Is property still an attractive INVESTMENT?

By Mr. Raman Khanna (L&T-MHPS)

In today’s scenario, you may rightly say “NO…Not at all”.

Some 15 – 20 years back it used to be an attractive idea. People used to buy the flat after taking a housing loan…paying bank EMIs out of lease rents and at the end, you created a wealth by utilising your credentials and credit scores only. Now there is imbalance in this model almost in all metros and cities across India. Rentals have not risen with the pace the properties valuations have multiplied.

“IS The GOLDEN TIME OVER NOW” and is this imbalance correct ?

Although a person’s purely housing need is not an Investment. As we do investment for some gains in the form of regular or lump sum income and the major gains due to investments in properties is either lease rents and or capital appreciation.

So why it is not so attractive….because of ongoing transitional settlement and improvements in India, in the laws, in the industry and in the society we live in. Few ones among all are:

  • The GREED of builders and real estate developers has trapped not only the common-man but the bureaucrats, politicians, banks, NBFSs, foreign individual investors, foreign financing partners and government also.
  • The mushrooming of builders and real estate developers without any single control and regulator.           
  • The over delayed establishment of teethless regulators i.e. State RERAs and their Tribunals.
  • The deceitful, unfair practices and malpractices in the industry like deficiency in service, improper amenities, ceiling leakage, improper drainage system, incomplete fire safety system, low quality of electrical wiring, improper water provisions, not providing occupation certificate, etc
  • Exorbitant delay in delivery / possession of property on time is one of the major areas of conflict between the developers and the buyers.
  • One sided builder-buyer agreement 
  • Complicated regulatory mechanism and CORRUPTION.
  • Reduction in gaps between while and black portion in property deals.
  • Demonetization and introduction of GST
  • Irrational increase in property prices 
  • Higher stamp duty. Whether real estate sector improves or not, Govt. does not change their circles rates and higher interest rates.
  • The recent liquidity crisis that roiled NBFCs (non-banking finance companies) and HFCs (housing finance companies) almost broke the back of the sector, as accessing capital from lenders got a lot tougher. 
  • The series of fall out of real estate players like Amrapalli Group, Jaypee Infratech, Unitech and many more

The government initiatives for real estate section during past few years has been welcomed and appreciated. Some of these are

The real estate sector is an IMPORTANT sector and one of the most GLOBALLY recognized sectors. It comprises of four sub sectors – housing, retail, hospitality, and commercial. The construction industry ranks 3rd among the 14 major sectors of the economy. The sector being the 2nd largest employer after agriculture is expected to reach US$ 1 trillion by 2030 from US$ 120 billion in 2017 and to contribute 13% of the country’s GDP by 2025.

Although the real estate industry is slow down and still in evolving phase would definitely settled down with best practices after all above initiatives. It’s being tested on “survival of the fittest rule”. I personally visualize that a brighter time is coming ahead for the landlords, tenants, developers, builders, real estate agents, home buyers, investors, banking and NBFC Companies, Governments and Regulators. 

However from the perspective of purely investment in properties, I personally opine to invest in free hold LAND and avoid investing in flats (either constructed or under construction). Land is limited on our earth and never going to have any wear and tear. Further one should also keep in mind that the market for disposal of properties including land is highly illiquid in India. Moreover our investment decision should be made after considering all parameters viz personal, professional, career, location, children education and their marriage, your retirement settlement, industry development, government policies and your PEACEFUL-HAPPY LIFE and FINANCIAL FREEDOM.    

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