Keep Your Feet on the Ground
ed Prakash Arya, CEO & Managing Director, Milestone Group.
His call: The property market has a lot of life left, but only in parts. Avoid segments where there is overcapacity or hype.
His Big Picks: Mumbai at the premium end; Chennai, Bangalore and Hyderabad among big cities; Nashik, Jaipur and Coimbatore among emerging cities.
In the last few months, high net worth individuals have pumped in huge sums of money into real estate. Why now? Because HNIs understand that under the present circumstances, it offers the best combination of the right asset class, right timing and right price.
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Ved Prakash Arya, CEO & Managing Director, Milestone Group | |
My investment philosophy is based on the fact that one should always target steady return rather than speculative return. This sector will never give speculative, over-the-counter returns which a stock is capable of giving. This sector is not about tips. Property is an illiquid asset that needs nurturing for four, five, six years. Property prices won’t double up overnight; if they do, then the fall would also be equally spectacular. Real estate is meant for systematic, long-term returns.
Today, if you see a good building and think its price will go up in the future, you have no way of investing in a part of it with your available funds, just like you would buy a share of Hindustan Unilever. But time will come soon when such buildings become available as real estate mutual funds. That will attract several new investors to the sector.
When that happens, an investor can easily set aside 20-25 percent in his asset allocation for real estate. So, the first megatrend I see in real estate is that this sector will become transparent and paperless.
The inherent demand for housing will continue for years. The mortgage rate in India is just 5-6 percent of GDP. In developed countries, it is 65-70 percent. So, there is a lot of growth still left.
Now let us look at the opportunities in various segments of the real estate sector.
I don’t see any hope for IT parks in the next three to four years. There is excess capacity everywhere and nobody to occupy. It will take at least three to four years to absorb the existing capacity. And then there are the shopping malls. There, retailers had agreed to pay high rents thinking they would be able to charge their customers higher or will be able to list their companies. But those assumptions have not come true. So, the fundamentals of the business have been broken there.
So, don’t invest in empty IT Parks and shopping malls, at any price. If you do want to invest in IT parks, look at those that already have long-term tenants.
The office sector is good, even now. But at a reasonable price. The office property market is primarily a six- or seven-city market. As of now, there is some over-supply. But deals have begun to happen and the supply is slowly getting absorbed. The fundamentals are sound.
The Rising Star
The warehouses sector is seeing big change. There is no national player in the sector which is dominated by unorganised players. So the country needs logisticis parks, which will be more efficient. And there lies the opportunity for the investors.
Warehouses are an out-of-the-city opportunity and can yield rentals of about 15 percent on the capital. And as a city grows and the land becomes part of the city, there is immense opportunity for capital appreciation too. So investors should look for companies and funds investing into warehouses.
If you own a parcel of land outside the city, look for developing it into a warehouse. A godown can be as small as 20,000 square feet. Logistics companies want to be asset-light and will lap it up.
Now, let us look at the real estate scenario in various cities and examine their investment potential.
Mumbai
The Mumbai market is very special. It is the city that offers unparalleled economic opportunity to people. So, there is a natural traffic towards Mumbai and that will continue. Availability of space will always be a question mark and prices will keep going up.
From downtown Mumbai to Kandivali and in fact any part within the city limits will not see prices going down. The western and central suburbs like Borivali, Thane, Kalyan and Virar will see prices stabilising.
In Navi Mumbai, we should distinguish between two parts: One is the evolved areas of Navi Mumbai, which have already seen growth and which will continue to get a premium. The other is Khargar. With the possibility of an airport coming in the vicinity, people have already started investing in Khargar. Today, it may look like a ghost city but it is the next centre for growth.
Delhi
On Delhi, I will be cautious. All the growth has come from the nodes which are in other states. Central Delhi, itself, has not improvised. But these nodes have already developed well and so I don’t a huge multiplication in returns there. The supply is humongous.
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