Home buying as an end user is different; buying a property for an investment is an altogether different ball game. When it comes to home purchase for self-use, an average home buyer tends to look for functional aspect of the house, once he crosses the first hurdle of affordability index. However, investing into real estate for returns is subject to many analytical index of cost & benefit and, more importantly, in comparison to the other possible investment baskets.
Story Updated on 13th August, 2021: Realty Stocks in Covid 2nd wave
While the second wave of Covid came as a bigger jolt for the real estate companies across the country, the active investors on the bourses had an altogether different idea about the future of these real estate companies. It was hence no surprise that the investors kept on buying the stocks of the real estate companies, making the valuations far more attractive. Most of the real estate stocks were in the green as the business was struggling with many issues, ranging from partial lockdown to labour shortage and skyrocket input cost to the home buyers’ fear psychosis.
The seasoned investors can foresee the future of the business far more clear than the average home buyers. After all, they are also witness to the first wave of Coronavirus where the stronger developers, mostly the listed ones, gained the market share at the cost of the unorganized developers. It is hence no surprise that the Nifty Realty Index that was at 280.0 in the first week of December 2020, jumped to 339.25 by the end of market closure on 2nd June 2021.
The only change of outlook on part of the realty stocks investors has been with their choice of the portfolio. While the commercial real estate and its by-product REIT was the preferred choice till recently, now the investors bet for the stocks of the residential developers.
In the wake of slowdown in the property market, diminishing ROI and the capital conservation mindset post the Covid-19, the debate is yet again about the returns & liquidity. And hence, the investment debate vis-à-vis the real estate and stock market is back into spotlight.
Some of the investment advisors are of the opinion that the real estate is still the best bet. This school of financial planning even suggests that if one can’t afford to buy a piece of property, the realty stocks are equally attractive since these listed real estate companies look quite promising for returns. More importantly, in an age of low returns and historical baggage of poor delivery by the unlisted developers, the listed players are getting the lion’s share of the sales.
Facts speak for themselves: The Nifty Realty Index that touched a low of 162.13 on 19th May in the post Covid mayhem has now scaled up to 280.00 (First week of December). The BSE and Nifty also surged more than 50% since the March lows, thus making the Indian stock market one of the best performers across the world. India’s only REIT, Embassy Office Park that scaled down at INR 319 is back in the range of 350 with a forecast of crossing 400. The second REIT, Mindspace Business Pak that was over-subscribed 12.96 times in the month of August this year, is also on its growth curve.
In contrast, the real estate relative recovery has been subject to the price discounts, stamp duty waiver, deferred payment plans and other support initiatives. This raises a fundamental question: Whether one should shift focus on the real estate stocks and REIT than a piece of property that is highly illiquid and makes the investors over-leveraged as well. Other competing asset class gold prices have also gained 37.62% with the precious metal hitting record high above INR 50,000 per 10 gm.
Even for the investors wary of stock market uncertainties, the India Volatility Index (VIX), often referred as the Fear Index, has also cooled off drastically since March. Fall of the VIX of about 69% hints that fear and anxiety of future correction in stock markets is ebbing. The Volatility Index typically has an inverse correlation with benchmark indices.
Expert View
Subhankar Mitra, Managing Director, Advisory Services at Colliers International India agrees that in todays’ context property does not offer the return, both from rental yield or from capital gains perspective, as it used to be about a decade ago. RERA and GST bringing more transparency to the system made it difficult for unscrupulous investors to park the black money in the project. Thus, residential real estate has become more need based and end user driven sector.
However, there are interest for income generating assets such as office, retail, industrial and warehousing as well as for data centers. These sectors are primary driven by institutional investors and HNI with very little play of ordinary retail investors.
“India is already ripe for big ticket investments. There are large foreign funds such as Blackstone, Brookfield, GIC, Ascendas CPPIB etc. that have invested directly in selected projects as well as entered into platform level investments with large corporate developers of the country. Real estate attracted around INR 43,780 crore (US$ 6.26 billion) in investment in 2019. The retail segment attracted PE (Private Equity) investment of around US$ 1 billion in 2019. Institutional investment in the sector stood at US$ 712 million during the quarter ended March 2020. Real estate attracted around US$ 14 billion from foreign PE between 2015 and Q32019,” says Mitra.
Amit Modi, Director of ABA Corp quotes a recent report of JLL, which states that for most of the HNI and UHNIs real estate is the second asset class after stock market to park their investment. He maintains that even though it is not a competition, but the fact remains that while the liquidity factor will always give an edge to stock market, as far as long-term stability is concerned, there is still a huge attraction for touch and feel asset class like real estate from a long-term perspective, especially for the HNIs and UHNIs in the country.
“Unlike a lot of developed markets around the world, real estate still remains an extremely localized tool of investment in India and if I may add an emotional too. Multiple factors including product strength, location, legacy etc play behind success or failure of each and every project. Even for a truly pan-national player, there is a high chance that return on investment in the company’s stock maybe be superseded by an investment made in one of its highly successful projects, simply due to its demand in a particular location. At the same the overall balance sheet and stock pricing may be shadowed by a couple of non-performing assets in a different region,” says Modi.
Advantage of real estate
Real estate is a tangible asset
It is not subject to extreme market fluctuations like stocks
Real estate could garner stable income
Interest level of institutional investors and PE funds indicate long-term growth story of property market
Real estate nowadays offering best opportunistic buying from the standpoint of pricing
Low interest rates and waived or discounted Stamp Duty deals are lucrative for the investors
Real estate doesn’t demand as much financial knowledge as investing in stocks
Real estate investing doesn’t lead to rollercoaster panic of enthusiasm and despair
Real estate investing has added advantage of mortgage funding
One can avail tax benefits with real estate investing
Advantage of stocks/realty stocks
It is more liquid in nature
Realty stocks have given more returns in post Covid era
Investor can enter stock market with flexible investment
Stock investing comes with zero maintenance expenditure
Stocks have historically been unrelated with prolong recession or the state of economy
FIIs and DIIs who control 80% of stock market are generally recession proof
As per the pre Covid estimates, real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 and contribute 13% to the country’s GDP by 2025. Even if Covid-19 could delay this projection for a few years, it can’t deny the intrinsic potential of the sector.
As far as the investors are concerned, there is no denying that for small retail investors it may not be lucrative to invest in housing beyond self-use and hence they opt for stocks and/or realty stocks. But for the large ticket investors looking for long term growth story and sizeable returns, there are segments of real estate that are as attractive as any other investment option. So, the choice of the investment basket is subject to one’s financial bandwidth, liquidity requirements, understanding of the asset class, risk appetite and last, but not the least, exit strategy.
Ravi Sinha
@ravitrack2media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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