Real Estate Trends in 2022

Real estate is one of the best asset classes of the many. One could invest in fixed deposits with banks or private companies, equities, mutual funds, gold/silver ETFs, commercial property for ROI, fractional ownership of commercial real estate, pre-leased properties, and other asset classes.

The idea behind investing is to beat inflation. One needs to understand the future value of money. 5% ROI per annum on one lakh is ₹5,000. Now, the purchasing power of ₹5,000 after one year is less due to inflation. And the capital investment of one lakh, if not appreciating, when you get it back after 10 years — is it still worth one lakh after inflation? Think and ponder.

There are various stages in life where the importance of money working for you hits home. You get wiser with time. It is positive to think we can work till retirement age of maybe 58 or 60, but keep in mind that one can work only till one is physically fit — and realistically this can come to anyone at any stage in life. As one starts their professional life earning money, saving should be the top priority.

Real estate

As an investor, one should understand that rental property investment in any city or area where there is suburban growth in terms of infrastructure, with mixed development around, means you will be able to rent your house even though the ROI may be 2% odd. But you must look at capital appreciation in the long term.

Working professionals must try to invest in a small accommodation under construction with much due diligence and create their first home at the earliest. In India, I have observed that any recession or disruption — for example Covid — did not deeply correct real estate prices; they remained more or less stagnant.

Bank loans became attractive. Rather than waiting for corrections, get a good realtor who can help you with due diligence and the best deal and payment terms. Our population is our strength. Internal consumption and disposable income are great. Spread the risk. Invest in various asset classes — not all eggs in one basket. Dynamics are changing.

Commercial office space in Pune can typically be had at ₹8,000 per square foot upwards. A good realtor should be able to get you a good deal and find out the possible LOI signed by interested tenants in that building. An LOI is not a lease agreement — keep this in mind, it’s only an intent to lease. Think of a pre-leased asset with ROI ≥ 5% and look at capital appreciation. It all depends on your investment ticket size and risk appetite. One can also look at fractional ownership of commercial pre-leased properties — office spaces leased to a good MNC or unicorn, or warehouse space leased to a good company — and enjoy a monthly ROI of 8%+, while banking on capital appreciation.

The trend

The trend can change due to circumstances. The residential sector is mostly for actual users planning their move. The current trend shows some investors on the fence on the lookout for good deals, while some invest in fractional ownership real estate or a good pre-leased property. With fractional ownership, one can spread the risk and invest in various types — offices, mall spaces, warehouses.

We have examples of people who invested a few hundred or a few thousand in the 1950s, and today the valuation is in crores. Of course, there have been disruptions over the years. Those with appetite have invested and are doing well. Shifting from one asset class to another is luck and also an art.

Will the interest rate hike in the current housing market get some to the fence and rethink? Yes, it may. Wisdom is acquired over time. It’s never too late to invest — the more one waits, the higher valuations could go. I have observed this in real estate closely.

Disruptions, infrastructure build-up, opportunities, innovations → higher valuations

Those who understand markets and have liquidity always invest in a corrected market. In real estate, one may see stagnancy, but some deals are good since the seller requires funds. Sometimes stressed assets are available at attractive value. I believe investing in a developing market is good for the long term — there is growth potential due to infrastructure development and long-term capital appreciation. Land is a good opportunity; they don’t make it anymore, as the saying goes.

Opportunities will come. Disruptions will come. It’s entirely up to you to understand this. Consult someone with a good track record and a vision. The basic principle of investment is to beat inflation. Service costs go up year on year. Disposable income and passive income are very important. Money must work for us.

Disclaimer: These are my opinions and views. My advice to you is to do your own due diligence.