Time may be ripe for some value-buying in real estate

Sep 20 2013, 21:41 IST
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SummaryReal estate is seen as one of the biggest wealth generators for Indians over the long term.

Real estate is seen as one of the biggest wealth generators for Indians over the long term. Those who had invested in property long back have reaped benefits in the form of exceptionally higher returns. Selective properties bought in posh areas of Delhi in the 1960s for a few lakh rupees are worth crores today, growing at 22-23% per annum.

The only other asset class that could have matched real estate in terms of returns is Indian stocks.

Share prices of quite a few bluechip companies have grown at 18-30% per annum over the last 20 years. Wipro (36%), Berger Paints (28.5%), Apollo Hospitals (23%), Coromandel International (23%), Asian Paints (22%) and HDFC (20.7%) have grown in excess of 20% pa since 2003. There are others like ITC (19.7%), Bosch (19.1%), Glaxosmithkline Consumer (18.6%), Mahindra & Mahindra (18.0%) and Nestle India (18.5%) that saw their share prices grow at 18-20% pa in the same period.

However, after almost a decade of a secular rise, property prices seem to be taking a breather, affected — though to a lesser extent — by slowing growth, rising costs, higher interest rates and tighter funding norms. Liquidity seems to be drying up, volumes are declining and prices are said to have corrected by 10-15% from their recent peaks at some of the hottest property destinations. Does that mean the real estate story is over for some time? The answer is both a ‘yes’ and ‘no’.

Property markets are more localised than most people think. A fall in prices of real estate in Mumbai or Bangalore does not necessarily mean a fall in price in other markets too. Demand for real estate is more price-elastic than interest-rate-elastic. Demand will come at the right price. Value will continue to lurk in some pockets.

But areas that have seen an exponential rise in property prices must undergo some correction. For instance, despite the anticipated gloom, a residential property available at R4,000 per sq ft or less in the NCR region today seems a good value buy for the medium to long term. Since property markets are at different stages of growth in different cities, one must explore investment opportunities in other parts of the country as well.

Just like every stock does not turn out to be a multi-bagger, in the same manner, every property one buys does not turn out to be a goldmine, unless we are in those

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