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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4 Homeownership Myths, Real Estate Mental Traps To Avoid

Fear and anxiety are common when buying a home. After all, it’s a serious decision that comes with life-long responsibilities.

However, it’s also not healthy to worry about things that you shouldn’t really be worrying about. Trulia listed these 4 homeownership myths and real estate mental traps that you should avoid so you don’t get stuck in real estate limbo:

Assuming that buying is always better than renting

Renting is not always “throwing money away” as what most of us are made to believe. The truth is, the decision to buy or rent should be based on several factors (along with your willingness): the average housing and rent prices in your area, the amount of time you plan to spend on that dwelling, your tax bracket, the mortgage rate you qualify for, property tax, homeowners’ association (HOA) fees and insurance rates in your area, projected appreciation in your area, and inflation assumptions.

Believing your current needs reflect your future needs

When buying a home, it is important to consider that you are doing so to suite your future needs and your current needs. You may be single who like to travel and have minimal possessions and don’t have time to spend maintaining a home, but is this the same situation you will be in five years from now? Other factors to anticipate include maintenance costs, HOA fees, proximity to jobs (and potential future job sites), school district, yard size, neighborhood safety, and walkability.

Fear of getting priced out of the market

House prices have skyrocketed in the past five years and this can be reason enough for you to buy a home today in fear that you get priced out of the housing market. However, just like any industry, real estate is cyclical: Prices rise and fall. Additionally, housing is local; which means that Kansas and Jacksonville can have very different market price and appreciation. Considering this, the wisest action you can do is to buy according to your family’s budget and needs, not your guesses on what the future may hold.

Believing all renovations are profitable

Updating your kitchen, bathroom, landscaping and other features will definitely make your home more attractive, but that doesn’t always mean that you will recoup the cost of your renovations. Choose your renovations wisely; there are renovations that will fetch you a higher price while others simply lack a return on investment.

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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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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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Can the Online Real Estate Shopping Sell 863 Million Sq. ft. of Unsold Real Estate Assets?

The Real Estate Industry in India is considered to be one of the fastest growing markets. It is expected to touch $180 billion by 2020 with a CAGR of 11.2%. However with 863.09 million square feet or 650,000 unsold assets, as per Liases Foras, the real estate industry in India is extending itself to attract customers from the internet. Google says $43 billion of real estate is sold due to research and decision making on the Internet.

Just like the Online Ecommerce portals, the real estate industry too has got into the so-called The Online Real Estate shopping way. Top Real Estate Portals like Magic Bricks, CommonFloor, 99acres, IndiaProperty and Housing offer opportunities to both buyers as well as real estate firms to engage online.

Opportunities for Real Estate firms & Buyers

Real estate firms utilize these online portals to be listed and showcase their projects to the world. With features to display even the minute details of the projects along with Virtual Walkthroughs and Video listings, it becomes easy to gain a buyers attention. Also with options to place inquiries and book, many firms have taken great advantage of it. In March this year, Tata housing says till date they have sold over 1500 apartments online equalling to about 1 million square feet and Pune-based Kolte-Patil developers recently sold over 200 houses through the online medium.

For buyers there are enormous opportunities taking the online route. They could choose to buy properties in a city where they do not reside. Buyers can do price & feature comparisons between projects. The online medium also offers them a lot of information to research about the projects and the company before they wish to do a site visit.

Threats of Online Real Estate Shopping

Where there are opportunities, the online real estate poses quite a number of threats to both buyers as well as the real estate firms.

Since it is the Virtual Reality, a buyer cannot verify the existence of the project in the state that has been said in the internet.

“A buyer should always visit the spot and check out the social fabric before buying. For all you know, these projects might be in no man’s land” says Pankaj Kapoor, MD of Liases Foras.

Also, builders often use the internet route to offload inventory as a last option. Hence, it is advisable to use the internet only as a research option and as a supplement to the standard evaluation of projects.

Subhankar Mitra, Head, Strategic Consulting (West) at JLL India says, “At best, it can be used for information dissemination, due diligence and price comparison. Unlike retail products, here it is better to research online and buy offline”.

The threats to the Real estate firms are much stronger than that of a buyer. For a buyer there are options to choose one against the other, but for a real estate firm, the online offers are a bigger threat in terms of reputation damage of their businesses. Disgruntled buyers sling mud at the real estate companies on popular social media pages such as Facebook, Twitter, Google+ such that the companies are defamed. Online has become the ideal platform for an irate buyer to tell the world about their experiences. The brand gets damaged in the course of action. Builders have to work a lot on their reputation to neutralize them.

“When we see negative conversations, we try build on them and put the right perspective forward, reason it out. If there has been a project delay, we tell them the ground reality about why it happened”, says Rajeeb Kumar Dash, head of marketing services at Tata Housing.

Conclusion

For a buyer, Online Real Estate should be a medium to research and evaluate the projects, builders, and the opportunities. It should not be the only way to purchase real estate. Real Estate is not Retail.

For a Real Estate firm, the mantra Ensure your Brand Reputation is held high in the Internet world. You should keep track of what your brand encounters and manage where necessary. But the first step to it is to get your online reputation assessed.

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Indians biggest buyers of Dubai real estate in 2014: Report

Indians were the largest investors in the promising Dubai real estate market in terms of the number of buyers and transactions made in 2014 followed by Emiratis, Saudis and Kuwaitis, according to a new report.

The report by Omega Real Estate, a real-estate company owned by ‘The H Holding Enterprise’ said the Dubai real estate market looks promising and stable, driven by renewed confidence among investors.
At the The Gulf Cooperation Council (GCC) level, Emiratis topped the list, followed by Saudis and Kuwaitis. At the pan-Arab level, Jordanians, Egyptians and Lebanese were the major buyers, the report said.

Basing its assumption on a recent report of Dubai Land Department (DLD), Omega confirmed that property prices in Dubai have continued their recovery, albeit at a slower pace.

“This was a remarkably successful year for Dubai property market. Investments were more diverse than ever with new areas coming on the radar. With sales accounting of over 51 percent of the total transactions, it is now clear than bigger and more serious buyers are coming into the market, engaging in long-term investments,” Hafeez Abdullah, Chairman of ‘The H Holding Enterprise’ said.

According to Abdullah, the sector is gaining maturity, filtering out speculators and encouraging more end-users to become retail buyers.

“Such trends have boomed global markets and are now on the way to making the UAE sector more mature,” he said.

“The most prominent areas are usually measured on the basis of completion of sales or mortgages,” he added.

The report said that newer areas are coming under the scanner, enlarging the footprint of Dubai’s real-estate hotspots.

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Unitech to pay penalty to buyers for delay in Gurgaon project

Realty firm Unitech Monday said that the delivery of the flats in its housing project ‘Residences’ at Gurgaon got delayed and the company would pay the penalty to the buyers as per the agreement.

Unitech said this while responding to a clarification sought by BSE with respect to reports that buyers have filed FIR against the company.

“The matter pertains to a housing project known as Residences in Gurgaon, Haryana. All sanctions/approvals, no objections etc as required under the law have been procured by the company.

“Due to reason such as market recession, shortage of labour, ban imposed by the High Court on use of ground water for purposes of construction and delay in clearances from the regulatory authorities etc the delivery of the apartments to allottees got delayed,” Unitech said in a filing to the BSE.

Unitech is developing over 1,300 flats in this project, which has been delayed by the 2-3 years.

The company said that the process of handing over of apartments in the project ‘Residences’ is already on.

“We reiterate that Unitech is a law abiding company and are in compliance with the laws of the land. Unitech is fully committed to handing over all the flats,” Unitech said, adding that the company will pay penalty to the allottees as per buyers agreement for any delay in handing over the flats.

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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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Bharti to enter Residential Realty

Bharti Realty, the real estate arm of Sunil Bharti Mittal-led Bharti Enterprises, is gearing up to enter the premium residential market in FY16. While the overall real estate sector in India has seen muted growth in recent years, high-end residential projects have been high in demand.

The Tatas and Godrej are among the other big business houses that have presence in residential real estate.

Currently, Bharti Realty has projects in the retail and commercial segments and it is looking to enter the residential market starting with Delhi-national capital region (NCR).

“Bharti Realty is scouting for land in north India, especially in Delhi-NCR, for its first residential project. It might also form joint ventures with land owners for the same,” a person close to the development told the Business Standard.

He added that the company might also look at partnership with existing developers, especially cash-strapped ones looking for funds.

When contacted, a company spokesperson declined to comment.

In August last year, S K Sayal was appointed the new managing director and CEO of Bharti Realty for “conceptualising and implementing a scalable business strategy and providing overall leadership to the business”, an earlier statement from the company had said. Sayal would also explore and seek new business opportunities via joint development models to scale the realty business to the next level of growth, the statement had added.

Apart from telecom business, Bharti group has been in the news for its retail foray along with American chain Walmart through an equal partnership in cash-and-carry or wholesale business, and more recently for parting of ways.

Bharti continues to operate its retail chain Easyday, while the cash-and-carry business is now fully owned by Walmart. The group’s other interests included insurance and agro-products, where it could not meet the success of telecom and diluted stakes in its ventures.

Aviation was another area of interest, but had not entered the sector yet. Payment bank is its latest new business venture.

In commercial real estate, Worldmark – a high-end office-cum-retail project in Delhi’s upcoming Aerocity – will be functional soon offering 1.5 million sq feet of space.

Recently, Bharti Retail had launched its first mall, The Pavilion, in Ludhiana. Till now, the firm has delivered two million sq ft of commercial space in NCR, while another 3.5 million is under construction. It is also setting up a mixed use project in Kolkata, according to information available on the company website.

Even as India’s real estate sector is going through a slowdown phase, developers are hard-pressed for funds and inventory of unsold homes is piling up. According to experts, this is the right time to enter the sector as one would get a good deal on land valuation. And if it is lucky, the company would have its product offerings ready when the market revives.

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Reasons to Invest In Delhi NCR Real Estate Market

One of the best kept secrets of Indian real estate is out…

The Economic Survey for the last financial year states: “Data shows that the first claim upon the savings of households is physical assets such as gold and real estate.”

That Indians love their ‘real estate’ would be like stating the obvious. But sometimes it is necessary to state the obvious as well. Why? That will soon become clear.

AkhileshTilotia, a thematic research analyst with the institutional equities arm of the Kotak Mahindra Group, makes a very interesting point in his new book The Making of India—Gamechanging Transitions. As he writes: “Thanks to its love for real estate investments, India is in a curious position of having more houses than it has households.”

This becomes clear from the Census 2011 data. “India’s households increased by 60 million to 247 million from 187 million between 2001-2011. Reflecting India’s higher ‘physical’ savings, the number of houses went up by 81 million to 331 million from 250 million. The urban increases is telling: 38 million new houses for 24 million new households,” writes Tilotia.

So what is happening here? One explanation for the number of houses rising faster than the number of households may lie in the fact that houses are being bought as investment and not to be lived in. What this means is that many Indians own more than one house and then there are many more who do not own any, because prices are way beyond what they can afford. Further, given our penchant for owning real estate, a lot of real estate is being built sheerly from the point of view of fulfilling investment demand.

This is the best possible explanation for why the number of houses has gone up at a much faster pace than the number of households. Further, those who have black money to hide, don’t bother much about the location of where houses are being built. And that explains why houses even miles away from India’s biggest cities are so expensive.The Caravan magazine in a 2011 article, when real estate investment was at its peak, quoted Gautam Bhan, a consultant with the Indian Institute for Human Settlements, to make this point: “This economy is being built solely on speculation…These properties are being built solely for investment cycles. Why else would you build halfway to Agra? If you have ten businessmen who occasionally want to get rid of black money, you’ll have an apartment building. These flats will be bought and resold and bought and resold. Nobody even needs to live there.”

So what is the way out of this mess? How can houses be built and sold at prices so that people can buy them to live in them? As I have mentioned more than a few times in the past, the government needs to actively go after the black money hidden in physical assets like gold and real estate. There is no point in trying to actively pursue all the black money that has left the country and not do anything about all the black money lying in the country.

A crackdown on black money will lead to better tax compliance, meaning more taxes for the government. Further, it will also bring down the amount of black money that goes into real estate. This is easier said than done and will need solid political will for many years, if it has to be pursued seriously. Further, it is high time that agricultural income be brought under the tax net. There is no reason that rich farmers should not be paying income tax. In fact, in cities like Shimla, Chandigarh and even the National Capital Region, all the untaxed agricultural income chasing real estate has also been responsible for driving up home prices, among other things.

Ensuring affordable housing becomes available at a large scale level should be a major priority for the Narendra Modigovernment. As the Economic Survey points out: “Nearly 30 percent of the country’s population lives in cities and urban areas and this figure is projected to reach 50 per cent in 2030.” If affordable housing does not become the order of the day slums will become as common place in other cities, as they are currently in Mumbai. And that is not a happy thought to look forward to.

Also, as Tilotia points out in his book, “more than three-fourths of urban residents live cheek by jowl in cramped spaces.” This basically happens because of two reasons. The first reason is the low FSI ratio which has made land very expensive. The second reason is “the inability to commute cheaply and quickly, which means that people have to congregate in and around areas where they can find economic activity and public infrastructure.”

If affordable housing has to take off, all this needs to be set right.

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