How profitable is it to invest in real estate?

More and more people are moving to cities from rural India in lookout for jobs and better opportunities. Some also sell their land holdings or properties and decide to reinvest the proceeds in towns and cities. The demand for properties in the market has surged after the COVID pandemic. People are investing in properties according to their needs. What is the trend in the property market? How profitable  it will be to invest in properties? Let’s find out.

According to property consultant Knight Frank,  property sale in top 8 cities increased by one percent on annual basis to 79,126 units in the January-March quarter of 2023. Figures show that  improvement in demand had come due to low-interest rates and lower property prices.

This demand has actually  persisted despite of interest rates rising since May 2022. Experts believe that the reason for the surge in sales is end-user demand. This means most people are buying homes for their own use. In such a scenario, the question arises whether it is the right time for people to invest in property considering the looming threat of global recession and current scenario of  rising property prices.

Apart from the appreciation in value, another benefit of investing in property is rental yield. This is the return obtained from rent on properties. Residential properties usually fetch rental yield of 2 to 3 percent, while commercial properties such as shopping complexes, malls, and office spaces fetch yields ranging from 7 to 9 percent. However, after COVID, the rental income from both residential and commercial properties has increased due to shifting of people back to cities, due to reopening of offices, and an increase in business activities. Since COVID, rent of residential properties  in large cities have increased by more than 20 percent. In such a scenario, which property should a new investor buy residential or commercial?

The location plays an important role if you want to get handsome returns. Whether it is residential or commercial property. If it is located in a prime location, then its value will increase significantly. And, on top of it, you will also get higher rent. You should make sure that there is adequate transportation amenities. Roads are constructed. electricity, and water amenities are provided. and also hospitals and schools are located in vicinity. If the commercial property is at the correct location, it will get a good footfall, new brands will come, and you will continue to earn from rent. Generally, properties in prime locations are quite expensive. Therefore, you should buy the property at such a location where there will be higher chance of development.

Commercial property is more expensive than residential property, but it generates higher rent. It depends entirely on the buyer whether to buy a house or invest in a property from where they can earn. First-time property investors generally buy a house because it gives them a sense of security. However, the main reason for investing in real estate for the second or third time is to earn rent. For this purpose, commercial property is generally given priority.