Be it the wealthy middle-class or the younger buyers, property as an investment option is drawing more into its fold.
Neha Dewan
finds out why is realty a much sought after investment option

With inputs from M Rochan in Bangalore : Economic Times

THE upward curve in the real estate sector has not just been responsible for ambitious projects doled out by developers and greater transparency levels. It has also led to an incredible change in mindset. Real estate is fast replacing traditional investment options such as RBI bonds, mutual funds, gold, jewellery, fixed deposits and others and is emerging as the top choice among a cross-section of individuals. Be it the wealthy, middle-class or the younger buyers, property as an investment option has been quite successful in drawing attention.

Exactly why is this shift being seen now? SundayET finds out what makes realty a much sought after investment.

A number of reasons have been responsible for this shift in perception. Growing awareness about the sector, a high rate of appreciation and an upswing in property prices are primary factors that combine to offer excellent returns on property investment in very short span of time. Moreover, real estate is now seen as a good risk diversifier that generates excellent riskadjusted returns.

Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj (JLLM), feels that the investor sensibilities have evolved and led to greater awareness about real estate vis-à-vis traditional investment routes. Moreover, the profile of investors has undergone a change too. “The investor arena is no longer driven by middle-aged people focused on safety and stability alone, but by market-savvy young executives and entrepreneurs from the corporate and IT sectors. These are typified by high cash surpluses and high risk appetites — they definitely prefer equity and property. The potential gains are higher, faster and derive from tangible holdings.”

But does this mean that previous favourite choices such as fixed deposits, insurance policies and mutual funds have given way to property as a more lucrative option? Explains Atul Mehrotra, executive vice-president, Uppal Housing, “We have witnessed a sea change in the investment opportunity that people are opting for. This is primarily because the return on investment is fairly good and the risk factor is very low. Hence, investment in stocks, bonds and mutual funds is increasingly being replaced by real estate now. Even the gold market, which was very attractive earlier, has been superseded by real estate funds now.”

M R Jaishankar, MD of Bangalore-based Brigade Group, feels that as land cannot be produced, its price continues to appreciate. And that’s why it gains an advantageous position over others. “Investing in gold and share markets continues to be popular among people, but both have their limitations. In the case of gold , the prices don’t appreciate as fast as that of real estate, and the volatility of the share markets could put off some people.”

Some, however, feel that land and houses have always been the ideal security investment option. Only the choice has now been reinvented in a different manner. “The trend has now just been reinvented as the option of a second house or theme house such as holiday home, beach house, etc, have stepped in. These serve both functions of meeting aspirational values as well as security investment,” says B P Dhaka, COO, Parsvnath Developers.

What adds to the interest in property are the special schemes and incentives introduced in projects by developers. Although that’s not the primary reason for a person to invest in the sector, it still does generate enough interest and curiosity among people. Uppal Housing, for instance, started a scheme which assisted the applicant by paying the EMI to the bank on the loan taken, on behalf of the applicant.

The applicant can then pay the entire amount later to them after getting the possession of the house. Parsvnath Developers, too, has a current scheme wherein the customer will have to pay EMI equivalent to 2.99% rate of interest only till the possession of the property.

All these changes, undoubtedly, augur well for the realty sector. It means that the industry is bound to see a huge growth in the years to come with upgraded construction technologies and development concepts. But it also suggests that the sector will have to evolve more in terms of transparency and a regulated supply and development.

The flip side, however, is that the heightened interest in the realty sector might just lead to a high risk of development saturation in certain areas. “Considering the amount of funds flowing in and the enthusiasm with which developers are responding to the burgeoning demand, there is a risk of development saturation in some locations and a subsequent neglect of others. This kind of lopsidedness is already apparent in many areas in India, and is one of the primary reasons for unrealistic price escalation there,” reveals Puri.

Overall though, the picture looks quite promising for real estate in the country. It reflects a mature investor market which weighs the pros and cons of purchasing property against various parameters such as scale of need, validity of the project visà-vis location, amenities and appreciation potential, and future income and expenditure forecasts. Today’s investors believe in diversified portfolios, and property is fast climbing on to the top slot in their list of investments.

Real estate is fast replacing traditional investment options such as RBI bonds, mutual funds, gold, jewellery, fixed deposits and others
Factors such as growing awareness, appreciation potential and an upswing in property prices all combine to offer excellent returns on property
All these changes augur well for the realty sector and suggest that the industry is bound to see a huge growth in the years to come
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  • Too long to read... ;)

    However, best returns always carries most risks. But if you want to make money, you have to take risk. Isn't it? But, as far as property is concerned (assumed it's clear title and etc.), you 'may' take this risk. Coz, at least, you can enjoy (farming or building home) with your property.

    So, I agree with Pin & Rochan that even property being a risky investment, if you want to invest, it's better you go ahead with property.