BHUBANESWAR: Unsurprisingly, most of us have felt the allure of land since long and are convinced that real estate is the best financial asset class of all times on two fronts — diversification and solid returns. Today, however, the sector is going through a bearish phase and investors have woken up to the fact that their investment was not yielding much and have largely adopted an exit strategy.
According to the India Wealth Report 2018 released by Karvy Private Health, the growth of individual wealth in physical assets inched higher to 9.24 per cent in FY18, as against 8.03 per cent in the year-ago period. But, people showed more interest in gold this time rather than real estate.
The real estate sector has bottomed out because of regulatory changes such as demonetisation and RERA, which have resulted in low rental yields and high cost of owning property. With the situation likely to persist in 2019, experts suggest that it’s time to juggle investment priorities — reduce the focus on property and turn to other assets offering more dynamic returns.
“Even as commercial rentals are reasonable, rental yields on residential properties are much on the lower side and an upside potential looks limited in the near to medium term,” said Joydeep Sen, founder of wiseinvestor.in, a financial advisory firm. Sen added that it makes sense to stay put only if one has a really long-term horizon and real estate is a relatively small allocation of the investment portfolio.
Broadly, there is already a clear shift towards equity in India and in the next five years, financial assets will continue to be the most preferred investment class forming 68 per cent of the total individual wealth growing at 16.99 per cent CAGR, pointed out Karvy.
Meanwhile, the real estate sector seems to be bright only in the long term. SEBI has given its approval for the Real Estate Investment Trust (REIT) platform, which will help in allowing investors to invest in the market like equity investments in the stock market. It is estimated to create Rs 1.25 lakh crore worth opportunity in the Indian market, pushing up the House Price Index (HPI) by 12.8 per cent in 2023. In FY18, HPI grew by 6.7 per cent, dropping from a peak of 10.45 per cent growth in FY17. This has also resulted in annual housing inflation of 7.5 per cent in FY18.