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A good hedge in troubled times for NRI investors

A good hedge in troubled times for NRI investors
Highlights

The Indian real estate market right now stands in equilibrium as prices are stable across most cities in India.

The Indian real estate market right now stands in equilibrium as prices are stable across most cities in India. However, this is slated to change in the medium to long term as demand should outweigh supply over the next few years, primarily due to decline in residential launches.

Sales have, in fact, overshadowed new launches in the past 4-5 quarters - signalling the revival of the sector.

The RBI reducing the repo rate by another 35 basis points in August 2019 will bring down interest rates on home loans, which should boost demand in the sector. Equities have also not been performing well in the last three quarters or so, making real estate lucrative for investors to park their investible surplus.

How Indians' favourite investment routes are faring?

Equities, PO schemes and banking products are in a growth crisis. Asset classes like equity stocks, government bonds, post office schemes, savings on bank deposits and bank fixed deposits are all in a downward spiral.

Most public sector banks like SBI have cut interest rates on fixed deposits, which means the yield on maturity will decline for FD investors.

Interest rates on popular savings schemes like Public Provident Fund and National Savings Certificates have also been lowered, which can reduce the attractiveness of these schemes.

Growth in the automobile sector is almost nil and the industry is facing its biggest growth crisis in recent future. Even at the best of times, automobiles are depreciating assets and therefore not suitable investment instruments.

Gold prices have hit an all-time high and have crossed the INR 38,000 mark for 10 gm of 24K gold. However, despite this rise, gold is now being considered a dead asset by many and is largely attractive to those who are still not aware of or don't have access to other financial asset classes.

A good hedge in troubled times

Indian real estate is still a viable and fairly safe long-term investment option. Investors with a short-term view on 'instant returns' need to look elsewhere, but most other asset classes are quite volatile in nature and will continue to remain so.

Indian residential real estate is a long-time favourite of resident Indians and NRIs, and recent trends suggest a positive outlook for this asset class going forward.

Property prices have bottomed out and cannot possibly reduce further, especially since construction costs are gradually heading north.

That aside, both the government and the RBI are making concerted efforts via various sops and incentives to revive Indian housing demand and thus boost homebuyers' confidence.

Other than the tax sops doled out in the Union Budget, there have been four successive rates cuts by the country's apex bank which is ultimately aiding commercial banks to reduce home loan rates for prospective buyers.

Thus, it is an opportune time for prospective buyers to take the plunge in the Indian residential market across budget segments, be it for end-use or for investment.

To cut to the chase

Given the lacklustre performance of the equity markets and other all-season investment favourites, disposable income is not exactly spoiled for choice when it comes to profitable investment avenues today.

Real estate is, at the present, a very viable and attractive bet for long-term investors if they can read the market signs that favour this sector.

No other Indian industry is as heavily incentivized as housing – the Government of India has a critical political target to meet in its Housing for All by 2022 promise.

Only recently, even more impetus was provided to the real sector when the National Housing Bank pumped Rs 10,000 crore into the housing finance companies. This is expected to ease out the liquidity crisis of the NBFCs.

For investors who believe in the time-tested adage 'invest at the lower end of the growth curve and sell at the top', the timing is perfect now for investing in Indian real estate.

(Shajai Jacob is CEO - GCC (Middle East) at Anarock Property Consultants)

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