Invest in real estate!!

How much land does a man need? In his classic short story, Leo Tolstoy says the
answer to this is "six feet from his head to his heels. But we live in a far more
capitalist society, where land is not just for a home or to grow food on, or even to
be buried under. It's an investment that can be passed on for generations or pay
rich dividends in your lifetime. Sadly, when we say 'investments' and 'small investor'
in the same breath, we generally think only of stocks, mutual funds and bonds.
Buying land if one already owns a house is seen as something only brokers,
speculators or the fabulously wealthy do. But this perception is changing. In a
MONEY TODAY survey conducted in association with 99acres.com, we found that
over 25% of the 5,000-plus respondents are considering investing in property and
close to 30% say they will do so if they get a good deal.

When it comes to buying a home to live in, experts say there's no bad time.
However, investing means that you need to consider the current prices, the
possibility of their fall, when they will rise, etc. Or you can take our word for it. This
is the best time to consider investing in property or upgrading your existing small
home to a larger one, perhaps in a more desirable locality.

Why is investing in real estate such a good idea, and why is now the right time? First
let's consider why real estate makes for a good investment. The investment
performance of an asset is judged by comparing the risk and return associated with
it. The greater the amount of risk an investor is willing to take, the higher the
expected return. An ideal investment is one where the risk is low but the return
high. "Investments in real estate are associated with higher-than average returns,
moderate risk and a higher efficiency ratio. Real estate compensates more than
proportionately for the additional risk taken, says Abhishek Kiran Gupta, head,
research, Jones Lang LaSalle Meghraj.

To compare investing in real estate with that in equity (high risk, high returns) and
bonds (safest instrument), a recent report by JLLM takes into account what is called
the 'efficiency ratio'. "The ratio explains how much return ('bang') the investor gets
per unit of risk ('buck'). The higher the ratio, the more efficiently the investor is
'spending' the risk. If the ratio is less than 1, the investor has expended considerable
risk to achieve each point of return, says Gupta.

According to the report, equity saw the highest annual average return through
2001-8; retail witnessed the next highest, followed by the office and residential
segments of the real estate market.

Bonds, as the least risky asset, provided lower year-on-year returns. Real estate
provides a middle path for investors who want to strike a balance between high-risk,
high-return equities, and low-risk, low-return bonds.

So, investing in real estate, either in the physical form (which is most popular) or
through real estate mutual funds (which are likely to come into their own soon) is a
good idea. But why now? Because, by all accounts, the real estate market has
bottomed out and there are clear signs of a recovery. Yes, prices might have been
lower eight months ago, but at that point, you would not have been sure if the
market would ever recover.

Says Raminder Grover, CEO, Homebay Residential, JLLM: "There is a definite danger
in waiting too long for the perfect opportunity. Much as in the stock market, it is
impossible to predict the point of lowest ebb in the realty market. The danger in
delaying too long is two-fold. First, the buyer may lose out on the best properties,
and second, the market may regain equilibrium, meaning the add-ons and even
lowered rates may no longer be available.

Lower home loan rates, property price cuts, apartment downsizing and a recovery in
the job market are translating to an increased demand for residential projects.
According to a recent report by Religare Capital Markets, with the improvement in
macro-economic conditions, developers have seen a stronger response to new
launches across cities over the past quarter. As far as investments are concerned,
experts are bullish. "With prices now reasonable, it would be advisable to purchase
property. Prices should move northwards, albeit gradually. So, now is the time to
buy, says Kumar Gera, chairman, Confederation of Real Estate Developer's
Associations of India (CREDAI).

Even developers in conservative markets like Chennai believe that prices have
bottomed out. "This is the right time for second home buyers to fulfill their
aspirations. Prices are affordable and are bound to go north from here. Investors
can expect good returns on investments, says G.R.K. Reddy, chairman and managing
director, MARG.

During the second half of 2008, with the onset of the economic slowdown, end-
users (in the residential sector) became apprehensive about taking up long-term
loan obligations due to job market uncertainties. However, demand from buyers,
absorption of new launches and retail credit growth for banks has shown positive
growth. On the supply side, developers were concerned about limited funding
options and a substantial decline in aggregate demand. However, now that the
market has readjusted to a lower price point and there is sufficient demand, people
who can avail of finance are going ahead and buying property.

Further Correction Unlikely: Even the most pessimistic real estate experts are now
talking about 'stability' rather than a 'correction' in the market. "The market has
bottomed out and any further correction looks unlikely. However, I think it is not
going to go up in a hurry either, says Anuj Puri, chairman and country head, JLLM.
Developers are optimistic too. "I do not foresee a further correction in prices.
Demand has started picking up, says Pradeep Jain of Parsvnath.

Prices could Rise: According to a recent report by JP Morgan, "We expect residential
prices to rise 15% from the bottom over a one year period. After falling 25-30% from
peak levels, property prices are showing signs of stabilization as volumes have
picked up significantly. We see this as a precursor to price increase. The report adds
that "if sales during the festival season are substantial, then there is a good chance
of a 15-20% appreciation by developers.

In fact, in some places like Mumbai, prices have already gone up by 15-20% in the
past six months. "Housing loans are coming at a cheaper interest, developers'
liquidity position is better and buyers have started entering the market. Now, it is to
be seen whether this is pent-up demand or if investors are coming in, says Shailesh
Kanani, research analyst with Angel Broking.

Vikas Oberoi, managing director, Oberoi Constructions, which has mopped up Rs

400 crore in the past two months from sales of its Jogeshwari project says, "There is
definitely a rise of 10-15% in prices as there is a strong demand in various brackets
and people are ready to pay the right price. Smaller developers are also upbeat
about the sales picking up. "All those who chose to wait and watch are now
investing, so rates are going up. We expect a minimum 20% net return from
upcoming projects in residential development, says Jitendra Jain, CEO of Mumbai-
based Neev Group.

Interest Rates: As inflation started cooling off after October last year, banks
managed to lower home loan interest rates substantially. However, with the
government's borrowing programme likely to suck out some liquidity from the
market and inflation back on the central bank's agenda, an increase in interest rates
cannot be ruled out. "Lending rates bottomed out in the second quarter and rates
will harden gradually as credit off take will pick up very slowly. The increase in rates
will be in line with the pick-up in credit off take, says Chanda Kochhar, managing
director and CEO, ICICI Bank.

Sales picking up: Developers have witnessed a strong response to new launches
across cities over the past quarter. The pent up demand is being gradually converted
into purchases. In the past two to three months, developers have seen a steady
increase in sales. "In the past few months, the real estate market has undergone
major changes. The slowdown that migrated from the US has been corrected in
India now. Prices have also corrected, says Santosh Rungta, president, CREDAI. With
demand picking up, developers have launched a number of new projects recently.
According to a JLLM report, in the metros, the new launch tally for January-March
2009 jumped to 14,478 units from 3,096 in the preceding quarter. Sales picked up to
40% of launched units against 36% in October-December 2008.

Over the past couple of months, several developers have launched projects across
cities in the residential category, garnering a significant response from buyers. This
has motivated builders to focus on the residential space, particularly in the
affordable segment. However, given the good demand, it seems unlikely that
developers will cut prices further.

Even as we see signs of revival in residential property, it looks like the retail, office
space and hospitality segments are not out of the woods yet. However, the office
space segment is likely to look up as companies plan expansion in the second half of
next year. Subsequently, developers may see a rise in sales and scale down some of
the discounts they are offering in the residential sector.

Short Real Estate Cycle: Though real estate cycles are generally long, experts believe
that this one is unlikely to last much longer because the economy did not witness a
recession, only a slowdown. Also, a readjustment of prices according to demand will
bring in new buyers. "What we are seeing presently is the post-correction situation.
Real estate always witnesses a cyclical period of 8-10 years. We are in the early
stages of an upward movement, says Suresh Hari, former secretary, CREDAI.

Finally, this is a great time to buy as banks are not planning any increase in interest
rates during the festival season and developers are looking at this period to clear
their unsold inventory. So investors might be able to get some good bargains now. A
word of caution before you rush in. "As an investor, one should be careful of the
execution risk, especially with respect to newly launched projects. This means that
selecting the right project becomes even more important, says Samir Jasuja, CEO,
PropEquity.

BHAKTI DABHOLKAR