We all know somebody who has made a mini fortune by investing in a flat or residential plot at the right time, writes Ashwini Kumar Sharma.
Despite the usual ups and downs, there exists a deep rooted sense among Indian investors that residential property is a sure-fire investment which delivers excellent returns. This wisdom has been passed on from generation to generation.
However, recent statistics shows a different story. According to National Housing Bank data, property prices in Mumbai and Bengaluru increased annually by just about 7.50% and 5.75% respectively between June 2013 and September 2017.
In Delhi, prices actually fell by -0.70% annually during the same period. Beyond the data, we hear numerous stories of investors in distress with their money stuck in delayed projects.
There are also stories of many brokers, in fact the entire realty ecosystem, struggling to cope with this slowdown.
However, many feel that real estate has bottomed out. Their logic is that from now on, or soon, the cycle will reverse and prices will start moving upwards.
In reality, this is either wishful thinking by people who are stuck with depreciated assets or an illusion created by stakeholders. The fact is, investing in residential real estate will not get you 20-30% annual returns or double your investment in about 3-5 years any more, as it did back in the golden days of 2001-2007.
This time it is different. There are various factors which indicate that the lull in the real estate is here to stay. Therefore, it certainly does not make sense to buy a residential property from an investment point of view at this point in time.
“Considering the rising interest rates and high maintenance cost and tax on rentals and capital gains, I would not suggest investment in physical real estate,” said Nishant Agarwal, managing partner and head, family office, ASK Wealth Advisors.
Considering the rising interest rates and high maintenance cost and tax on rentals and capital gains, Nishant Agarwal, Managing Partner and head of ASK Wealth Advisors would not suggest investment in physical real estate
The reason low returns are expected from real estate is that there has been an irrational increase in property prices in the past.
Moreover, even after prices have remained largely stagnant for few years now, in many locations property is overpriced. Many investors who bought property 3-4 years ago are finding it difficult to get a buyer even after reducing the price lower than the purchase value.