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What is the basic rule of real estate?

Introduction to the Basic Rule of Real Estate

Real estate offers some of the best opportunities to build wealth. Ownership, rentals, or commercial facets in real estate can all lead to wealth accumulation. Perhaps the most important element of buying a property is location, location, location. This guiding principle of real estate insinuates that of all the elements of a property (its condition, amenities, surrounding income levels, and use), the geographic location will have as much, if not more, implications on current property value, rental income, and appreciation potential in the long term.

Whether you are a first-time home buyer or a sophisticated real estate investor, navigating location selection is critical to understanding why location is important and how to ultimately find it!

What Is the Basic Rule of Real Estate?

Defining Location, Location, Location

The phrase "location, location, location" denotes a property’s geographic position as the primary driver of that property's success. A property that is located well can, undisputedly, be afforded a greater amount of demand, rental yield, and appreciation potential. Location, along with accessibility, lifestyle, and future investment returns, is the foundation of all real estate decision making. An example of this would be asking yourself how unlikely it is for the price of a ₹50,00,000 apartment near a metro station is going to greatly outperform a similar valued apartment in a somewhat remote area.

Why Location Matters

The location of a property is a major factor in determining attractiveness and marketability. Properties in prime locations, such as neighborhoods with strong school systems or access to transit or commercial hubs, will see more buyers and tenants (and this translates to continued demand). A strong location should also aid in appreciation; appreciation is faster in an area experiencing infrastructure improvements or an economic boost. Location also determines risk—properties in a stable, high demand area are not really susceptible to market downturns. In a market as diverse and varied as India, where prime urban and suburban property locations vary significantly from place to place, selecting a prime property can maximize returns.

Factors That Define a Great Location

Proximity to Amenities

A good location enables access to essential amenities such as schools, hospitals, malls, and public transport, for example, it is reasonable to believe that a ₹60,00,000 home in Bengaluru’s Whitefield, close to some excellent schools would be preferable to a similar house further from such amenities. Proximity to amenities raises the rental value and resale value of a property, so location is a better investment.

Economic and Job Growth

Active, busy areas like Hyderabad's OK IT hub or Gurgaon’s corporate can attract many professionals looking for a place to stay. Properties in these areas, like an apartment near an IT park priced around ₹40,00,000, will benefit from rental demand and greater price increases from job creation. Understanding broader economic trends, such as when new business parks or industrial areas are being opened and planned, will help investors to find the areas in the future.

Infrastructure Development

Often, newly introduced infrastructure will also add value to its surroundings like metro lines, highways, and airports will also increase the price of nearby properties. For instance, a plot of approximately ₹30,00,000 in a Tier 2 city like Jaipur, ideally located near a proposed metro corridor could appreciate in booked up to ₹50,00,000 in a few years. Keeping a close watch on government announcements or urban development plans can keep investors track of prospective locations.

Safety and Community

Safe neighborhoods with low crime rates and high levels of community pride are highly sought after. For instance, a ₹70,00,000 villa in a gated community in Chennai with security and added amenities is likely to have great value to premium buyers. You can look at crime statistics and a community analysis or survey to provide you with information to help ensure that the area meets the potential buyers’ or tenants’ expectations.

How to Choose the Right Location

Research Market Trends

You need to keep on top of local real estate trends to identify hot spots to buy where growth is likely over the next few years. You can use rate websites such as MagicBricks and 99acres, and look for local price changes over time, or local rental yields. If the 10-year CAGR (compound average growth) on all new 2BHK apartments in Noida's Sector 150 is 10%, then this location could be considered very good. You can also question local independent agents regarding their demand drivers, such as new schools, and the local commercial real estate market.

Evaluate Future Potential

When trying to assess the appreciation potential of an area do not focus on current property prices in that area. Look at an area that has a new piece of infrastructure that is envisioned. For example, an airport in Navi Mumbai shows an option for price growth. A ₹25,00,000 investment in a "growing" area could mean very large long-term opportunities once the area grows. It is important to keep the current demand and cash flow in line with future growth while you remain in a holding period.

Match Location to Target Audience

Ensure the location corresponds with your ideal market. Young professionals prefer city locations with nightlife and offices, such as Mumbai’s Lower Parel, where an apartment worth ₹1,00,00,000 may rent for ₹40,000 per month. In contrast, families prefer suburban locations near schools and parks, like Pune’s Hinjewadi. By understanding your audience, you can ensure the location is suitable for them.

Visit and Verify

Take the time to visit these locations in person to establish whether they would be viable operators. Walk around the area, observe traffic patterns, check out nearby amenities (bars, restaurants, groceries, etc.). A property you’ve seen online for ₹45,00,000 may look good on the internet but may be near very busy streets reducing its attractiveness. There are numerous variables to consider, confirming the area you are in has value by seeing it in person and exploring it allows you to pivot, preventing costly mistakes.

Challenges of the Location Rule

High Costs in Prime Locations

Prime real estate generally commands prime prices. A ₹1,50,00,000 apartment in South Delhi may leave no budget for furnishings, while a ₹50,00,000 home in a less desirable location is more affordable. Alternatively, you may want to consider areas with less established prices in up-and-coming locations with potentially lower prices but higher anticipated growth, such as Greater Noida, which has lower prices than established markets.

Unpredictable Market Shifts

Location-value can be impacted by unforeseen changes, including economic downturns and delayed infrastructure projects. In the instance of a plot that trades for ₹35,00,000 in a developing area, it can potentially lose much of its value if the expected metro stations do not materialize for an extended period. This risk can be mitigated by spreading investment over several locations, while giving preference to areas that are already established with proven demand.

Competition and Oversupply

Good locations can become oversupplied and thus subject to diminished rental yields and lower appreciation rates. The recent excessive building in Gurgaon resulted in some areas having reduced rental returns. Researching the supply-demand ratio will help determine if it is still competitive with regard to the location.

Balancing Location with Other Factors

Integrating the Four Pillars

Location is the primary rule; however, it is more effective when it is used in tandem with the four pillars of real estate - cash flow, appreciation, leverage, and tax benefits. A prime location will provide income or cash flow from rental income, which on a property costing ₹60,00,000 would be expected in the area of ₹30,000 on a monthly basis, and would be able to appreciate due to demand from the rental market. Location will allow for excellent rates to leverage your investment with the best loans. Lastly, the tax benefits provided by the interest on the loan, perhaps ₹2,00,000 annually, will improve the rate of return.

If you can balance location with the four pillars of real estate, you will be on track to an excellent, vigorous investment strategy.
Practical Application
Compensate yourself to purchase an apartment for ₹50,00,000 in an emerging or uplighting area, for example, Gachibowli in Hyderabad, adjacent to Hyderabad IT Hubs, for future rental demand and appreciation. Ensure your cash flow will cover any EMI for a loan of ₹20,00,000 and capitalize on any tax deductions you may be entitled to, and keep an eye on any infrastructure updates that would substantiate your location. This way you'll be utilizing the strengths of a firm location.
Conclusion
The core tenet of real estate - location, location, location - is a gateway to successful property investing in India. By searching for an active location with good amenities, positive economical growth, new infrastructure and safe living environments, investors can acquire properties with demand, appreciation and stable rental income. If you do your homework, a few site visits and have built-in flexibility to transact market demand you can expect to unlock location wealth building. Ultimately, whether you're purchasing a family home or building a portfolio, if you follow these fundamentals, the right location(s) should guide you on your way to succeed in India's ever changing property climate.

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