential increase in property value over time, rental yields offer a steady income stream. The ideal investment strategy aligns with your financial goals—whether it's building long-term wealth through appreciation or generating regular income through rentals.
Developer's Reputation: The developer's reputation is the foundation of a successful real estate investment. Thorough due diligence on the builder's track record, delivery timelines, and the quality of past projects is non-negotiable. Reputable developers not only deliver as promised but also enhance the resale value of your property.
Economic Indicators: Real estate doesn't exist in isolation; it's intricately linked to the broader economy. Monitoring economic indicators, such as GDP growth, interest rates, and employment rates provides insights into the market's health. A robust economy generally corresponds to a vibrant real estate market.

Government Policies/Initiatives Influencing Real Estate Sector

The government isn’t a mere spectator here; it plays a dynamic role in shaping the real estate stage. The policies and initiatives taken by the government often impact the real estate landscape. Let’s understand how these policies can influence your investment decision:

RERA: The Real Estate (Regulation and Development) Act, commonly known as RERA, has been a game-changer. Enacted to protect the interests of homebuyers, it mandates transparency in project details, delivery timelines, and financial disclosures. For investors, RERA compliance ensures a level playing field and a trustworthy investment environment.
GST: The implementation of Goods and Services Tax (GST) in real estate aimed to simplify the taxation structure. While the initial transition encountered challenges, the unified tax system has streamlined processes, reduced tax complexities, and brought more clarity to property transactions.
Affordable Housing Initiatives: Government initiatives promoting affordable housing, such as the Pradhan Mantri Awas Yojana (PMAY) and Deen Dayal Jan Grahan Yojana (DDJAY), have fueled sector growth. These programs aim to make homeownership a reality for a larger section of the population. Investors can leverage this trend by exploring opportunities in the affordable housing segment.
Infrastructure Development: The government investments in roads, railways, and airports fuel growth in areas that were often overlooked. Investing in properties near upcoming infrastructure projects can promise significant capital appreciation as the area develops.
Smart City Mission: The National Smart Cities Mission focuses on developing urban centers with enhanced infrastructure and improved living standards, making it an investment hotspot.
Environmental Clearances: For projects involving land development, obtaining environmental clearances is a critical step. Government policies regarding environmental regulations can impact project timelines and, consequently, the returns on investment.
Interest Subsidies and Incentives: Government schemes offering interest subsidies and incentives for homebuyers contribute to increased demand. Understanding these schemes can be advantageous for investors, as they indicate potential shifts in buyer behaviour and preferences.
Tax Benefits: Government policies often include tax benefits for real estate investors. Understanding these benefits, such as deductions on home loan interest under Section 24 and principal repayment under Section 80C, can significantly enhance the financial viability of real estate investments.

Remember, government policies are not static statutes; they are living documents that constantly evolve. Stay informed, understand their implications, and use them to your advantage to navigate your investments in real estate.

Conclusion

As an investor navigating the complex terrain of Indian real estate, the confluence of these factors and government policies creates a roadmap for success. It's a dynamic landscape where strategic decisions, informed by market insights and a keen understanding of policy nuances, can unlock the doors to wealth creation. A holistic approach, blending market intelligence with an awareness of regulatory frameworks, ensures that investors not only ride the waves of current opportunities but also position themselves advantageously for the future.