India Real Estate is Surpassing India Stocks for Investors

By Vipin Agnihotri

Lucknow, India: First some facts,

Circa 1999: The term ‘Indian real estate’ was a scary one. As a matter of fact, investing in real estate for capital appreciation and income was unheard of.

Circa 2005: The consensus was that there is a real estate ‘bubble’ that can burst anytime.

Circa 2007: Real estate in India emerged as another asset class perfect for diversification as well as in optimizing returns.

As you can pretty much imagine, this is how the opinions about investing in Indian real estate changed over the years. With real estate markets more vibrant than ever before, and most importantly with increasing institutional participation in this market, there scope is proliferating. Because of this, increased investor confidence and increased investments in the sector.

In the last few years or so, with more investment avenues opening up and giving better returns, investment in Indian real estate had taken a back seat. The pivotal factor responsible for this situation is the price appreciation in real estate and markets opening up with more sustainable demand.

According to experts, 50 years ago, India does not have a vibrant rental market for retail and commercial space. With increasing demand for retail space and office spaces, these two segments are witnessing improved rental yields and also attractive price appreciation. What’s more, with increased buoyancy, the Indian real estate market now falls in league with stocks, bonds, mutual funds, gold and commodities, and insurance policies as a viable investment option for investors in all categories- individuals, corporates and funds.

On the other side of the coin, residential property is a relatively simple investment route especially for a small individual investors/ buyers, who can buy properties both under construction and ready possession for capital appreciation. It is worth mentioning in this regard that returns increase if expected capital appreciation is higher than interest rates on housing loans. In such kind of situation, individuals can invest in a house property by borrowing from a housing finance company.

“Office and retail space is a more interesting investment option for bigger investors. Here, an investors buys a property and lets it out to a company or a retailer,” pointed out Saddia Abid, Assistant Vice President of Megha Real Estate. She also added that it earns regular rental income and carries the advantages of price appreciation, too. Generally speaking, rental income can range between 11 per cent to 12 per cent on investment, and there is room for capital gains. Again, it is worthwhile remembering that investors are able to leverage much more efficiently by taking the assistance of Lease Rental Discounting (LRD).

According to Rahul Mahajan of Surabhi Real Estate, an investor can buy a vacant or under construction property, invariably available at a lower price as compared to a leased-out asset. The main objective is to earn a higher rental income and a higher yield on his investment. Investor here has to take a call on increase in prices and demand. This in turn results in higher rental. Though, the investor undertakes the responsibility and risk of leasing it out. Eventually, basics of investing prevails- higher the risk, higher the return.