Why is real es­tate in­vest­ment log­i­cal in a slug­gish mar­ket?

In­vest­ments in real es­tate can prove to be lu­cra­tive if buy­ers home in on a good lo­ca­tion and find a re­li­able de­vel­oper

HT Estates - - HTESTATES - Ash­winder Raj Singh

The global share mar­kets are quite volatile, and de­spite I ndia’s pos­i­tive mid- to- l ong term eco­nomic out­look, it is not un­touched by th­ese choppy wa­ters. A lot of hard-won in­vestor wealth has been eroded in the re­cent past. In th­ese un­cer­tain mar­ket con­di­tions, it makes sense to re­gen­er­ate one’s faith in real es­tate in­vest­ments which can for­tify and en­hance cap­i­tal.

Though the real es­tate in­dus­try has been go­ing through hard times for more than a year now, the hard­ship is pri­mar­ily from the sell­ers’ point of view. For buy­ers, In­dian real es­tate is more lu­cra­tive than it has ever been be­fore.

Here’s why real es­tate can prove to be the best in­vest­ment propo­si­tion to­day, pro­vided that the buyer has cho­sen a good lo­ca­tion and re­li­able de­vel­oper, and has done a de­tailed due

dili­gence of the deal:

The right time for lu­cra­tive deals

De­vel­op­ers are sit­ting on a huge amount of un­sold in­ven­tory that is af­fect­ing their cash flows and erod­ing prof­itabil­ity. More­over, price growth has been more or less flat in ma­jor In­dian cities for more than a year. To break out of this dead­lock, play­ers are offering hand­some dis­counts and buyer-friendly home loan deals that can ac­tu­ally make a lot of sense in to­day’s mar­ket con­di­tions. In short, this is a buyer’s mar­ket.

A stable as­set

Un­like the share mar­ket, which is spec­u­la­tive and highly volatile, the real es­tate mar­ket is quite stable. Even if the value of a property comes down, it is a grad­ual process and over a long pe­riod of time. This presents a much more favourable sce­nario than the eq­uity mar­ket, which changes its po­si­tion sev­eral times a day. In this sense, real es­tate in­vest­ments re­main rock solid, even in ad­verse mar­ket con­di­tions with an ex­treme sce­nario of a nom­i­nal loss. The share mar­ket does not pro­vide this se­cu­rity, and can in fact wipe out an en­tire life’s sav­ings in a day.

Smart cities

The gov­ern­ment has re­cently an­nounced the list of cities it wants to de­velop into smart cities. Of course, it will take a few years to ini­ti­ate the process and com­plete th­ese un­der­tak­ings. How­ever, the real es­tate mar­ket op­er­ates on an­tic­i­pa­tory sen­ti­ment, so the property mar­kets in those cities will start show­ing more buoy­ancy al­most im­me­di­ately. This means that real es­tate in­vest­ments there will yield bet­ter re­turns in the long run, no mat­ter how the share mar­ket per­forms.

Also, with ma­jor met­ros ex­pand­ing to ac­com­mo­date the in­flux of more and more citi- zens, new projects are con­stantly be­ing an­nounced at the out­skirts of the iden­ti­fied smart cities. One can cur­rently strike very lu­cra­tive deals for the right kind of as­sets by re­puted de­vel­op­ers op­er­at­ing in th­ese ar­eas, and se­cure in­vest­ments that will bring hand­some re­turns in medium to long term.

Rental in­come op­por­tu­nity

Property pur­chased i n the cur­rent sce­nario can be used t o gen­er­ate rental i ncome while its po­ten­tial sell­ing price ap­pre­ci­ates over time — or, in a worst-case sce­nario, re­mains at sta­tus quo at the pur­chase price.

As a lot of peo­ple are de­sist­ing from buy­ing new prop­er­ties in the hope that prices will come down, or sim­ply be­cause they can’t af­ford it, the de­mand for rental homes is ris­ing steadily.

Tax sav­ings

With the gov­ern­ment as well as the busi­ness lobby suc­cess­fully pur­su­ing in­ter­est rate cuts, home loans are get­ting cheaper. Lower home loan in­ter­est outgo and the as­so­ci­ated tax ben­e­fits on home loan EMIs gen­er­ate ex­tra sav­ings. This is definitely a bet­ter sce­nario than in­vest­ments in a volatile share mar­ket or other in­stru­ments of in­vest­ments that of­fer mea­gre re­turns

over long pe­ri­ods.

Su­pe­rior pre­dictabil­ity

It is not pos­si­ble to pre­dict how low an eq­uity mar­ket will go. Af­ter ev­ery stock mar­ket crash, there is an ex­pec­ta­tion of ei­ther fur­ther losses or a turn­around, but never a con­crete pre­dic­tion. The irony is that if the mar­ket crashes, al­most ev­ery in­vest­ment tool at one’s dis­posal - be it mu­tual funds, shares, bonds, gold etc. — goes down at the same time, thus mul­ti­ply­ing the in­vestor’s losses. It is only by keep­ing a con­stant hawk’s eye on the stock that one can hope to at­tain some kind of pre­dictabil­ity.

The real es­tate mar­ket, on the other hand, has cycli­cal highs and lows which can be gauged more eas­ily. One can en­ter the mar­ket when it is at its low­est, know­ing that prices will not go fur­ther down. Builders will not sell at any­thing less than a pre-de­ter­mined price, no mat­ter what.

One can in­vest in gold, fixed de­posits, the eq­uity mar­ket and bonds, but real es­tate is the safest bet in the long run — and the most re­li­able in­vest­ment in­stru­ment. Most of the prop­er­ties built a few decades ago have eas­ily yielded a re­turn of 200-300%.

A tan­gi­ble as­set

The fi­nal and most de­ci­sive ra­tio­nale for real es­tate in­vest­ment is the fact that property is a fixed as­set that one can touch, see, feel and put to work. One can ei­ther oc­cupy it or rent it out, but it is at all times avail­able for ev­ery kind of phys­i­cal ver­i­fi­ca­tion. Real es­tate be­comes a part of one’s legacy, which can be passed on to the next gen­er­a­tions of one’s fam­ily. Even though the in­vest­ment re­quired for real es­tate is larger than most other in­stru­ments, both the re­turns and the as­sur­ance of a tan­gi­ble, phys­i­cal and per­form­ing as­set are at all times more than con­sum­mate with the ini­tial out­lay.

To se­lect a property and fi­nally com­plete the process of buy­ing it is a more time-con­sum­ing and ex­pen­sive process than what is re­quired for other kinds of in­vest­ments. It is a one-time process. Af­ter it is over, one can watch the in­vest­ment grow and have no con­cern about any risks in­volved. In a slug­gish mar­ket that is not show­ing any con­crete signs of a short-term re­vival, real es­tate is the most log­i­cal in­vest­ment op­tion in In­dia

FILE PHOTO

Un­like the share mar­ket, which is spec­u­la­tive and highly volatile, the real es­tate mar­ket is quite stable

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