Why real estate investment is logical in sluggish markets: JLL
The following is the report by Ashwinder Raj Singh, CEO – Residential Services, JLL India
The global share markets are quite volatile, and despite India’s positive mid-to-long 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 chosen a good location and reliable developer, and has done a detailed due diligence of the deal:
The right time or 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 the 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, real estate market is quite stable. Even if the value of 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 investment 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 and even lead to indebtedness.
The advent of 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 citizens, 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 in current scenario can be used to generate rental income 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.
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.
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.
There are various forms of investment such as gold, fixed deposits, the equity market and bonds available, 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%. No other investment tool can give comparable results.
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 shortlisting and selecting a property, and finally completing the process of buying it is a more involved and time-consuming and expensive process than what is required for other kinds of investment, 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 and remains the most logical investment option in India.
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