Millennials have always had to fight hard in life. Directly affected by the 2008 financial crisis, they have again been squarely hit by the pandemic. In fact, one of the leading global banks has dubbed them the ‘lost generation ’, saying they’ll accumulate less wealth during their lifetime compared to earlier generations.
That being the case globally, India presents a different picture; the average age of Indians beginning to save and invest is falling, and so they just might fare better than their global counterparts in the long run.
Invest much but meagre ROI
No wonder that our hardy millennials always work around roadblocks that they face. When they have some investable surplus, millennials look for best investment avenues. Typically, they start by checking traditional instruments of investment such as Fixed Deposits and debt instruments, and realise that at 8.5-9% average ROI, with returns attracting a 30% tax in hand, the asset class barely delivers any returns.
Golden sheen turns dull
Turning to gold, purchased either as brick or jewellery, and more recently as Electronic Funds Transfer (EFT), realisation hits millennials that the input costs far exceeds the promised ROI. This is because when gold is purchased in tangible asset form, it attracts making charges (as bricks, 7-8% and, as jewellery, about 25%), which is money that is never recovered. Also, there’s locker or other security charges to keep the asset safe. So for an asset class that offers a compound annual growth rate (CAGR) of approximately 8-9%, the effective ROI is again meagre. Of all the options, only EFT is viable in this asset class.
Of bears and bulls
The stock market is immensely attractive but only 4% of stock players actually end up making any money. Most times institutional experts are the winners, while retail investors find it tough to survive. So, indirect investment in this class via the Mutual Fund (MF) Systematic Investment Plan route is the best way forward. Managed by experts, MF returns are usually in the 12-15% bracket, begetting an above-average yield for the equity and equity-related MF investors in 2021.
Real Estate is the way to go
Real estate was always on millennials’ list but the exorbitant prices had kept them away until now. In fact, they happily rented houses and deferred buying their own. However, the pandemic changed the scenario—many were convinced to finally invest in under-construction property, while they enjoyed living at low rental rates (seeing a 20% slump during the pandemic). Their investment was channelled at wealth creation through smart realty investments, not only by way of buying a property to reside in.
As a result, real estate has emerged as a safe option for them, with assured ROI in the long run and reasonable input costs. This could be in the form of a down payment made of 10-15 % of the total valuation. That explains why in 2021, real estate investments in the first nine months were recorded at US$ 2,977 million as compared to US$ 1,534 million in the previous year. This also indicates why India’s flexible space stock is projected to grow by 10-15% YoY in the next three years.
Therefore, the real estate rally seems prepared to continue in 2022 as well, as buyers who are yet undecided may find themselves convinced to seal the deal soon. Because builders are waiting to hike prices in keeping with the burgeoning costs of cement, sanitary ware, fuel, etc., and as soon as prices begin to climb, buyers will have to take a decision and finalise their choices.
(By Sandeep Katiyar, CEO, 1OAK)