INDIA (Commonwealth Union)_ For nearly a decade, the real estate as an asset class has underperformed, but that is changing for the better. While the rest of the globe is in recession, the Indian economy is expected to grow at a 6.9% annual rate in FY23. With rising urbanisation and demand for office space, real estate appears likely to benefit from the economic expansion. According to CRISIL forecasts, the sector would rise to 65,000 crore by 2024, up from 12,000 crore in 2019, and will contribute 13% of the country’s GDP by 2025. While some people joined the celebration after Covid when borrowing rates hit decadal lows, the interest rate cycle has now shifted. Should you still buy a home in 2023?
“Home prices in India remained unchanged between 2015 and 2020,” says Amit Goyal, CEO of Sotheby’s International Realty in India. “Due to pent-up demand, stable prices, low mortgage rates, and government incentives, the sector has seen healthy sales over the last two years… Indeed, based on sales momentum throughout the holiday season and the first three quarters of the year, housing sales in the top eight cities in 2022 are likely to surpass the previous peak of 2014. Prices in desirable areas have risen by 7-15%. The next five years could be advantageous for investors who purchase the right type of property “He continues.
According to the Housing Price Tracker Report, 2022, prices in the top eight cities in India — Delhi-NCR, Mumbai Metropolitan Region (MMR), Kolkata, Pune, Hyderabad, Chennai, Bengaluru, and Ahmedabad — increased 6% year on year in the third quarter of 2022 due to strong demand and new launches by top developers. The biggest YoY increase in residential costs was seen in Delhi-NCR, at 14%, followed by Kolkata and Ahmedabad, at 12% and 11%, respectively.
So far in FY23, the Reserve Bank of India has raised the repo rate by 125 basis points to 6.25%, leading banks to modify their lending rates. The policy rate of the RBI is presently at its highest level since August 2018.
“Real estate affordability has been hampered as homeowner mortgages have become more expensive. However, there is revived interest in home ownership, as well as rising income, which will likely balance the impact “TBNG Capital Advisors founder and CEO Tarun Birani said.
So, how much return can one expect from real estate stocks in the future? “If you have real estate in your portfolio, you should look at past price trends as well as rental yields, as well as crucial criteria like location and facilities, to determine your overall return potential. These factors will continue to have a significant impact on predicted returns “Birani says.
With prices rising, it is critical that real estate returns outperform inflation. “Focusing on certain properties should provide you with a rental yield of 2-3% as well as decent appreciation in line with 5-6% long-term inflation. Thus, for the next three to five years, a property-specific appreciation rate of 7-8% is a reasonable forecast “Birani argues.
It is advisable to proceed if you are purchasing a residential home to live in. If you are purchasing a second home for investment purposes, you may want to look at commercial property, REITs, or even fractional ownership.
For better rental yields, commercial property is desired. However, affordability remains important, and such houses are best suited to HNIs and UHNIs.
“India continues to be one of the most affordable Grade A office rental markets in the world, with a large pool of English-speaking and qualified human talent. It will remain the favoured location for huge global captive centres, particularly as most Western corporations seek to reduce costs “Sotheby’s Goyal said.
There are other choices if you cannot go into commercial property directly. Real estate investment trusts (REITs) have simplified commercial real estate investing. It is beneficial to individuals who do not have enough money to purchase real estate but want to diversify their assets into this asset class.
