Tag Archives: Real Estate Investment

Gurgaon: How long will the rally continue??

Every real estate Investor with exposure in Gurgaon is happy for the fact that Gurgaon market has outperformed all other property markets in India in last 7-10 years and is being tagged as ‘Millennium City’.

Investors big or small have multiplied their money manifolds thereby giving them confidence to pick up newer & newer projects at higher rates. But the last 6 months- 1 year has shaken some confidence of the buyers & are now asking till when would this dream run continue??

The answer to this is not a simple yes or no!! If we compare the prices in rest of Delhi especially South Delhi (which is in close proximity to Gurgaon) or other cities like Mumbai etc then we still have significant upside left. The infrastructure is getting better each passing day. Thousands of white collar jobs are being created every year and its turning out to be a self sustainable city. Over the next 5 year period Gurgaon will be a much better place to stay with all the facilities in place and majority of the working population would prefer to stay closer to their workplace. This would increase the rent ability of the apartments & would take the prices even further up from here on.

However, in the short term, say next one year or so the chances of getting returns to the tune of 10-12% are more than getting 20% odd like we have enjoyed in the past. This is for overall Gurgaon market, but surely there would be pockets (micro markets) in Gurgaon which can still fetch you those desired numbers.

The sweet spot lies in investing around 5000-6000pqft bracket on Dwarka Expressway/ New Gurgaon or 7500-8500/-psqft on golf Course Extension Road for a period of next 3 years for superior returns.

In the end I would like to re-iterate that making money is all about setting your expectations right (Real Estate Investment: Expectation Vs Reality?)

Advertisements

Real Estate Investment: Expectation Vs Reality

Real estate over the past few years have been on the upswing. The highs of 2007-08 have been surpassed and few areas are currently quoting at even 40-50% premium than previous highs. It has indeed been the most preferred asset class for Indian Households, so the million dollar question is whether you would continue to see such sharp up moves in real estate?

The answer to this question is not simple. It’s more to do with your expectation of the returns. Historically, it’s seen that over the past 25 years real estate has given a compounded annualized return in the range of 17-18% as compared to equities which has give returns in the range of 15-16%, Gold in the range of 7-8% & fixed deposits which in the range of 6-7%.

Rs. 1,00,000/- invested 25 years ago in real estate would have become 50 times i.e. Rs.50,00,000/-

The thumb rule for expecting return by investing your money in a riskier asset (real estate/equities) should yield atleast 5-6% in excess of the least risky Bank Fixed Deposits. Therefore the targeted return should be around 14-15% p.a with 7-8% net return after adjusting inflation & other taxes.

Having witnessed such huge rallies over the past few years in real estate even as high as 50-60%p.a in some areas keeps us wondering that whether we have we missed out on rally?? What these returns have typically done to investors is, raised their expectations which makes it even difficult for them to accept any return less than average 25-30%p.a. These are clearly aberrations therefore any asset class over a period of time attains its fair value and the returns look more reasonable. The same happened during stock market rally from 2005-2008 when everything looked so promising and even today in 2013 we haven’t revisited those highs yet.

Expectations from your investments should be reasonable (in line with long term averages) to enjoy good returns from it and avoid any situation of panic & stress.

Real estate as an asset class is unique it’s in own way. It’s a tangible asset class that’s productive and yields you dividend in the form of rent along with capital appreciation.

Land is a commodity that is limited and can’t be produced or multiplied. As the population grows so does the requirement of land and so on the prices depending on several other factors.

It will continue to make money for investors but the only question to ask yourself is about your expectation of the return!!!

originally published at synageconsultants.com