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How Does Inflation Impact Real Estate Investors and Landlords?

Many goods and services increase in price as a result of inflation, making it harder for certain people to obtain what they require. Inflation affects everyone, including investors and builders. Furthermore, the impact of inflation on real estate is influenced by housing supply and demand.

How Does Inflation Affect Real Estate?

Inflation has a number of effects on real estate. Because of growing wages and more expensive equipment and materials, the cost of building a home has increased dramatically. Investors have struggled to acquire affordable rental residences and expand their rental companies.

When interest rates rise due to inflation, borrowing money from the bank becomes more expensive. As a result, fewer investors may be willing to finance or purchase rental properties. However, as rental house demand has increased, incumbent landlords have been able to hike rental fees, resulting in an affordable housing crisis.

There are, nevertheless, options for investors to invest during periods of excessive inflation. After all, real estate investing is highly reliant on the housing market and the location of the property.

How to Invest During High Times of Inflation

When inflation rates are high, it can be difficult to determine whether investments are worthwhile. Investing in rental properties, despite high mortgage rates, can provide a wealth of opportunities. For example, because demand is higher than typical right now, there are fewer opportunities for prolonged vacancies.

Landlords can also establish rental rates based on the location of their property, additional facilities, and the rate of inflation to ensure that they do not lose money. Overall, because rental properties can gain in value during periods of inflation, they tend to fare well.

Can Real Estate Protect Against Inflation?

Yes, in some cases, real estate can be used as a hedge against inflation. For example, landlords can charge more for their properties during periods of high inflation while paying the same mortgage payment. In turn, this ends up allowing landlords to earn more profit while others are paying higher housing costs.

Furthermore, house prices tend to rise with time, allowing investors to profit from the inflationary effect on real estate. The impact of inflation on debt- When home values rise, the loan-to-value ratio of property mortgage debt decreases. In other words, the value of your rental property increases while your mortgage payments remain unchanged.

Investors with multiple rental properties might take advantage of short-term lease agreements to raise costs and generate more money. For example, if you increase your monthly rent while maintaining your mortgage payment, you will have extra money in your pocket.

Understanding pre-leased properties and their benefits

Pre-leased properties are those, which already have tenants and ensure fixed income or assured returns. These properties offer a number of advantages, including higher capital appreciation, consistent income, and zero waiting periods. Before purchasing these properties, nevertheless, one must conduct their due diligence. Here is a quick overview of pre-leased homes and their unique features.

Pre-leased properties have gained popularity throughout the years, particularly in the commercial real estate market. Pre-leased properties, to put it simply, are ones that are already leased out at the time of sale and the investor keeps the lease in place to continue earning regular profits.

Commercial properties often come in freehold (buyer receives the exclusive property and land ownership) and leasehold (from government organizations like MIDC with 99-year tenures) forms. In India, the freehold sector is where pre-leased commercial deals are most frequently seen.

Pre-leased properties have a number of benefits, including the following:

Zero waiting periods: Returns for properties with pre-leased tenants can be earned immediately. Investors instantly begin to make monthly rentals from these properties after the lease deed is transferred because they already have tenants occupying them.

Capital appreciation: Pre-leased property values typically rise significantly when compared to empty ones. Prime properties with excellent amenities and infrastructure could also appreciate more. Therefore, buyers with longer investment horizons may profit from strong capital value appreciation.

Monthly income assurance: The investor's legal right to collect monthly rentals is included in the lease transfer of the commercial property.

High liquidity: Pre-leased commercial properties are simple to sell, despite the fact that finding a buyer in real estate might be difficult. These assets are popular among investors, ensuring greater liquidity.

Rental discounting facility: Lessors have the option of applying for low-interest term loans against the rental revenue of their commercial property that has already been pre-leased. Lessors will be able to sell the property for more money and get the monthly rentals at a lower price as a result.

Rental increase: Buyers do not need to be concerned about rental growth with these investments. Renewals of the contract also guarantee regular rent increases.

Less risk: Since pre-leased properties provide guaranteed income and substantial profits, investors incur fewer risks when purchasing them. There is always a potential that tenants will leave these properties before the contract expires.

Investor concerns in regard to pre-leased properties

Before making an investment in a property that has already been leased, you need address a few problems.

Greater capital value: Pre-leased real estate always has a higher market value than unoccupied commercial space. The price disparity between these two properties should be considered by buyers before making a choice.

Tenant quality: Before finalizing the contract, investors should evaluate the tenant's credibility and financial standing, as well as their credit history. The goal is to guarantee prompt rental payments from them.

Lease duration: Since it takes time to find new tenants, it is essential to review the commercial lease term. Make sure the lease has a longer term.

Before investing your hard-earned money, make sure to research the lease terms, tenant information, and property values of nearby comparable properties. Pre-leased properties might become lucrative investments in the future if you play your cards well.

TopPropMart has been recognized as Real Estate Tech Startup of the Year - 2022

Technology is being embraced by all industries in the World & Real Estate industry is not far behind. This industry is catching up with the latest technology & has shown tremendous progress in the recent years.s As real estate industry is inspired by the Internet of Things (IoT), artificial intelligence, and all things creative, TopPropMart being one of the fastest-growing real tech startups has leveraged the use of technology in all its aspects.

• 92% of home buyers search online to find their dream home.

• 82% of real estate market investors trust online agents as a reliable source of information.

• 42% have resorted to the Internet as their first search medium.

With the increase in technological advancements, they have added multiple features to the platform making it secure and safe. TopPropMart has created multiple channels to support customers with tech support in terms of Loan, Legal services, On-demand home cleaning, and Ola cabs, to name a few. These tie-ups assist customers avoid indecisiveness due to lack of trust and transparency in Real Estate.

TopPropMart that took off with humble beginnings has now expanded in multiple cities with USD 12 Million in Gross Transactional Value, in a short span of 3 years. Keeping demand and supply in mind, TopPropMart has listed more than 15+ A Class developers across 40+ locations catering to an average of 35,000 hits on the website annually.

TopPropMart platform offers an integrated consumer experience & covers the full real-estate journey from search & discovery, transactions, home loans, legal advice, property management, and post-sales services – fully integrating buyers to an extensive network of 111+ Projects, US$ 12M+ Investment, 15+ A-Class builders, 40+ Locations, 99+ Investors.

Technology advancements starting from listing of Curated properties, first-to-market transparent pricing, easy global search with floor and view filters to end-to-end service dashboard, all are taken care. For real estate buying, the company has partnered with close to 10+ financial institutions to provide instant home loans to customers on its platform and tie up with other financial and startup platforms to get legal support.

Housing Sales Volume grows 11% across 7 cities in Q3

According to rating agency ICRA, housing sales in volume terms increased 11% in the third quarter of this fiscal year across seven cities due to increased demand. "The reported sales in Q3 FY2023 in the top seven cities in India are the highest quarterly sales recorded in over ten years," ICRA said.

The residential real estate sector saw strong demand in Q3 of FY2023, with an 11% year-on-year (YoY) increase in area sold. The area sold in the first nine months of FY23 increased to 412 msf, up from 307 msf in the same period last year.

ICRA observed a gradual shift in the overall segment-wise composition following the pandemic, with a rise in the share of the luxury and mid segments to overall sales across the top seven cities — Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region (MMR), National Capital Region (NCR), and Pune.

The contribution of the luxury and mid segments to overall sales has increased from 14% and 36%, respectively, in FY20 to 16% and 42%, respectively, in April-December of FY23.

"The value of the area sold in the residential real estate sector is expected to grow by 8-12% in FY23 and a further 14-16% in FY24," said Anupama Reddy, Vice President and Co-Group Head - Corporate Ratings at ICRA.

Based on a sample of the top 12 listed real estate developers. The preference for larger spaces/upgrades and home ownership is expected to continue. Despite the RBI's rate hikes during the current fiscal year, home loan interest rates are still lower than the peak pre-Covid interest rates, and affordability remains healthy, according to the rating agency.

"While low inventory overhang and calibrated launches benefit developers, the impact of a slowing job market and higher interest rates on affordability pose risks," Reddy said.

Unsold inventory levels fell to 839 msf in December 2022, down from 923 msf in December 2021. As a result, the years-to-sell (YTS) for unsold inventory fell to a decade low of 1.5 years, according to ICRA. Furthermore, the rating agency stated that the average sale price increased by 10% year on year in Q3 of FY23, owing to the partial pass-through of increased input costs as well as a change in product mix with a higher share of luxury units.

Luxury real estate in India is booming, with posh neighborhoods, spectacular views, and heated infinity swimming pools.

In February, an image went viral showing a large crowd gathered at the office of real estate developer DLF after the launch of a new project. The rush was to purchase a flat in that project, which was priced at 7 crore. DLF confirmed last week that it had sold 1,137 such projects in its Gurgaon unit.

This is not a one-time occurrence. According to Knight Frank data, the average value of properties registered in Mumbai in February 2023 was 1.9 crore, which is 65% more than the average value of properties registered in February 2022, which was 1.18 crore.

The demand for luxury housing in India has recently been extremely high. There is nothing that money cannot buy when it comes to luxury housing. Think heated pools and spas, community gardens where you can grow your own herbs and veggies, a 24x7 clubhouse with pool tables, games, a business centre and a coffee bar, a fitness centre with high end cardio and strength training equipment.

"If we define 2 crore and above as the general reference point for luxury housing, there was an offtake of nearly 6,000 units in the top seven cities in the last quarter with a gross sales value of nearly 22,000 crore." There has been a new supply of approximately 12,800 units in the top seven cities during this time period.

In terms of sales share, the Mumbai Metropolitan Region (MMR) and National Capital Region (NCR) are at the top of the list, accounting for more than half of the total. This is followed by Bangalore and Pune, which have a 20% and 15% market share, respectively. In the luxury segment, Hyderabad and Ahmedabad had less than a 10% share. "Demand for luxury housing in India has recently increased." The expansion of the Indian economy, which has created a new class of wealthy individuals with high purchasing power, is one of the primary reasons for this. They are willing to invest in premium living spaces that provide exclusive amenities, first-rate services, and cutting-edge facilities," says Anuj Puri, chairman of Anarock Group, a real estate services firm.

Another reason for the increased demand for luxury housing in India is the urban population's changing lifestyles and aspirations. "Many people are seeking a luxurious and comfortable living experience, which has led to an increase in demand for high-end residential properties with a variety of amenities, such as swimming pools, fitness centres, and spas."

The Covid-19 pandemic has also increased the demand for luxury housing in India. The pandemic has influenced how people live and work, with many people seeking larger homes with more space to accommodate work-from-home arrangements and other lifestyle changes.

The government's recent move in the Union Budget 2023-24, which will go into effect in April 2023, could be a major factor in high sales of high-priced homes in Mumbai and other major cities.

If a person sells a house or other assets, including equities, and his or her gains exceed 10 crore, the maximum benefit that he or she can receive when investing in another property is only up to 10 crore. Capital gains of more than ten crore rupees will be taxed beginning in April 2023.

"As a result, high net worth individuals (HNIs) across top cities, including Mumbai, are rushing to close luxury housing deals before the fiscal year ends in March," says Puri.

"In the context of India, luxury properties typically refer to high-end residential properties that offer a variety of amenities and features." These properties are in prime locations, upmarket neighborhoods, or central business districts, and are designed with a focus on providing a luxurious and comfortable living experience to their residents," says Amit Goyal, CEO of the luxury estate brand Sotheby's International Realty in India.

There is no single definition of luxury housing, and it varies by city, depending on the local real estate market.

"For example, luxury housing in Mumbai may refer to high-rise apartments with ocean views, whereas luxury housing in Delhi may refer to large villas with private gardens and swimming pools." Similarly, luxury housing in Bangalore may include gated communities with world-class sports facilities and spas," Puri says.