By Mr. Arvind
Jain, Managing Director - Pride Group
In
financial circles, the terms real estate investors & real estate
speculators are used to refer to people who are buying property to make a
profit, rather than for personal use.
Though
the two terms are often used interchangeably, they are not exactly the same.
Nevertheless, even veteran financial specialists tend to get mixed up between
the two.
Real estate investor and
the speculator
In
order to understand the difference between the real estate investor and the
speculator, it is necessary to have a look at their methods of operation. A speculator
predicts (or attempts to predict) the future return on any investment, and
tends to be focused on short-term profits.
He
or she is often not very well informed on how the asset class of real estate
works in a particular locality. Since speculators are usually also active in
other investment segments such as stocks, bonds and bullion, they tend to use
the same approach for all asset classes. The general approach is to buy low and
sell high in a very short period of time.
A real estate investor, on the other hand,
makes a careful analysis of the current market position, market trends and
related affecting factors so as to make an informed and forward-looking
investment decision.
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| Mr. Arvind Jain, Pride Group |
Short-term profitability
Investors
are not looking at short-term profitability, which is in any case not a viable
objective to operate from in Indian real estate. While investors also tend to
invest into other asset classes, they do not do so without fully understanding
them.
The
next question about the difference between speculators and investors would
pertain to the returns they get. While a speculator may make a lot of money if
he makes an accurate guess, all such returns are short lived.
If
the real estate market is facing a short-term decline, the speculator stands to
lose all his money because he is also investing only for the short term. A
related facet of real estate speculation is that it is, for the above reasons,
not suitable for rental income generation.
An
investors, however, is looking at healthy, steady returns on capital
appreciation and rental income. For this reason, he maintains a reasonable
investment horizon which is tailored to the market dynamics of this particular
asset class. This is important because Indian real estate is subject to
cyclical ups and downs.
A
property cycle is dictated by various factors related to population growth,
GDP, policy framework and sentiment, and boom and slump periods are more or
less a given. Indian property investors aim to ride through the predictable ups
and downs of this cycle. To do so they must remain invested for a period of at
least 5-7 years.
Another
reason why a longer investment horizon is important is that most investors look
at buying properties at a lower rate at new locations in anticipation of the
demand to come.
For
this to bear fruit, they must give these locations sufficient time to receive
basic infrastructure and spillover demand from adjoining areas.
Long-term
investments made by property investors provide stable and reliable returns.
Investors are not prone to losing their money due to a receding market, because
they have made a more careful analysis of the market condition and are willing
to wait till their expected results are delivered as per the market data before
they make their move.
Cash flow & Wealth..!
As
Mr. Robert Kiyosaki puts it ‘Real estate investing, even on a very small scale,
remains a tried and true means of building an individual’s cash flow &
wealth.’
Also,
real estate is by far the ultimate asset since it not only grows in value but
also performs as a rental income generator. But it must always be approached
from an investor's perspective rather than from speculative objectives.
About
The Author ..!
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Mr. Arvind Jain is Managing Director of The Pride Group,
a world-class property development conglomerate that is changing the cityscapes
of Pune, Mumbai and Bangalore. Established in 1996, Pride Group has built and
delivered over 10 million sq.ft. of constructed area.
Pride Group has recently launched Pride World City,
the 400-acre luxury mega-township at Charholi, Pune.
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