[ecis2016.org] By studying real estate markets in a structured and method-driven manner, an investor can create a profitable portfolio. We examine some simple methods to analyse the property market, for the best investment
Indian real estate is a dynamic industry, which experiences changes throughout the year. Consequently, evaluating a particular city or location, in terms of the investment potential it holds, can be a daunting task because of the constant change. Here are a few tips that can help you analyse your local housing market.
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1. Study the pricing trends
A very useful method for acquiring knowledge about a certain city’s 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 to evaluate the growth in the market and arrive at a reliable estimate for the future.
Even if you are primarily interested in residential property investment, it is better to study the pricing trends across a larger cross-section of real estate segments – residential, commercial, industrial and even farm land property in 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. Identify growth factors
Once you have identified the residential investment opportunities in a certain market and also studied its pricing trends, the next step, is to understand the factors that have influenced pricing changes within the market.
A property’s value depends on both, macro and micro-economic factors that influence the market. The addition of civic and social infrastructure, in the form of roads, bridges, public transport, schools and colleges, hospitals and other public services in an area, tends to induce an almost immediate growth in the market.
Apart from these, factors affecting the state and local economies, such as regional regulatory guidelines, tax reforms and interest rates, also play major roles in either propelling or subduing market growth.
3. Assess buying activity
From 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.
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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 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’ (DoM), can be studied 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 central locations with suburbs and outskirts
If you have been primarily focusing on properties in central locations, then, extend your field of research to the adjoining suburbs and even the 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 in terms of real estate projects and infrastructure. It is important to remember that while market dynamics certainly change all the time, the rules that govern returns on investment do not.
(The writer is chairman, Pharande Spaces)
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