Is Real Estate A Better Bet In Current Volatile Market? The fear of coronavirus falls on the stock market but investment pros advocate calm during the storm.

By Sunil Mishra

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The World Health Organization (WHO) declaration of the coronavirus outbreak as a pandemic opened a Pandora's Box for the global economy. As panic gripped world markets, the BSE SENSEX crashed to an all-time low this week, even as the rupee fell further against the dollar and gold traded flat. Investors lost nearly INR 11 Million crore in the stock markets, in a single day as the Bombay Stock Exchange (BSE) SENSEX and Nifty registered their biggest fall in absolute terms after the WHO's declaration on coronavirus.

Its fear has literally crippled the stock markets worldwide and its impact has been sharply mirrored in the wild fluctuations of the BSE SENSEX. Investors in India too have become anxious about the overall economic impact, the prevailing oil price war and depreciating rupee. This carnage has eroded overall investor wealth including both institutional and retail investors by lakhs of crore in a single day.

With concerns over the virus pounding financial markets and disrupting global businesses, investor faith in asset classes such as stocks, gold and mutual funds is plummeting. Given the volatile nature of most other asset classes, real estate is proving to be a safe bet for most buyers, provided they remain invested for a long-term. Property prices have been at their lowest best across most cities over the last three quarters with PAN India values doweled at INR 5,559 per square feet in Quarter4 2019. With stable prices, attractive offers by developers and the government announcing a slew of measures favouring the sector, buying a home could prove to be the safest investment bet in the current economic scenario.

Property Providing Regular Income And Returns

The conventional investment portfolio of an Indian investor comprises of gold, real estate, fixed income products, along with some investment in equity or equity-linked products. Real estate has traditionally been a favourite for many investors even before most modern stock markets had started trading. This preference is based on three underlying benefits- regular income in the form of rent, security and safety, and healthy appreciation in value. For many prospective investors, real estate is appealing because it is a tangible asset unlike stocks and shares where the value is largely notional. The income generated by real estate investment in the form of rent is regular and keeps up with the rate of inflation. In contrast, only high dividend paying stocks generate reliable income and it would take considerable investment in such stocks to deliver high returns.

As apparent from the bloodbath on Dalal Street this week, stock values can be extremely volatile and come with the inherent risk of wiping out lakhs and crores of investment in a matter of minutes. The total market capitalisation of companies listed on BSE hit an over 33-month low on Thursday as the benchmark indices crashed over 7 per cent. Stocks are also sensitive to other economic factors such as monetary policy, regulations, tax revisions, or even changes in the interest rates set by the Reserve Bank of India. While real estate prices may also be impacted by these aspects, the fluctuation in their value is not as sharp and sudden as stocks.

Traditional Asset Classes Losing Sheen

Indian families have valued gold for generations and passed it on as an heirloom and family asset. Gold also offers a high degree of flexibility by allowing buyers to buy anything starting from a few grams. Apart from this, gold comes with high liquidity as it is easy to sell it and get your investment back. However, the recent fluctuations in the value of gold have made buyers wary of this asset class. Gold prices tumbled about INR 2,000 per 10 gram in just two days over 11th and 12th March. Despite gold being viewed as a safe investment during tough times, its performance has been erratic over the last one month. This is because some investors have sold the precious metal to raise cash in the current economic crisis. Gold as an asset class for investment is also losing its sheen as investors have access to modern financial systems that offer a variety of asset classes for investment. Thus, gold – now being considered a dead asset by many – is largely attractive to those who are still not aware or accessible to other financial asset classes

Investing In Real Estate To Secure The Future

While every asset class comes with it set of pros and cons, real estate is known to be a wealth generator for centuries. The recent volatility of the stock market and lacklustre performance of gold have further reinforced the stature of property as a stable asset class. With property prices rationalising in many micro markets and several developers willing to offer attractive deals, now may be a good time as any to buy your dream home.

It's important to remember that real estate investment requires a lot of research and it's not advisable to expect immediate results and returns. Real estate is not an asset that can be easily liquidated and cashed in quickly. However, the combination of price appreciation, rental income potential, and the inherent tax benefits of real estate investment is hard to beat. And in the current economic climate, it may be your best bet to secure a long-term investment.

Sunil Mishra

Chief executive officer of TRESPECT

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