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, buy 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 Rs.5000/-. Now, the purchasing power of Rs.5000/- after one year is less due to inflation. Now the capital investment of one Lakh if not appreciating and after 10 years you get the one Lakh back is it worth one lakh after inflation. Think and ponder.
There are various stages in life where the importance of money working for you hits in. You get wiser with time. One must understand that it is positive to think that we can work till retirement age of maybe 58 or 60. But keep in mind that one can work till one is fit physically or otherwise and realistically speaking this can come to anyone at any stage in life. The importance of money working for you at any stage in life is of utmost importance. As one starts their professional life earning money, saving should be top priority.
Real Estate
As an investor, one should understand that rental property investment in any city/area where there is suburban growth in terms of infrastructure and there is a mixed development around, they will be able to rent their house which is invested even though the Return on Investment (ROI) may be 2% odd. But they must look at capital appreciation in the long term.
Working professionals must try and invest in a small accommodation under construction with much due diligence and create their first home at the earliest. In India, I have observed any recession or any disruption for example COVID, no real estate prices deeply corrected. It remains more or less stagnant.
Bank loans became attractive. One waits for corrections, rather get a good realtor who could help you with due diligence and get you the best deal and payment terms. What this shows, our population is our strength. Internal consumption and disposable income are great. There are stages in life for every individual. Having done well in life and invested in equities etc. One should think of real estate. Spread the RISK. Invest in various asset classes. Not all eggs in one asset class. Dynamics are changing.
Commercial office space typically in Pune can get at 8000 PSF (per square feet) upwards. A good realtor should be able to get you a good deal and try and find out the possible LOI signed by interested tenants in that building. LOI is not a lease agreement. Keep this in mind. It’s only an intent to lease not a lease agreement. 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 look at fractional ownership of commercial pre-leased properties like office spaces leased to any good MNC or a unicorn, warehouse space leased to a good company and enjoy your monthly ROI >=8+%. Bank 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. In fact, with fractional ownership, one can spread the risk and invest in various types – offices/mall spaces/warehouses.
We have examples of how people invested in hundreds or a few thousand in the 1950s and today the valuation is in crores. Of course, there have been disruptions since those years. Those with appetite have invested and doing well. Shifting from one asset class to another is luck and also an art.
The interest rate hike in the current housing market. Yes, it may get some to the fence and rethink. Wisdom is acquired over time. It’s never late to invest. The more one waits the valuations could go higher. I have observed this in Real estate closely.
Disruptions, infra built-up, opportunities, innovations -> higher valuations
Those who understand markets and have liquidity always invest in a corrected market. In the real estate market, one may see stagnancy, but some deals are good since the seller requires funds. Sometimes stressed assets are available at good and attractive value. I believe investing in a developing market is good for the long term since there is growth potential due to infrastructure development and long-term capital appreciation. The land is a good opportunity. They don’t make them 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 who has a vision.
It all depends on your liquidity. Investors looking to buy good company equity when corrected for their long-term. 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 to beat inflation.
By:
Jyotesh Narang
Managing Partner
Life Inspiration Advisory LLP
Disclaimer: These are my opinion and views. My advice to you is to do your own due diligence.
