Sure, it’s always a good idea to invest in real estate. But no investment is completely risk-free. We list the factors you should consider before you take the leap.
We have all heard the cautionary tale of the guy who invested all his savings in property, only to find out that the builder had vanished without a trace or that the land was, in fact, owned by someone else. And yet, real estate has become one of the most popular investment avenues, thanks to the returns in the sector over the past 10 years. So high is the return on property investments that it often makes buyers and investors ignore even the obvious risks. “Real estate investments can never be completely risk-free,” warns Anand Jagdale, Mumbai-based property and tax consultant. “So it is up to the investors to consider all possible scenarios before they invest their hard-earned money in property.” Here are risks to consider.
ANYONE CAN BECOME AN AGENT
Unlike financial firms, companies and other businesses, the real estate sector has no entry barrier. This means that just about anyone can become an estate agent/ builder or a developer. The modus operandi of fraudsters is relatively simple. They rely on the lack of transparency in the dealings to mislead people. “The smaller and lesser known the builder, the greater the need to verify and research credentials,” says Shravni Amarkant Shinde, who owns homes in Mumbai, Nashik and Pune. “If the deal sounds too good to be true, it probably is.” And to avoid the risk of delay, it would be a good idea to invest in a project that is nearing completion instead of during the pre-launch stage.
THE SALES PITCH IS MOSTLY HYPE
Verify all claims made by the builder—remember that ads like ‘Just 20 minutes from the proposed airport’, or ‘Close to the upcoming metro station’ always exaggerate the positive points, adds Amarkant. Apart from proximity to schools, colleges, hospitals, etc, often developers pitch the fact that the project is very close to a proposed civic infrastructure project. While a centrally located project close to amenities is always desirable, be cautious when the word ‘proposed’ comes into the picture. “It’s true that these projects will see appreciation when the infrastructure project is completed. However, if the latter is delayed or shelved— like the proposed airport in Navi Mumbai—you will find that not only is your money stuck, but there is no appreciation or income from it either,” warns Anand. Investing in upcoming cities or tier-two cities—which is a rage—is replete with even more risks, so twice the amount of research is needed.
YOUR PARTNER MAY NOT BE ON YOUR SIDE
When it comes to investing in a second home, many people prefer to invest with a partner, friend, or a like-minded group of people. “But before you do that, make sure you know everything about them— especially, their financial situation and their motivation behind wanting to invest,” says Anwar Shaikh, who invested in a property, only to discover that his friend had sold it without his knowledge. “Get everything in writing. Having a written agreement drawn by a property lawyer would have helped me.”
YOUR MONEY IS TIED UP
One way to make sure you are paying the right price for a property is to check the Ready Reckoner for the government-approved property prices in the area. Don’t shy away from visiting the concerned department offices of the government or municipal corporation, and checking out the city plan yourself. “I would also recommend talking to the neighbours or the secretary of the building or speaking to other investors in the project,” advises Anand. If you invest in property, your money is going to be stuck for a long period of time, without immediate returns. There is also the risk of less than expected appreciation or none at all. And you may no longer have the cash to invest, if something better comes up.