Not a good time for investing in real estate

Experts not in favour of buying a 2nd home for investment, as residential properties are low income yielding assets

Published: 02nd May 2022 08:37 AM  |   Last Updated: 02nd May 2022 08:37 AM   |  A+A-

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Express News Service

NEW DELHI:  Buying a home is set to cost more as there has been a substantial increase in prices of materials such as steel, cement and iron. Experts say prices are still reasonable and it is a good time to buy a home for the first-time homebuyers before prices go up further.

Multiple reports suggest home prices will go up and some of the developers have already adjusted cost to the project price, which include Godrej Properties, and DLF. But is it the time to invest in real estate?

Buying vs investing

Personal finance experts say since prices have been stagnant for the past five years, the time-value of owning a home is good. However, most experts were not in favour of buying a second home for investment purposes, as residential properties are low income yielding assets.

Mumbai-based tax and investment expert Balwant Jain said, “One thing should be kept in mind is that one should buy a home when they have the money to make the down-payment and also they should be sure that they can pay instalments comfortably.” In case of a second home, Jain suggests one can buy a second home for investment purposes too, as prices are low at this moment, but it should be when they have excess money to make the down-payment and also when they have the income flow to pay instalments.

Jain further suggests that one should not buy based on interest rates (whether it is low or high currently) as, in a floating rate regime, rates fluctuate. Jitendra Salonki, a Noida-based Sebi-registered investment advisor, said, “The last one year has been an excellent opportunity for buying a home as prices have been stagnant for years now. First-time home buyers should definitely invest in housing.” However, Salonki is not in favour of buying a home for investment purposes as it is a low-yielding investment.
“One should go for equity instead of putting money on this (home) when one already has a place to stay. However, one can look for opportunities in the commercial real estate space, which could provide higher yields.”

Low return in investment

Though chances of increase in real estate prices are high, yet experts are mostly advising against committing a large sum in real estate for the purpose of investment. They argue the returns from investment in real estate might be limited. “I wouldn’t recommend buying a house for investment purposes as the return might not be very high, plus there will be maintenance costs and if one wants to sell it isn’t as liquid as you’d want your investment to be,” says Shweta Jain, CFP, Author, Founder Investography.

Kunal Bhalla, co-Founder & CEO of CRC Group inflation has led to an unwanted hike in the input costs and general project development expenditure. “Sales and growth appreciation, as well as correction in the market was long due, however if we see a decade’s data from 2014 -15 especially, rates were stagnant and there was no appreciation. “So, the correction was much-awaited and the market is moving towards its maturity.”

What’s fueling the real estate market?

Activity in India’s residential real estate segment has seen an increase in the first three months of 2022 as record-low home loan interest rates fueled consumer enthusiasm, along with government-sponsored subsidy programmes. According to a property consultant Anarock report, home sales have been highest in the first three months of 2022 in the last seven years.

Housing sales in the top seven cities in the country rose 71% in the January-March quarter to 99,550 units, compared with 58,290 units sold in the year ago quarter. A report by online real estate major PropTiger.com, which owns Housing.com & Makaan.com, shows home sales and new launch numbers have seen a year-on-year growth in the period between January and March, 2022.

The report by the Gurgaon-headquartered company shows 70,623 units were sold in Q1,2022, as compared to 66,176 units sold in Q1,2021, registering 7% YoY growth. The improvement in terms of new supply was significantly higher, with a YoY growth of 50% in new launches during the same period.

The report was based on the data from Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai-Metropolitan Region, Delhi-National Capital Region and Pune. Confederation of Real Estate Developers Association of India (CREDAI), in a report last month, said residential real estate prices are expected to go up nearly 10-15% in the coming months as commodity costs have been on the rise over the past several months, in the wake of supply chain constraints due to Covid-19 pandemic, which has only worsened due to the Russian invasion of Ukraine.

Vikas Wadhawan, Group CFO, Housing.com, said the spike in rates have been between 4% and 9% annually. Price appreciation would be further compounded by rising home loan rates if the RBI were to hike the benchmark lending rate during its upcoming policy review meeting in June, which may well be on the cards given inflationary pressures.

Sanjay Sharma, Director, SKA Group, said, “The housing prices may see an upward trend because of the rise in the construction material costs, which has increased the overall operational costs for developers.”



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