After a continued fallout from muted demand and the covid-triggered crisis, real estate in India is finally showing signs of sharp recovery. As per the research published by Anarock, in Q1 22, total residential sales in the top 7 cities in India amounted to ~ 99,500 units, a massive jump compared to the same period last year when the sales totaled slightly over 58,000 units. In Q1 22, the total new launches are more than 89,000 units, jumping from the same period last year, when it was slightly over 62,000 units.
The numbers further reveal that real estate is on a strong footing and is set for a prolonged period of strong recovery and growth. In 2021, average property prices grew modestly, at the rate of 2.5%, as per Reuter’s survey. However, property prices are expected to rise by around 6-8% on average in 2022. The upcycle in prices are expected to continue till 2024.
The Time is Opportune to Invest in Real Estate
As real estate has once again become the mainstream after being on the sidelines for a while, the time is opportune to invest. Especially for the investors who are looking for a risk-free asset to park their money. Prices are still low and there is ample headspace for capital appreciation. In the next 2-3 years, one can easily make a capital gain of around 16-22%.
Likewise, real estate also has added benefits of making recurrent rental income and avail benefits in income tax returns. The average rental yields from residential are moderate and mostly in the range of 2-4%. However, there are specific asset classes such as student housing, rental homes, and co-living space that can render higher rental returns.
During covid times to arrest the decline in sales, major developers in India came up with relaxed and attractive payment schemes such as cash discounts, waiver schemes (GST/ Stamp Duty), free parking spaces, assured rentals, etc. Many such plans are still floating in the market but could be rolled back with the market reaching normalization. Hence, it will be a smart decision to make use of them now rather than waiting.
Volatility in other asset types
Baring the stock market, most of the other popular alternate assets are in a tailspin. The Bloomberg Global Aggregate Index has plummeted by 11% on March 22 in comparison to its peak on Jan 21, indicating one of the biggest losses in the history of the bond market. The bullion markets are still volatile. FD rates mostly remain unattractive.
Amidst such shifts, real estate continues to be a viable option for investors. It is an evergreen asset and this is one of the reasons more than 80% of the household income in India is parked in it. In contrast, only ~ 5% are directed towards the stock market.
It is a hard asset and can be a good hedging strategy against rising inflation. In addition, the downside risk of a possible price increase by developers can’t be overruled. Cement, steel, and energy prices are moving upwards. The situation might worsen amidst the Russia-Ukraine tension which can result in a further rise in petroleum prices. Amidst a price rise, developers won’t have an option but to pass it on to the homebuyers.
Shubham Arora, Director, Sheerbulls India Pvt Ltd.