Year-end trends: Does real estate still offer lucrative ROI?


Will real estate continue to be a preferred investment class in 2019? We speak to some experts, to gauge how real estate compares to other assets like stocks, gold, etc., to get some answers

Real estate is often considered as one of the best assets globally, vis-à-vis return on investments. In India, recent policy reforms like the Real Estate (Regulation and Development) Act 2016 (RERA), real estate investment trust (REIT), the Benami Act and the Good and Services Tax (GST), have helped to transform the sector into a more organised one.

Aditya Kedia, managing director of Transcon Developers, maintains that the present real estate market offers a win-win situation, for potential buyers and developers alike. “With RERA in place, developers are bound to deliver projects within the stipulated period of time,” he says.

Manju Yagnik, vice-chairperson of the Nahar Group, adds that “The sector has witnessed growth in recent times, with a rise in the demand for commercial, as well as residential spaces. Private equity investment in real estate is estimated to grow in the coming years.”

 

Bank home loan interest rate cycle in India

With low home loan interest rates, various government incentives for affordable housing and stability in demand and supply, the market at present, could well be termed as a buyer’s market.

“It is true that investing in real estate requires liquidation of more than 50 per cent of one’s life savings,” says Dhaval Shah, joint managing director of Parinee Group. However, from the perspective of a long-term investment, the return on investment (ROI) will be more than the amount invested, because of improvements in infrastructure, he says. “The demand for housing in India will never diminish and hence, it will be a profitable investment,” he elaborates. Moreover, with realty prices across India remaining more or less stagnant and developers focusing on clearing their existing inventory, this may be a good time to make an investment, say experts.

See also: Investment tips: How to buy a home that delivers long-term ROI

 

Real estate versus equity, gold and other investment avenues

According to Parth Mehta, managing director of Paradigm Realty, other asset classes like gold, commodities, currency and equity markets, are highly correlated to global economic factors, while real estate is largely insulated from overseas factors.

“Real estate is highly dependent on consumer spending in the domestic economy. Other investments are very volatile and can erode one’s portfolio in no time, in case of any global crisis, such as a spike in crude oil prices, or a trade war between developed countries, or defaults by global banks. Moreover, the housing market offers a tangible asset, with the potential to earn rental income or avail of a loan against property in times of need,” Mehta explains.

Girish Shah, executive director, marketing and corporate communications, Knight Frank India, advises that for sizeable returns, any investment in real estate has to be followed by a reasonable holding period. “In regular market conditions, this holding period can range between five and seven years,” says Girish Shah.

Investors are also looking to diversify their portfolios, into asset classes that not only provide long-term appreciation but also regular returns. Real estate is one of the few assets, which promises both, asserts Ashish R Puravankara, managing director of Puravankara Ltd. “If there is one asset class that has appreciated consistently over the years, it is real estate. It gives best appreciation in the long run, especially when a buyer purchases a property from a trusted and reputed developer,” he adds.

 

Returns on property investment – rental income and tax benefits

Apart from precious metals, a real estate investment provides the investor with the comfort of owning a physical asset. As the adage ‘roti, kapda aur makaan’ goes, a home is always seen as a basic necessity, adds Rahul Shah, CEO, Sumer Group.

“This sector is widely chosen, because of its high tangible asset value, frequent generation of income and tax benefits. It is also one of the most secure income generating assets that consumers invest in, for the security of their future generations,” says Rahul Shah.

The main drawback of a real estate investment, is that the asset cannot be easily liquidated at a short notice. Other asset classes like stock markets, mutual funds, etc., can also give high returns to investors. Investing in real estate is also an expensive proposition, especially in the metropolitan cities. Nevertheless, a real estate investment can be used as collateral, to raise more capital. When it comes to investing in realty, Pritam Chivukula, co-founder and director of Tridhaatu Realty & Infra Pvt Ltd advises buyers to choose areas that have the potential for development in the near future. “This will enable home buyers to find properties that fit into one’s budget and still offer the same social and support infrastructure, as well as connectivity, in the near future,” Chivukula concludes.

 

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