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Property the real asset class

Posted on by Track2Realty
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Bottom Line: Real estate has stood the test of times and has emerged as the ideal investment asset class when compared to gold, equities, MFs, etc.

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“Even in times of an economic slowdown, the real estate sector has emerged as the only safe investment instrument when compared to other asset classes. Those who invest early on in their career, earn more in terms of appreciation of property than what they otherwise earn in their lifetime. During one’s old-age, property appreciation ensures better pension and security than even government schemes,” a panelist in a financial planning seminar recently said.

Dilkhush Shah, an interior decorator had only Rs 25 lakh to invest and she was advised to opt for mutual funds and gold rather than real estate. However, her research made her realise that real estate stands as the best asset class beyond the emotional urge to just own a home. The statistics, over a long period of time, clearly indicated how no other asset class had given the CAGR (Compounded Annual Growth Rate) as high as property, despite the short-term drop in sentiments.

Leverage

“Many of my friends suggested that this is a small amount for a piece of real estate that I will end up calling my own. I was even told that this is not the time to invest, as the real estate market is going through turbulent times. However, I preferred going in for this asset class which has been a time tested investment haven across the world. Yes, with such a small amount, I could only afford a property in a far-off location of Palghar but the way the development has been happening in and around and beyond Thane, I feel this is the best investment bet,” feels Shah.

Returns

The back of the envelope calculation suggests that in terms of returns in equity, gold, residential flat, commercial shop and finally currency, property scores over the other asset classes over a long period of almost a decade. If gold has given returns of 12 per cent, then residential apartments have given returns of 16 per cent and commercial shops have given even higher returns.

Inflation hedging

Real estate is the best bet against an inflation hedge as it is the only asset that loses little value in periods of rising prices. Thus, it holds its value and purchasing power even during inflation. Normally inflation has a co-relation with the booming economy and an investor also buys this asset to hedge against inflation. 

Tax savings 

A house is the only asset class that is majorly covered for the tax benefits. In other investments like the mutual funds or insurance only a limited amount of investment is covered for the tax saving purposes. In some other investment instruments like the gold there is no tax saving benefits.

Lower  risk

The fact remains that gold has seen unexpected fluctuations, the stock market has historically been on a roller-coaster ride and mutual funds, etc, have given nightmares to investors. As against this, there has been absolutely no reason why a home buyer would have anxiety pangs with respect to investment in this asset class of real estate.

High control 

In recent times, the high degree of volatility across asset classes, has definitely raised the debate over which is the best asset class to invest in for a layman. However, the statistics over the ROI, over a long period of investment, have always been tilted in favour of real estate. In the cyclic ups and downs, other asset classes like gold or equity may look more attractive for a given time frame, yet none can match property, which has stood across generations as the first preference of investment.

“I had invested in some of stocks that fell down from Rs 300 and are currently at Rs 45. Since the company is constantly on a downslide, there is absolutely no hope of recovering my losses. I don’t think it has ever happened with any property like this. Yes, there can be cyclical ups and downs but if you are determined to stay invested and are a short-term trader, you will not only recover but make gains as well in the process,” says Anupam Agarwal, a homebuyer who has also invested in a commercial shop.  

Financial freedom 

An investment in property also ensures financial freedom for average Indians. While this is true in the sense that one can earn regular rental yields, it is all the more true for the commercial real estate. Now with REITs becoming a reality, real estate definitely scores over other asset class for providing an investor financial freedom.

Portfolio Diversification

On a comparative scale of the last couple of years, fluctuation in gold prices added with the fact that depreciating rupee adds to the gold stress, does not evoke confidence in the yellow metal any more. Similarly, despite markets being at a two year high, only a few stocks are at similar highs, while most of them are still languishing well below their historical highs and are down anywhere between 80-90 per cent. In contrast, the momentum in real estate may have slowed down, yet there has been a constant appreciation in the range of 5-20 per cent, depending upon the location and the property.

Stability & peace of mind

Analysts advise that beyond the data points what is even more relevant is to back the statistics with ground intelligence and base the assessment on multiple parameters. For instance, in the ROI calculation, dividend yield on stocks and rentals on property is often not factored in. Moreover historically, during a low inflation period (say 2004-2008), equity returns are higher, vis-a-vis hard assets whereas, during a high inflation period (2009 – onward) returns from hard assets are higher.

Advantage real estate

Only asset class after gold that has been risk free

Back of the envelope calculation of the last three decades suggest that real estate has outperformed all other asset classes

Real estate has the additional advantage of impressive rental returns
The only asset class that can be either consumed for self-use or earned for recurring returns