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Investors can now buy real estate as a financial instrument

After demonetization, implementation of GST and RERA, the Indian real estate market is gearing up with innovative offers woven together for the investors. These deals involve projects wherein the developer agrees to buyback the units at a pre-determined return if the desired amount of sale rate is not achieved within the defined period. In this deal, the investor gets an option to go in for real estate as a financial instrument which comes with all the safety nets in place, in order to ensure that they get their returns or the possession of the asset at the pre-determined price.

Structured products in real estate are available for those investors who have an investment quantum from Rs.1 crore and above. Since these will be bulk deals, the discounts will range between 15% to 25%. With the stock markets reaching new heights, many investors may look at reaping profits from such instruments. Recently, the distribution arm of a real estate fund manager had raised Rs.12.5 crore for a developer in order to help them complete the project through profile funding. This particular project was 85% complete and the developer required Rs.15 crore to complete the remaining 15%. With this scheme, the fund manager raised Rs.12.5 crore through the channel partners, who further sold it to their clients.

Another scheme floating in the market is that of bulk purchase that comes with a buyback clause. In case there is no appreciation of the property, the builders can buyback the units after passing on the minimum returns promised. In this case, if the market value of a unit is Rs.3000 sq feet, the investor will pay the builder at the rate of Rs.1500 per sq feet and the sale agreement will include the safety features into it. This means that if the builder fails to honor his commitment after three years of passing on the specific interest to the investor, he has a right to get the property registered under his name at the price of Rs.1500 per sq feet.

Individuals with a high net worth are interested in inventory that is close to completion or ready for possession and are shying away from under construction projects since they involve development risks. Huge inventory is currently available in the constructed space and there are good discounts available. With investors ready to buy inventory in projects at price points that are discounted with the scheme that the developer will buy it back at the end of the investment tenor. Otherwise, they will have the right to register it in their names at a discounted rate. With more investors looking to purchase assets in their names, they are interested in projects that yield 16% to 21% in the form of interest payments and capital appreciation. This scheme ensures safety of their capital and gives them a higher return. In contrast to other investment options, this scheme allows the investor to have a right to title and higher return in the long term. 

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