Why real estate investment beats the stock market

The stock market has always played the role of a barometer to the economic mood of a nation. Real estate is one of the prime elements in the latter context. In fact, an interesting and important relationship exists between real estate investments and the stock index. While both offer a profitable investment opportunity, both also carry risks that complement each other.

A common belief has been that the profit margins associated with stock investment has been higher when compared to alternative asset investments. Stocks are liquid and flexible, whereas real estate is not. Also, stocks offer growth rates that real estate investment can rarely match. Lastly, stocks are also easier to acquire and operate than buying a property as investment. Investment property also includes several added elements like insurance, maintenance, taxes, legal fees, broker commissions, etc.

It has also been observed that dramatic movements in the global stock market will throw up salient differences between real estate and equity investment. The strength and weakness of the global economy appears to influence both real estate and stock prices. According to the CXO Financial Advisory Group based in U.S., real estate and stocks are negatively correlated. After the great recession, the stock market lost about 60% of its value. With loans getting cheaper, people now invested more in real estate, since it promises guaranteed returns in the future.

A crucial point to note here is that while stock prices can rise and fall, real estate investment almost always brings in more profits. In fact, the allocation towards real estate in most investors’ portfolios has steadily risen since the Global Financial Crisis. This is because investors seek to take advantage of the low correlation between the asset class and equity market.

We already know that volatility is always caused by the monetary and fiscal policies of governments, and this has effectively increased the focus on real estate investments. Rising inflation has the same kind of effect on both investments. Increased inflation lowers the currency value, and in turn drives up the price of assets – real estate very prominent among the asset classes.

The outcome of stock market volatility is more evident if one follows the changes in real estate markets. Real estate investment provides more stability and can also deliver a continuous income stream, and this is why it attracts more investors. The slow but steady correlation between the stock markets and real estate markets provides the important advantage of diversification in an investor’s portfolio.

Also, investors can be more confident of constant returns, since the real estate market is relatively immune from both short and long-term price swings. Stocks, on the other hand, are subject to constantly changing prices, and investors can be placed in really tough situations when choosing whether to hold or sell their stocks.

To conclude, both assets offer long-term appreciation of value. However, if one is looking to create a strong portfolio and has the right kind of funds to invest, real estate will always be a safer and less stressful platform. After all, the demand for homes will never cease as long as we continue populating the planet – what can be a better source of assurance for an investor?

 Source – DNA India

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The incredible rise of Gurgaon’s commercial real estate

Stoked by swiftly expanding startups and multinational corporations, Gurgaon is fast emerging as the rising star of India’s commercial real estate market, but the old guard in New Delhi and Mumbai’s central business districts (CBD) is still holding strong.

In the last year, commercial rental prices in Gurgaon’s MG Road shot up by a staggering 30%—the highest in the country—according to real estate consultants Colliers International. During the same period, prices in Gurgaon’s DLF Cyber City and the institutional sectors also went up by 22% and 24%, respectively.

“Major corporates like Snapdeal, NTT Data, Zomato, Arvato, BCG Group, SAP together took around 1.17 million sq.ft which is about 66% of the total office absorption,” Colliers said in its report about Gurgaon. And except for Delhi’s Nehru Place, no other commercial area in the national capital or Mumbai found itself among the areas with the highest change in rental prices. Meanwhile, four locations in Gurgaon were listed among the top ten locations where rental rates surged.

  1. Gurgaon MG Road
  2. Gurgaon DLF Cybercity
  3. Gurgaon Institutional Sectors
  4. Grgaon Golf Course Road

Once a nondescript village on the outskirts of New Delhi, Gurgaon emerged as a satellite city to the capital in the late 1970s when Maruti Suzuki, India’s largest carmaker, set up its factory a little away from the city. Since then, a number of multinational firms, including Google and Microsoft, have set up their offices in the suburb.

Gurgaon also saw a 60% jump in the absorption of office spaces during the April-June quarter in 2015—the third highest after Mumbai and New Delhi—compared to the January-March quarter this year. Absorption in real estate parlance refers to the total occupancy of commercial properties that are sold or leased. During the quarter, Mumbai saw absorption of 2.93 million sq.ft while Delhi’s absorption was at 0.21 million sq.ft.

But rental rates in many of these upcoming cities like Gurgaon are still very low compared to New Delhi or Mumbai, which continue to command sky-high rents. Delhi’s CBD, which comprises Connaught Place, and Mumbai’s CBD, which comprises Nariman Point, Fort and Ballard Estate, were among the most expensive office locations.

India’s top 10 most expensive office locations
Area Price (Rs per sq.ft)
Delhi CBD 185-450
Bandra Kurla Complex 225-320
Mumbai CBD 200-250
Mumbai-Worli/Prabhadevi 185-225
New Delhi-Nehru Place 175-250
Mumbai-Kalina 150-200
Mumbai-Lower Parel 145-190
New Delhi-Saket 130-190
Gurgaon-MG Road 110-150
Gurgaon-Golf Course Road 100-150

“The office market recorded approximately 19 million sq.ft of office absorption in the first half of the year across major cities in India,” the report said. “With an expanding economy and the introduction of the REIT (real estate infrastructure fund) regulation, the demand for office space is increasing and so is the demand from institutional investors to acquire income yielding office property.”

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Haryana to develop Gurgaon as smartest city: Manohar Lal Khattar

Haryana Chief Minister Manohar Lal Khattar on Wednesday said that Gurgaon will be the ‘smartest city’ and the state government will spare no efforts in this direction.

While addressing the Nasscom Product Conclave in Gurgaon, Khattar said though Gurgaon lagged behind as two other cities – Karnal and Faridabad – have been ranked above in the smart city race, but “this is not final”.

He said that as per the laid criteria of the Union Government, one of the main reasons for Gurgaon trailing behind in race for smart city was it’s non inclusion in Jawahar Lal Nehru Urban Renewal Mission (JNURM), which alone carries 20 marks, so Gurgaon has to compete out of 80 marks.

However, the state government has requested the Central Government that if Rs 100 crore, the amount to be given by Union Government annually for developing smart city, is provided to Haryana government, then Gurgaon can be included in the list of smart cities, Khattar said.

“The Central Government is considering this proposal. If accepted, Haryana might have three smart cities instead of two. Even if it is not accepted, then also the state government is committed to develop Gurgaon as ‘Smartest city’ because it is already a ‘smart city’,” the Chief Minister said.

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NRIs Showing Renewed Interest in Indian Real Estate

Stability in housing prices and favourable rupee movements are bringing back the NRIs in a big way to the real estate market, mortgage giant HDFC has said.

To tap their interest, HDFC and also a number of property developers are undertaking special marketing campaigns including organising property fairs in places with high NRI population such as the US and the UK.

Interestingly, the non-resident Indians living abroad are showing a renewed interest in the Indian housing market at a time when the local demand is relatively sluggish.

“We are seeing a lot of interest from the NRI community. The rupee depreciation against the US dollar is also helping, for the prospective home buyers from the American continent,” HDFC Ltd managing director Renu Sud Karnad told PTI.

HDFC, the country’s largest mortgage lender, has planned ‘India Homes Fair’ exhibition in London on May 30-31, which will have more than 100 projects on display from across India.

Ms Karnad said that housing prices have stabilised, while softening of interest rates have helped make the home purchase much more affordable.

Property consultancy major CBRE’s South Asia Head (Residential Services) A S Sivaramakrishnan said that NRIs have become extremely important for the Indian real estate market and they contribute 8-10 per cent of the total housing sales volume across India.

Stating that the contribution of NRIs in housing sales varies from city to city, he said the NRIs account for 30-35 per cent of apartments sales in Kerala.

Their contribution in Hyderabad and Delhi-NCR markets are 10-12 per cent, Mr Sivaramakrishnan added. Cushman & Wakefield’ executive director (residential services) Shveta Jain also said that investments in the real estate sector by NRIs have gained momentum over time with prices being stable or reaching bottom in select cities and markets, rupee devaluations and attractive long term returns.

“With city limits expanding to peripheries, investors have a variety of products ranging from affordable to luxury developments and special housing projects like senior homes to choose from.

“Given the tepid demand from resident buyers and investors, developers have also undertaken special marketing efforts to target NRIs, whose investor confidence in Indian real estate market will get a further boost with the introduction of the Real Estate (Regulation and Development) Bill,” Ms Jain added.

Ms Karnad said that the projects on display during its London fair are from Bengaluru, Chennai, Gujarat, Goa, Hyderabad, Kerala, Mumbai, NCR, Pune, Punjab and Kolkata, among others.

The options include flats, villas and plots and customers would be given exclusive offers and value-added benefits.

HDFC would be holding such exhibitions for the eighth year in a row at a foreign location, showing its popularity amongst the NRI and PIO (Person of Indian Origin) community in London and other cities abroad. (PTI)

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DLF to sell properties worth Rs 15,000 crore in various projects

India’s largest realty firm DLF plans to monetise properties worth about Rs 15,000 crore under various projects to boost its cash flow and reduce debt, a senior company official said. DLF had a net debt of Rs 20,336 crore at the end of the December quarter. “We have a total of Rs 14,000-15,000 crore stocks. Out of this, Rs 4,000 crore is in finished projects and more than Rs 10,000 crore is unsold stocks in projects which are launched and are under development,” said DLF Chief Financial Officer (CFO) Ashok Tyagi.

These stocks would get monetised as and when the demand picks up resulting in improvement in cash-flow as well as reduction of debt, he said when asked about the company’s strategy to reduce the huge debt. Stating that sales have been “low” since last year, Tyagi said bookings would comfortably cross Rs 3,000 crore in this fiscal, lower than Rs 4,070 crore in the 2013-14 financial year.

DLF has achieved sales bookings of about Rs 2,700 crore till February 15 of the current fiscal. With property market showing sluggishness, Tyagi said the company is looking to raise about Rs 3,000 crore by selling about 50 per cent stake each in 4 housing projects to private equity firms.

“Since sales are slow, we are planning to raise about Rs 3,000 crore through private equity. In the short term, PE funds will be the substitute for the cash flow which would have normally come from sales,” Tyagi said.

Tyagi said only about Rs 6,500 crore debt pertains to development arm DevCo and the same would be eventually reduced with monetisation of these Rs 15,000 crore worth stocks. On reducing of about Rs 14,000 crore debt pertaining to rental business RentCo, DLF CFO said the company plans to launch two Real Estate Investment Trusts (REITs) to monetise the rent-generating commercial assets. The company earns an annual rental income of over Rs 2,000 crore from its office buildings and shopping malls covering about 30 million sq ft area. Last month, DLF had reported 9 per cent decline in consolidated net profit at Rs 131.79 crore for the quarter ended December against Rs 145.29 crore in the year-ago period. Income from operations fell 5 per cent to Rs 1,956.72 crore for the third quarter of this fiscal from Rs 2,058.42 crore in the corresponding period of the previous year.

Recently, Sebi slapped fines totalling Rs 86 crore on DLF, its top executives, their family members and various other related entities for entering into “sham transactions” to mislead IPO investors about eight years ago. DLF had said that it did not violate any laws and would challenge the order. The company had also said it was guided by the advice of “eminent legal advisors, merchant bankers and audit firms” while formulating its IPO documents. DLF has a land bank of about 295 million square feet, of which 50 million square feet is under development.

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How Indian Real Estate Market Will Likely Fair in 2015?

According to the National Housing Bank (NHB) Residex Index, residential property prices show an upward trend in the second half of 2014. First half had seen property prices dip, as the weak rupee and high inflation had a negative impact on spending. Needless to mention that 2015 will largely be about recovery. The RBI will most likely cut interest rates and this will see more spending in the residential real estate segment. The Ministry of Statistics Program and Implementation and PwC Analysis predict a growth of 8 to 9 per cent. Added to this, the introduction of REITs, improved market sentiment and more efforts by the government to reduce project loopholes and bottlenecks in transactions will go a long way in clearing the way for positive trends in 2015.

In India, real estate plays an important role, from affordable housing to infrastructure and generating employment. Here are some of the reasons why:

  • The Economic Survey of 2012-13 revealed housing to be the second largest industry that generates employment, after agriculture.
  • With more than 300 linked industries like steel, transport, construction, cement and brick, real estate contributes significantly to the country’s GDP share and capital formation.
  • NHB’s report places real estate as the third most impactful industry in India in terms of its effect on other industries and fourth in terms of employment generation.
  • The residential segment, comprising residential buildings, townships, schools, colleges and hospitals and other projects, makes the maximum overall contribution in the real estate industry and commands the largest part of its market share.
  • The real estate sector employs more than 35 million people, especially low and medium skilled labour
  • Directly impacts manufacturing
  • Attracts a lot of money in foreign direct investment (FDI)

Recap of 2014, its main events and economic drivers

  • According to Colliers Research, Bangalore and Chennai witnessed maximum demand and growth, while Kolkata, Mumbai and Gurgaon were unchanged. Despite this, many developers launched new projects during the end of 2014.
  • There is a backlog of unsold property. 2014 has seen delays in approvals, project clearances and targets, apart from debt commitment on property and government spending less in this area and a huge delay in finishing projects
  • Construction industry has grown 2 per cent from 2014 to 2015.

Trends in 2015

  • The Planning Commission estimates that by 2030, about 600 million people will live in cities. Affordable housing therefore is a huge demand and the industry has a large gap to meet, with shortage seen among the low income groups.
  • International agencies like IMF and World Bank predict an increase in GDP.
  • Real estate market is driven largely by sentiment.
  • First half of 2015 will be largely recovery with property markets.
  • ProjectVendor.com projects a 10 to 15 per cent increase in growth from FY14 to FY17 and 11 per cent growth in FY15. Residential and commercial projects, organised retail will contribute to this growth significantly.
  • Real estate construction market is poised to grow by 20 per cent between now and 2017.
  • Both large and specialised players stand to benefit and gain equally.
  • Real Estate Investment Trusts (REITs) and commercial real estate will make significant impact. REITs will have a huge impact in 2015. It is an internationally tried and tested strategy, especially in the USA, Taiwan, South Korea, Singapore and Australia. An REIT is a trust that buys, sells, develops and manages income-generating real estate property such as malls, commercial office spaces and more, with the main intention of attracting investors who can manage an interesting array of properties. Corporate investors benefit from tax exemptions. It largely impacts small investors and encourages proper investment channels in large real estate accounts, and is a better alternative to investing in stock, due to its higher returns and a diversified portfolio of investments. Blackstone, Xander, Brookfield and more real estate funds intend to launch REITs in the country and DLF, Phoenix and Prestige are expecting to make use of this huge opportunity.
  • The residential real estate space in India is divided into affordable housing, mid-level priced houses and the luxury segment. The onus on low cost housing is expected to put pressure on the luxury segment, but this is not significant. 2015 will focus more on recovery and clearing inventory, construction deadlines and backlogs.
  • Pricing is very important. Affordable price points will lead to higher absorption levels.
  • Easing pressure on the rupee will also impact the industry positively.

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NRI real estate investment norms simplified

The purchase and sale of immovable properties in India by a Non Resident Indian (NRI) or by a Person of Indian Origin (PIO) is really a very simple and easy affair with not much hassles and problems.

For a detailed and authentic answer one should always refer to the Foreign Exchange Management (Acquisition and Transfer of Immovable Properties in India) Regulations, 2000 as amended from time to time.

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GURGAON TOPS DEMAND CHART

The National Capital Region is expected to have the second highest real estate demand over the next few years, and Gurgaon leads the pack here, says ET Realty

Looking at the cumulative real estate demand, the NCR will have a requirement of 10.2 lakh housing units (commercial capital Mumbai requires 16.4 lakh), 249 lakh sq ft office space and 6.6 lakh sq ft retail by 2013. In the NCR, Gurgaon leads the pack in the demand in residential, office, retail, and hospitality sectors. Forthcoming world-class projects, proximity and well connectivity to Delhi are a few factors driving these figures.

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Is property investment in Gurgaon a better option?

gurgaon the millenium city

Gurgaon – The Millennium City

Gurgaon has been an integral part of the fascinating story of the Capital in the past decade. It earned the sobriquet of “Millennium City” for being home to over a hundred Fortune 500 companies, swanky malls and other entertainment avenues, BPO companies, world-class golf courses, hi-end restaurants, classy five-star hotels, healthcare facilities and state-of-the-art residential hi-rise structures. Despite all its infrastructure-related issues, the city is also home and working turf for a large number of corporate honchos. Gurgaon happens to be the first city of the country to have a 100% privately funded Metro train service and is soon to have pod taxis.

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