Track2Realty Exclusive: The TINA factor also poses the biggest risk for investors in real estate at current level. The fact that real estate prices are all time high at a time when the economy is faltering with GDP growth coming off from a 8.4 per cent in 2010-11 to level of 6.5 per cent and below forecast ahead should ring a warning bell for investors.
Experts believe pay ‘more for less’ philosophy to get hot properties in metro cities may look like a good bargain in present times, but fresh supply could change the dynamics and price barrier pretty soon.
For example, in the Lower Parel area of Mumbai there are expensive commercial and residential establishments coming up with absolutely no improvement in the access point including rail and road network. Those who have invested find it difficult to get in and get out of their expensive properties.
Will the fresh supply in and around change the dynamics altogether? After all, major Indian developers are sitting on millions of square feet of land, in part because they don’t want prices to plummet, but also because India makes it incredibly difficult to obtain permissions and approvals to build residential projects. The licensing process is long, cumbersome and often arbitrary, not to mention notoriously corrupt.
TINA nevertheless overrides all these issues and property in the over-heated area of metro cities is highly recommended for investments. Investment experts maintain real estate is and will remain a good investment option as prices do not fluctuate drastically. But caution should be exercised as it is the hard earned money of buyers, and there are developers out there who are working beyond what their balance sheets allows.
Another school of investment experts suggest real estate funds can help investors even out the risk of putting money in a single property. Investors need not be restricted to a single property.
They can invest in a real estate private equity fund. This way their money will be invested in more secure structures and risk better mitigated (as the same money will be spread over five-six underlying investments). Investors can also benefit from the expertise of professional fund managers for sourcing the best projects from across the country.
Beyond the debate of whether the property is the best investment instrument for the Indians, TINA factor continues to drive them to buy real estate even if odds are heavily stacked against moving it up on a sustained basis. And it is here that some analysts are worried as TINA factor works when markets are bullish.
It worked with the technology bull run in the late 1990’s, it worked with the commodities bull run in the 2000’s, it worked with housing bubble in the US in the 2000’s, it worked with Chinese equities in 2000’s and in many other asset classes that saw periods of sustained bull runs.
But TINA also resulted in spectacular crashes in all these over-heated asset classes. TINA psyche of investors often works on past performance, which can prove to be the worst indicator if present market is ignored in the process.
