In January 2008, Preeti Khare, a young information technology professional, decided to buy an apartment in Gurgaon. Now, if she decides to sell the house, priced at Rs 64 lakh five years ago, it would fetch her at least Rs 1.8 crore, a return of 182 per cent. Preeti is thrilled at the fact that she chose real estate over other investment options such as gold and stocks.
If she had invested in a blue-chip stock five years ago, she might have been disappointed. Estimates show many of these stocks have fallen 45-65 per cent during this period, though some have gained. The BSE Sensex, which closed at 17,648.71 in January 2008, stood at 19,894.98 in January 2013, a modest increase of just 12.7 per cent.
Though gold would have given her decent returns, as the prices of this metal appreciated about 163 per cent in the five-year period, experts argue there's no comparison between real estate and gold as an investment avenue. (Click for table & chart)
Sanjay Sharma, managing director of Qubrex, a real estate research and consultancy firm, says the doubling or trebling of property prices is only part of the story; in this segment, the most attractive factor is one can pay a fraction of the price of a property (down-payments) and yet, record significant returns. This works best in an under-construction market. Also, bank loans can be leveraged for a long term, says Sharma, adding hardly any data on the returns is available.
For gold, investors need to make down-payments and prices are linked to global fluctuations, making it less attractive than real estate. While investing in the stock market could be lucrative, there are risks, too. It's tough to record good returns on stocks if these aren't monitored regularly. In real estate, there's very little downside, analysts say.
After a period of lull, a unique concept is breathing new life into the residential property market. Till demand is established through pre-launch offers, builders are keeping investors guessing on the prices of the properties they are hard-selling. And, eyeing high returns, investors are playing along. While initially, there's only an indicative price band, depending on the interest in the market, a final price is fixed later.
Recently, the Lodha Group had experimented with an initial public offering allotment-like automated algorithm strategy to allot flats in its premium Blue Moon project in Mumbai. The company received 1,300 applications for 750 flats. The group fixed the final average prices of the flats at Rs 5-5.5 crore, said a company executive. "The allotment was done on a first-come-first-served basis, in which the preference of buyers was kept in mind," he said. At the time of booking, an applicant had to pay Rs 9 lakh, irrespective of the type of flat he/she wanted to buy. The flats are expected to come up in about four years across 17.5 acres the Lodha Group bought from DLF for Rs 2,750 crore last year.
For the allotment of flats at the Dwarka Expressway, which joins Gurgaon and Delhi, Tata Housing is planning a draw soon. For about 300 flats across 28 acres, the company is learnt to have secured applications many times over. These applications are being referred to as 'expressions of interest'. While there's an indicative price band of Rs 9,000-11,000 per sq ft, the company is yet to fix the price at which the flats would be sold. The booking amount for each of these high-end flats was Rs 10 lakh. Booking for the Tata Housing apartments has been closed.
A few months ago, Godrej Properties, too, opted for a first-come-first-served basis for a Gurgaon project. And, in a break from the broker-driven system in Indian real estate, it decided to deal with the customers on its own. Again, the number of applicants far exceeded the number of flats. The final price was fixed at Rs 5,500 per sq ft, against market expectations of Rs 4,500 per sq ft. Traditionally, 80-90 per cent of the bookings are carried out through brokers.
However, not every selection process is transparent. A few months ago, a builder had recorded about 2,200 applications for 250 flats in a Gurgaon project, a source said, without naming the company. To collect cheques for the flats, several big brokers fanned out in the market. Once the cheques far exceeded the number of flats, the apartments were given high price tags and buyers were chosen randomly, neither on a first-come-first-served basis, nor through a draw of lots, something not unusual in this business. Referring to the booking amount, a broker said these days, the low "floor price" or the "first rate" was adding a zing to the real estate market. A case in point is Ultima, DLF's coming super-luxury project in Gurgaon. For this project, the booking amount for a flat worth more than Rs 2 crore is only Rs 15 lakh.
A 20-80 payment model is quite prevalent in the market. Through this model, the buyer pays up to 20 per cent of the entire amount as advance, while the rest is paid only when the flat is ready.
Jigar Shah, head of research, Kim Eng Securities, a leading Asian brokerage, believes investors chase what gives them the best returns. While a lot of real estate investment in India is need-based, Shah says new projects launched in the past 18 months and the concept of pre-buying of residential units have made it more of an investors' market.
Raj Sharma, managing director, Best Property Deals, says investments depend on investors' portfolios. He adds property-buying is the safest bet in the world. Quick access to liquidity makes real estate a good investment, he says, estimating in 18 months, returns on property would be 30-35 per cent, against six to right per cent returns on gold. The income tax benefit associated with property-buying adds to the draw of the segment.
Not just this, a good property is akin to a trophy - it is for all to see, adding to the social stature of the owner, says an investor, on condition of anonymity. This explains the rush for high-end luxury apartments and sprawling bungalows. Through the next five years or so, real estate would be a promising asset class in India, says international consultancy Knight Frank. For properties worth Rs 3,250-15,000 per sq ft, a Knight Frank report projected annual investor returns of 18-29 per cent.
In Mumbai, Wadala could see prices rise up to 133 per cent, while prices in Chembur could increase 125 per cent by 2017, the Knight Frank report said. Noida Extension, adjoining Delhi, was another area the report identified as promising. Here, prices could rise up to 111 per cent.
Welcome to the new paradise for investors.