Time may be ripe for some value-buying in real estate

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SummaryReal estate is seen as one of the biggest wealth generators for Indians over the long term.

reflationary periods fuelled by ultra-cheap money (2005-2007 and 2009-2010) when most properties gave phenomenal returns. An investor needs to be both selective and cautious.

The current weakness, if it persists for some more time, will make real estate a buyers’ market. Land owners are getting desperate after an almost 2-3-year-long stagnation, and with over-leveraged developers unable to oblige them, land, that was a scarce resource until now, may get cheaper and increasingly ‘available’. This should bring down costs of development and make properties more affordable in future. Shrewd investors will be looking to make a killing.

Picking the right property in this market is like picking the right stock in a volatile market. It needs in-depth research, high conviction and loads of patience and perseverance. One needs to have the right instinct before investing in a particular property.

People tend to ignore liquidity risks in real estate and end up over investing. If one owns an expensive property today, one should exercise caution by not linking all his/her financial goals with it, as there is no surety of the property getting sold quickly, especially in case of a slowdown, where your investment might take longer time to deliver.

It is important to have sufficient liquidity in one’s portfolio. Diversify across asset classes such as debt, equity, gold and also across products such as mutual funds, insurance and fixed deposits. In my view, property should not constitute more than 50% of your investment portfolio simply because of the illiquidity factor attached to it. To conclude, one must be careful before falling in love with real estate, except the place where you are actually residing. Other properties should be looked at clinically.

The author is vice-chairman & managing director, Bajaj Capital. Views expressed are personal

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