Returns from residential sector in the last five years have largely remained negligible or negative. We ask experts what strategy—sell or hold—the investors should adopt in such a situation

Rohit Shah, founder and CEO, GettingYouRich

Realty prices unlikely to go up

If the asset allocation suggests that such rebalancing is required in the portfolio, then it may not be a good idea to wait as it is difficult to predict the returns in the short term.

Considering the inventory in metros, continuous additions through new projects and stricter regulations, it does appear that residential property prices may not appreciate much, in general.

Investors can look at the likely pay off from an alternate investment. Based on the size of the underlying asset, investors can also take help of real estate professionals and get a perspective.

Whether one invests in a financial asset like mutual funds or a physical asset like real estate, the investment horizon should be very long-term, i.e. at least 10-15 years. Often investors expect abnormal returns in a short period based on aberrations in the recent past.

Investors tend to hold on to loss-making investments due to mental accounting as the base price is already anchored in their mind.

All asset classes have their own cycles of ups and downs. To keep chasing for highest earning asset class would certainly be a mistake. Such chasing only means higher churn, transaction costs, and taxes. No one can predict accurately and consistently.

Anil Rego, CEO, Right Horizons

Anil Rego, CEO, Right Horizons
Anil Rego, CEO, Right Horizons

Don’t hang around for uncertain gains

While the Indian real estate is improving transparency and accountability after implementation of regulatory policies but overall as an asset class, realty in the last 4-5 years has given sub-optimal returns. Long gone are those days where you could flip property every once in a while and make money. This is a long-term market and to generate average returns one has to build the average by staying put.

There is no point in hanging around for uncertain future gains if your current financial return from the property matches your goals. Macroeconomically speaking, India is doing better than it was doing earlier.

The macro benefit should reflect on the property landscape once the dust settles. New consumers have outnumbered the previously investor-driven real estate market, but they demand compact and affordable configurations. So, the demand drivers exist.

In case your portfolio really needs an alignment, an exit from your real estate asset exposure is recommended irrespective of current market valuations. A portfolio rebalancing or re-alignment would mean that the asset mix needs to be optimized.

Varun Girilal co-founder and executive director, Mitraz Investment Advisors

Varun Girilal, executive director, Mitraz Investment Advisors
Varun Girilal, executive director, Mitraz Investment Advisors

Allocate money in better assets

From an investing strategy standpoint, it makes sense to look for an exit at the earliest at one’s cost price and even up to 10%-15% below one’s cost price. 100 coming down to 90 and then having a chance to grow at 10-12% return will be a better place to be in than a high probability of flat or 4-6% gain from real estate over a 5-year period. Staying invested to a much higher real estate exit price will have a high opportunity cost and will put one at risk of suffering a long term time correction. Most of our clients who exited real estate 4-5 years back and have reallocated to financial assets have seen benefits in the form of better post-tax returns, liquidity and flexibility. The attack on black money, RERA Act, huge unsold real estate inventory and removal of tax benefits for second home make the case of exit from investment-oriented real estate stronger especially where one has more than 60% allocation to real estate in one’s net-worth.

Provided one has completed more than two years of holding real estate, exiting now will also enable a person to create a tax shelter in terms of showing indexed long-term loss when one factors in indexation while filing IT returns.

Tejas Patil, Co-Head – Real Estate, Sanctum Wealth Advisors

Tejas Patil, Co-Head, Sanctum Wealth Advisors
Tejas Patil, Co-Head, Sanctum Wealth Advisors

Hold on to your realty investment

As of now, the fact remains that developers are finding it difficult to sell their inventory. Situation is forcing developers to reconsider their inventory pricing and resort to lowering of selling rate to maintain the positive cash flow position. The RERA deadlines for developers is also putting them under pressure to sell their stock to maintain the timelines.

Even though new launches have been limited in the preceding 12 months, excess supply persists. There is good probability that this in-flight inventory may get moderately consumed by 2018-19.

In contrast, commercial real estate segment has seen a good demand uptick led by the healthy growth in the leasing activity. Commercial real estate traditionally leads residential real estate and the robust interest witnessed in commercial segment is likely to have a leading effect on residential segment as well. One will however have to wait and watch.

In such times of low sales in the residential segment, a sheer inventory overhang in most of the micro markets and tons of discounts and offers by developers, it is prudent for a residential asset owner to hold on to the investment till the cycle turns and there is an equilibrium between the supply and demand. Hold on to the torch till you see light at the end of the tunnel.

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