Bottom Line: It helps to understand your standing in the housing market â€“ whether you are an end-user buyer or investor.
â€śThe moment you talk about the risk versus return then you are not talking about the end user homebuyer. Risk-return is something that is predominantly an investor psychology. Now whether the mindset of an average end user is that of a seasoned investor today is very much debatable,â€ť said a panelist at an investment seminar. The innocuous statement nevertheless opened a Pandoraâ€™s box as the debate shifted to the psychology of the homebuyers and their expectations vis-Ă -vis the Return on Investment (ROI).
Prima facie it may seem to be something that is more relevant for the academic discussions. However, the emerging urban reality (at least in the top 8 cities) suggests the line that differentiates between what in the collective consciousness is seen as investor and homebuyer is getting very thin.
Take the case of Ramakant Nigam, a power sector employee who has taken an apartment on rent close to the main CBD of Noida, that is Atta Market, at Rs. 18,000 per month. With nearly 12 years of his career left before retirement he has invested in a much cheaper property, compared to Noida, at Ghaziabad. He believes it makes a sound investment decision, as the property over there will appreciate faster than over-supplied Noida market.
â€śWhen I can buy a same kind of property at Rs. 60 lakh in Ghaziabad why should I invest close to Rs. One crore for that kind of property in Noida,â€ť questions Nigam. â€śFrom the standpoint of my personal finance it does not make sense to pay extra for a property that has lesser chances of appreciating as against an upcoming market. Moreover, it gives me flexibility of mobility if I get transferred tomorrow.â€ť
This raises a fundamental question as to whether home has less of an emotional appeal in leading Indian cities today and it has turned out more like a trading commodity. More importantly, does it mean a home purchase is as simple an investment as the stocks?
Sandeep Ahuja, CEO of Richa Realty does not think so. According to him, in real estate even if the investor does not have very sound economic wisdom the chances are that he will not lose out his money. Stocks are risky since most of the stocks are not blue chips and those companies have debt. So, even if the quantum of return is not that high in real estate, it is at least a very safe investment.
Naushad Panjwani, Managing Partner of Mandarus Partners thinks beyond the mindset of investor or end user, one has to see the buying pattern of the Indians. They are either buying in the top eight cities where they work or they are buying in their home towns where they intend to retire, even if they live on rent in the city where they work.
â€śSo, he is not an investor and even if I show him a research that other than his place of work or home town there is fantastic return in some other city he will not invest there. So, in many of these cities from where people have migrated, though investment is coming over there but these cities are still not the economic drivers,â€ť says Panjwani.
Analysts, therefore, suggest some thumb rules to make sure the investment is safe than sorry. They believe for the end user homebuyer there should not be expected price appreciation the driving force to buy a house. The house might give better ROI than any other investment instrument but the horizon has to be longer than ten years. They point out that in residential space even if you pick the right project at the right price then also it takes three to five years.
For the investors also, they suggest to be clear in his mind about the time frame. Is he a speculator? Is he a short-term investor? Is he a mid-term investor? Is he a long-term investor? Then depending on the time the product that he will buy would be different.
In residential space, the speculators can go to North India and invest in a pre-launch and make money in one year or two years. For mid to long-term investors the commercial spaces and retail work much better. But if one is looking at the real long term then one should better invest in land; nothing else can give as much returns as the land.
There are instances where people have made thousand times returns with land over a period of fifteen to twenty years. That, however, is not advisable for average end user homebuyers. They have to take a conscious call as to whether they are investors or end users.
By: Ravi Sinha