by Mr.
Anuj Puri, Jones Lang LaSalle India.
With gold prices
currently on the descent, many investors are asking themselves if residential
real estate prices will follow.
Gold & real estate are the two (2) primary
investment routes for retail investors in India, so this is definitely a valid
question to ask.
Correlation Between
Gold and Real Estate Prices..!
The performance of
residential real estate as an asset class is doubtlessly dependent on the
macro-economic factors that also dictate the performance of other asset
classes, including gold.
Nevertheless, the
correlation between gold and real estate prices is not as distinct as one may
at first assume.
Price movements in
the real estate sector are the result of supply & demand. This is true for
gold as well, but the demand drivers for real estate are not the same as for
precious metals.
Though, in investment
terms, they technically fall under the category of asset classes, the demand
for residential property stems from the desire for house ownership that is hard
wired into the Indian psyche.
It is demand from
end-users that dictates investors’ appetite for residential property.
In India, precious
metals are an investment class that most people will consider after this basic
desire is satisfied.
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| Mr. Anij Puri, JLL India |
Moreover, the prices
of precious metals are not location-specific - they rise & fall uniformly. This is hardly the case with
real estate, which performs differently at different times in different cities
& micro-locations.
In a vast country
such as India, it stands to reason that various markets will display varying
pricing dynamics. Real estate valuations also range from rational to irrational
in different areas within the same cities, depending on the levels of supply,
demand & investor activity.
At the same time,
other cities continue to remain uniformly rational because they are largely
end-user driven.
How Good Is
Residential Real Estate For Investment Today?..!
There is no one size
fits all formula for the viability of Indian residential real estate as an
asset class for investment.
Different investors
have different levels of expertise, experience, market knowledge & risk
appetites when it comes to different asset classes. Those with insufficient expertise
in stock trading are not likely to see satisfactory ROI from their activities
on the stock market.
Likewise, investors
who lack the requisite knowledge and research to make winning real estate
investment decisions will not meet with much success in this vertical. Real
Estate investors who have sufficient market knowledge or work with experienced
real estate consultants will not fail to see lucrative returns on their
investments.
Three (3)
parameters for successful investment in any asset class are when to invest, how
much to invest & when to exit.
In real
estate, three (3) additional variables are where to invest, into which size and
configuration, and in which location.
Residential Real
Estate Investment - Short-Term & Long-Term Outlook..!
In the short term,
residential real estate prices in different cities will either remain steady
see minor upward or / downward
fluctuations.
In the long term,
they will rise again. The fundamentals of the India real estate story are
extremely strong. Even in this turbulent economic environment, India remains
the cynosure of interest by global MNCs and investors who see the limitless
potential of a young, growing economy, a wealth of highly trained workforces
across the manufacturing, IT / ITeS and services industries.
All this translates
into assured job creation, and therefore demand on the residential real estate
market.
However, Indian
residential real estate is definitely not the best route for short-term
investors.
When it comes to
opportunistic trading, gold is doubtlessly a far more suitable asset class –
not least of all because one can purchase it in small or / large amounts
& liquefy it quickly. Turning a
profit with gold is really only a matter of timing the market.
Of course, this applies
for residential real estate, as well. However, thanks to a conservative banking
system that makes ‘flipping’ extremely unattractive, residential real estate as
an investment class is a very different ballgame in India.
More and more
regulations are being brought in to subdue the appetite for speculation in this
sector. Also, the lowest entry point is definitely much higher than for gold.
Finally, it requires
a minimum ‘incubation’ period in order to bring ‘appreciable’ returns.
Even after
one has satisfied all the basic investment criteria - good location, right size
and configuration, right entry point and right entry price - one needs to stay invested for the middle
to long term in order to garner the best possible returns.
As a
general yardstick, an investment horizon of 3 to 5 years is ideal.
About the Author...!
Mr. Anuj Puri is Chairman & Country Head, at Jones Lang
LaSalle India (JLL India)
For Media Contact:
Mr. Arun Chitnis
Assistant Vice
President, Marketing
Jones Lang Lasalle
India
Level 6, Amar Avinash
Corporate Plaza
Bund Garden Road,
Pune - 411 001.
Tel: 020 3093 0441
Fax: 020 40196101
Mob: +91 96571 29999
Website:
www.joneslanglasalle.co.in
Blog:
www.joneslanglasalleblog.com/realestatecompass
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