10 , August , 2022
"THE HOUSING MARKET IN INDIA WILL CONTINUE TO REMAIN RESILIENT"
With more than 250 allied industries interlinked to the realty sector, there is no doubt that the realty sector in India is one of the pillars of the economy and is the second-most elevated business generator in the country. Despite several disruptions and market upheavals during the pandemic, the real estate sector has made an impressive revival. In fact, the sector has transformed into a buyer’s market, and today, with an evolved sense of preference, buyers are focusing on customized offerings to make ideal investment decisions. Seeing this scenario, Realty Dekho team, in an exclusive and extensive interaction with Prashant Utreja, CEO, Reliance Home Finance gets to know about real estate as an investment option, benefits of investing in an under-construction property, advantages of investment in REIT, realty sector growth in Tier II and III cities, long-term impact of GST on rent income and other key information. Here are the excerpts.
Realty Dekho (RD): As 2022 is the flagbearer year for a sustainable recovery in the housing sector, do you recommend investment in under-construction property for excellent long-term returns?
Prashant Utreja (PU): Investment in under-construction property always yielded excellent returns in the past and will continue to do so in the future as well. According to RBI data, owning a house has yielded 11.6% average returns between 2010 and 2020. RBI’s House Price Index shows owning a house offered 1.8% returns in the Q4, FY 2021-22 as compared to 3.1% in the previous quarter and 2.7% in the comparable period a year ago. This means investment in the real estate property in ready-to-move or under-construction, has given healthy returns even during the Covid-19 pandemic. Hence, investment in under-construction property is always advisable. In the past two years, the Covid-19 pandemic has left several bitter memories across the spectrum which had a repercussion on the housing sector too. Therefore, returns from the real estate sector slowed a bit. But the industry has recovered from the pandemic blues with the real estate sector being the biggest beneficiary. The housing sector has witnessed a resurgence in pent-up demand over the last few months with several new and stalled projects starting operations, investment in under-construction property will be a wise decision now, especially in the wake of the rising interest rates cycle. Let me tell you that CREDAI has estimated more than 20% of stalled projects in the Mumbai Metropolitan Region (MMR) alone. A similar number of stalled projects could be in others elsewhere as well.
RD: How can an investor add real estate to his retirement portfolio among the numerous investment options available?
PU: An investor takes a long-term bet by investing in a real estate property. In order not to get trapped in this long-term investment avenue, one can start with a small and affordable project suiting his income. With the gradual increase in income and affordability, one can expand the investment horizon and gradually increase the portfolio. Despite having several options available, one must make the retirement portfolio diversified with at least one investment in a real estate project also. An investor can choose a reputed developer with the project in a developing area where the potential of an increase in the price is very high. The potential for price rise in an area where the market nears saturation is very high. Hence, the investor must select a property through extensive research, affordability, and chances for high returns.
RD: Although a newer phenomenon in the Indian subcontinent, REITs are in the market for a long time now. What is your take on investment in REIT?
PU: Undoubtedly, Real Estate Investment Trust (REIT) is relatively a new concept in the Indian subcontinent. It has a bright future because of its structure and working process. It is like mutual funds that allow multiple investors to accumulate their investments for a third person to manage them. The awareness about REIT is increasing. I am sure, it will create a miracle in the Indian real estate sector in the times to come. An investor can expect a rental income between 7-9% plus a capital appreciation of 4-5%, thus a total yield of 12-14% from investment in REIT. While comparing these returns with other investment avenues, we can easily see that the real estate property through REIT has brought the highest returns.
RD: What, according to you, will foster the realty sector growth in Tier II and III cities?
PU: The housing market in India will continue to remain resilient on the back of strong underlying demand from end users, especially in smaller cities. Tier I cities are slowly getting overcrowded due to the availability of limited space. The lack of adequate space has prompted manufacturing and services sector units to expand their bases to Tier II and III cities. To accommodate the entire facility in one place, industrial units are also shifting their bases to Tier II and III cities. The reverse migration of employees who had migrated earlier to Tier I is just like a homecoming for them. With developers offering world-class infrastructure in Tier II and III cities due to availability of space, the monetary and economic values have spilled over to the second and third rank cities. So, these cities will continue to grow and will attract more investments every passing day. Investment in these cities will make good returns from the long-term perspective.
RD: How do you compare investment in real estate versus other asset classes including equity for FY2023?
PU: Investing in real estate offers relatively lower risks and greater scope for diversification as compared to other asset classes including volatile equity markets. Fixed deposits offer risk-free returns between 5-6% for a three to the five-year period horizon. Though gold is among the top three investment options, the yellow metal contains price volatility risk, like that in equities, bonds, or such assets like mutual funds. The global equity markets have seen sharp volatility so far this year with many big players incurring massive losses and small investors disappearing. In these volatile times, investment in real estate looks promising from the long-term perspective. You can bet on real estate safely for long-term returns.
RD: What is your assessment of the long-term impact of GST on rent income from the residential property?
PU: The Goods and Services Tax (GST) has impacted every sector of the economy and real estate is no exception. The imposition of GST on rent income from the real estate property will have a short-term blip on the housing sector, but given the upper limit fixed for GST levy, its impact on the overall sector will be diluted over a period. Under GST, a single tax of 12% is applicable on properties under construction while GST is not applicable on completed or ready-to-move properties.
RD: How will this festive season pan out for the real estate sector?
PU: The ensuing festive season is expected to remain positive for the real estate sector. We expect sales to witness robust growth. The freebies, discounts, and luring offer from the developers would certainly attract more investment in the realty sector this festive season.