Why real estate is a good investment in current times

Published: October 29, 2019 1:14:00 PM

Price-points of real estate have largely remained constant since 2016 and if one considers annual inflation rates, present-day prices are effectively at discounted levels.

real estate, real estate investment, real estate in India, housing, affordable property prices, RERA, GST, low Home loan interest rates Historically, real estate has proved to be an appreciating asset, one which yields fairly good returns on investment.

Any prudent person makes an investment when the markets are subdued and low. Under the current market conditions, present day apparently is one of the best times to buy a house.

Home loan interest rates are at an all-time low and the interest subvention of 30 per cent enables the affordable house buyer to obtain home loans of tenures ranging from 15 to 20 year at interest rates which are effectively as low as 6 per cent.

So, when it comes to buying real estate, the second best time to buy – other than when markets are down – is the time whenever one thinks of real estate from an investment option. That is the right time.  Favourable market conditions for buying / investing in real estate are what any wise investor looks for to make the right investment decision.

The list of ‘why this is the best time’ begins with home loan interest rates being at historic lows – one just can’t get a lower interest rate loan for any similar investment option.

Then, price-points of real estate have largely remained constant since 2016 and if one considers annual inflation rates, present-day prices are effectively at discounted levels. For a potential investment decision, these should be reasons enough to go ahead and opt for real estate as an asset class, but there’s more.

The other point is about the Indian government going all out to help overcome the economic slump; real estate is among the industries that have been earmarked for support. So, things will get better and the price points will rise. So, investing in real estate at present-day prices is a smart investment decision.

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Another plus-point to invest in real estate has to do with rental laws. The Indian government has already put up a draft new rental law which will ensure a safe and secure renting experience for investors. This makes perfect investment sense: not only will capital appreciation of the asset (i.e. the real estate investment) take place, it will also be side by side with a safe rental income scenario.

The RBI move to ensure linking of home loan interest rates to an external benchmark like the repo rate will also sweeten the home loan. This will result in home loan EMIs being adjusted in sync with RBI lowering the rates, an obvious win-win situation: with the interest rates linked to rates such as repo, banks will have to pass on the entire benefit accrued on reduction on rates. This also gives the RBI an effective leverage to control the cost of funds, which is similar to anti-profiteering in GST.

Another plus point to buy a home relates to the Indian social structure – one typically ‘Indian’ thought is about ‘settling down’. From the stage when one completes academics and ventures out into business, there is this time-line stage which we term, ‘settling down’. Among the various aspects included in this stage is owning one’s own residential property.

This is among the reasons why home buying in India is traditionally viewed as a ‘social security’ measure, which not just makes sense from a long term perspective, but is also seen as a ‘must’ once you choose to ‘settle down’.

From aspects like ‘settling down’ to something like inflation – present-day inflation rates are low. What this translates into is a lower cost of buying or investing in a house, but this is present-day. Looking at the future, one can’t be assured that the situation will remain constant. So, when the regulator (RBI) shift gears from ‘controlling inflation’ to ‘supporting creation of new investments, businesses and jobs’, the possibility is that inflation rates might go up.

The impact on cost of property will be obvious – it will surely get costly, and rentals will also go high. This is a plus point for investors – potential of higher rental income in the future. For those who might say renting a house is a better option, well, rentals will move upwards. Perhaps, buying a home at present day rates with lower home loan interest rates will make perfect sense.

Historically, real estate has proved to be an appreciating asset, one which yields fairly good returns on investment. It is in the past couple of years when economic policy reforms have led to stagnant price points, as also the RoI. This is a cyclical situation, and it will change, given the market sentiments.

No other option other than real estate provides the best long run investment over the course of modern history. When it comes to asset classes, real estate has always been a good bet – be it for regular income in form of rentals, or appreciation in capital value. Traditionally, real estate has been right at the top of Indians’ investment list, although the past couple of years have seen things change.

No other investment instrument has been the best long run investment over the course of modern history.

The recent slowdown is part of business cycles which will eventually turn around with the kickstart of economic growth. Therefore, as GDP growth rate gets higher, returns on RE will also fetch better ROI. The inherent demand in real estate is directly linked to the growth of GDP, which makes it the best investment option.

In India, people’s attraction towards real estate is actually driven by the socio-psychological rather than economic factors. So, the choice to invest or buy real estate sounds quite rational, in the long run! So, any wise investor will look out for such subdued market cycle to enter and grab the opportunity to invest in real estate.

Time, as the adage goes, is the biggest agent of change. So, Tsunamis in the form of demonetization, implementation of RERA and GST as also amendments to the Benami Properties Act and Insolvency laws have changed the way real estate functions; it is now a transparent, safe and secure investment option. Given the positives of such a safe and secure investment option, the prudent investor will find this the right time to invest or buy real estate.
 
(By Dr. Niranjan Hiranandani, National President of National Real Estate Development Council (NAREDCO) & Founder & MD, Hiranandani Group)

(Disclaimer: These are the views of the author. Readers are advised to consult their financial planner while making any kind of investment)

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