{"id":2067,"date":"2019-07-12T07:32:10","date_gmt":"2019-07-12T07:32:10","guid":{"rendered":"https:\/\/www.remi.edu.in\/blog\/?p=2067"},"modified":"2019-07-25T11:32:57","modified_gmt":"2019-07-25T11:32:57","slug":"is-it-worth-investing-in-the-mumbai-real-estate-market","status":"publish","type":"post","link":"https:\/\/uat.remiol.com\/blog\/is-it-worth-investing-in-the-mumbai-real-estate-market\/","title":{"rendered":"Is it worth investing in the Mumbai Real Estate Market?"},"content":{"rendered":"\n

Should you invest in the Stock Market or Real Estate?<\/strong><\/p>\n\n\n\n

I’m sure you’ve heard\nexperts talking about how stocks have, over the long run, outperformed\nreal estate. <\/p>\n\n\n\n

However, what they do\nnot really highlight is that the comparison is not really apples to apples.<\/p>\n\n\n\n

Considering the stock market performance data – witnessing \u201cStandard & Poor\u2019s Bombay Stock Exchange – 500 Index\u201d, which is a basket of stocks that gives a good overall representation of the stock market, and factoring in the dividends and inflation adjustments, the investor ultimately gets about a 7% return on their investments<\/strong>. <\/p>\n\n\n\n
\n Year<\/strong>\n <\/td>\n Price<\/strong>\n Change<\/strong>\n <\/td>\n Dividend<\/strong>\n Dist. Rate<\/strong>\n <\/td>\n Total<\/strong>\n Return<\/strong>\n <\/td>\n Inflation<\/strong>\n <\/td>\n Real Price\n Change<\/strong>\n <\/td>\n Real Total\n Returns<\/strong>\n <\/td><\/tr>
\n 1988\n <\/td>\n 13.2%\n <\/td>\n 5.4%\n <\/td>\n 19.3%\n <\/td>\n 2.2%\n <\/td>\n 10.7%\n <\/td>\n 16.7%\n <\/td><\/tr>
\n 1993\n <\/td>\n 4.4%\n <\/td>\n 3.3%\n <\/td>\n 7.8%\n <\/td>\n 2.5%\n <\/td>\n 1.8%\n <\/td>\n 5.2%\n <\/td><\/tr>
\n 1998\n <\/td>\n 1.6%\n <\/td>\n 4.3%\n <\/td>\n 5.8%\n <\/td>\n 7.4%\n <\/td>\n -5.4%\n <\/td>\n -1.4%\n <\/td><\/tr>
\n 2003\n <\/td>\n 12.6%\n <\/td>\n 4.6%\n <\/td>\n 17.3%\n <\/td>\n 5.1%\n <\/td>\n 7.1%\n <\/td>\n 11.6%\n <\/td><\/tr>
\n 2008\n <\/td>\n 15.3%\n <\/td>\n 2.7%\n <\/td>\n 18.1%\n <\/td>\n 2.9%\n <\/td>\n 12.0%\n <\/td>\n 14.7%\n <\/td><\/tr>
\n 2013\n <\/td>\n -2.7%\n <\/td>\n 1.8%\n <\/td>\n -1.0%\n <\/td>\n 2.5%\n <\/td>\n -5.1%\n <\/td>\n -3.4%\n <\/td><\/tr>
\n 2013 \u2013 2018\n <\/td>\n 7.2%\n <\/td>\n 3.6%\n <\/td>\n 11.0%\n <\/td>\n 3.8%\n <\/td>\n 3.3%\n <\/td>\n 7.0%\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n

That\u2019s not just an assumption; Warren Buffet stated that the common range of return on investment in stocks is about 6% to 7%!<\/p>\n\n\n\n

In a real scenario, a\n7% return on investment is ideal!<\/p>\n\n\n\n

If you successively invest in stock every 5 years, eventually over 20 years your investments would multiply to 7X. By numbers, your Rs.60 lakh<\/strong> of investment would reap you up to Rs.5 Cr<\/strong>. These numbers are drawn considering the market fluctuations (Bull Market \/ Bear Market) during the period of investment.<\/p>\n\n\n\n

Based on the listed assumptions, if a 6% to 7% of return on the stock investment is a good option! So what about Real Estate?<\/p>\n\n\n\n

Now, for real estate, we’re going to use something called as the National Housing Bank (NHB) RESIDEX<\/strong>, India\u2019s first official housing price index, undertaken at the behest of the Government of India, Ministry of Finance. Now, this index is one of the most widely accepted indices, most respected indices to track the actual housing values in the housing market in India. <\/p>\n\n\n\n

Okay, so what\ndoes the indice tell us?<\/strong> <\/p>\n\n\n\n

Well, the indice is a\nway for the government to track the single-unit homes, and they only\ninclude it in the indice if it’s been sold from owner to\nowner, having sold at least twice. <\/p>\n\n\n\n

Why?<\/strong> <\/p>\n\n\n\n

Because it\u2019s really difficult to gauge the value of new homes added, until it\u2019s traded between owners. So that makes the index much more accurate. There are several indices, but we’re just going to talk about the housing price index of Mumbai here. <\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Source: https:\/\/residex.nhbonline.org.in\/<\/a><\/p>\n\n\n\n

Okay! And when we\nlook at the housing price index; the index is normalized to January of\n2013, and it’s going to hundred, in 2017 March, (that is when it is\nnormalized to 100). So everything is compared to the year 2017. So if\na house sold for Rs.1 Crore in the year 2017, then in 2013 it sold for\nabout Rs.85-87 Lakhs, okay, right there. So now this is the actual\nnominal values of the home prices that were sold. But, when it’s\nadjusted for inflation (RED Line)<\/strong>, we see\nthat really through 2017, from 2013 the increase is only about less than\n2%. And then we factor in the drop, we see that in real terms home\nprices have appreciated very little over the course of 5 years\nhere. From 2018 looking back all the way to 2013. So why should we\ninvest in real estate?<\/p>\n\n\n\n

What do we generally premise the returns on?<\/strong><\/p>\n\n\n\n

When invested in STOCK<\/strong> \"\" DIVIDENDS<\/strong> <\/p>\n\n\n\n

When invested in REAL ESTATE<\/strong> \"\" PROPERTY VALUE APPRECIATION<\/strong><\/p>\n\n\n\n

In this rational, what we tend to ignore is the return in the form of a \u2018RENTAL INCOME\u2019<\/strong>.<\/p>\n\n\n\n

The fundamentals work similarly to that of a stock market. If you have a property well located and their market value of the location appreciates, there is a possibility of receiving higher rentals. <\/p>\n\n\n\n

Plus, that ignores the impact of leverage<\/strong>. So when done right, when investors invest in real estate, net income, and leverage debt, investors are able to get much higher returns. Much higher than the one or 2% returns. In fact, a lot of investors are able to consistently achieve 7, 10, maybe even 12-15% returns by consistently investing in real estate by:<\/p>\n\n\n\n