Monetizing your residential real estate asset

By Jajit Menon, Director Sales, Marketing & CRM Shriram Properties

Land is a limited resource and therefore any investment in real estate is a decision that not only involves huge finances but also considerable thought and research. In India, real estate is often considered to be one of the most stable investments. Several NRIs today invest in houses in India, sometimes even two, one for their parents to stay in and another as a vacation flat or even a villa, which are often either locked up, or given on rent at much lower than market rates. The idea would have been triggered as a retirement plan, on returning to the country. Most often, these plans do not fructify, and their children often do not really care for these assets as quite often, they themselves have settled down in life abroad. This property therefore becomes a dead investment and could have been monetized in a much more efficient manner.

Increase in property value and rentals are the two ways that one can profit from real estate investments. The only way to enjoy the fruits of the appreciation in property value is to sell. Projects normally see a marginal increase on completion and within a decade the value of the property appreciates at least five times, depending on the growth of the location as well. Studies also show that the build-to-rent portfolio can generate a rental yield of 5% – 6% with annual escalations of 3% to 5%. The annual return on Investment can be expected to be in the range of 8% to 11%. While looking to invest in real estate, it is recommended that one looks at projects that have been able to retain its value in economic slumps and grow during economic upturns. Identifying emerging property locations, analysing market trends and investing in those areas will show better monetization results.

There are other ways in which you can monetize your real estate investment. For example, if you have taken a loan to buy your property, you can look for better loan options with lower interest rates that would lower the cost of the property. Another way to monetize residential real estate would be to invest in a property, redevelop it and then sell or rent. Real Estate can be properly monetized only if they have good fundamentals in place. Location plays a very important role in the ultimate value of any property. It is important therefore to choose wisely when investing in any property. The value of quality real estate almost never goes down, unless the whole area gets affected.

There are many more advantages to owning real estate than appreciation and tax benefits. Banks are more than willing to sanction loans against real estate. There could be times when there is an urgent need for a large amount of finance. This is when one can turn to an owned property. The property can be mortgaged to make up for the required funds. The other way to monetize your property would be to get into a joint development agreement with a developer. The amount that a property owner would get by entering into a joint development agreement is usually higher than that of an outright sale. But remember to choose a developer that is reliable and has had a decent reputation in the past. With increasing population and limited availability of real estate, demand is bound to increase over the next few years with limited supply, causing property prices to rise. A real estate investment from that perspective could lead to generation of capital gains.

One should however consider all aspects and risks while monetizing any real estate asset. It would be a good idea to take the opinion of professional real estate consultants as to whether it is the right time to sell or where to invest in order to maximize the monetary benefits. Therefore, if you have a real estate asset which is lying idle, why not monetize it now?

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