Real Estate Investment Holds Potential For Long-term


If we talk about making long-term investments, most of the investors like to evaluate the long term outlook of the Indian real estate market. If you want to ask why, then, you need to evaluate the outlook for the economy as a whole as that is what would eventually drive the real estate market.
Corporate performance has been muted due to high interest rates and inflation not cooling off. The commodity prices have not softened. The USI ran standoff has kept the oil prices at reasonable heights. The Euro crises are also plaguing the global economy.
However, there are numerous other factors that favour the long-term prospects of the Indian economy. India’s real GDP growth was over eight percent annually over the past decade. This was pre-dominantly driven by a combination of rising investments, increased consumption and greater productivity growth.
The demography of the Indian population remains favourable for Indian real estate market. Consumption demand from the working population could propel the economy into a new growth trajectory over the long haul. As per Goldman Sachs reports, India is expected to add about 110 million workers to its labour force over that time , which is more than what the US, China, Russia and Japan will add combined. The country’s benefits derived from demographic dividend will be substantial over the next couple of decades. This has been one of the longer periods of economic weakness. Being cyclical, one would expect growth to come back soon. Reforms normally take a backseat closer to elections. Post elections, one hopes that this will come back into focus. Interest rates and inflation are showing signs of peaking and are likely to cool off in the long term. This can provide the much-needed boost to the real estate sector as this normally spurs consumer demand. Lower borrowing costs will also be favourable to builders considering that the sector is very capital intensive.
The last downturn caught many real estate companies off guard. They were in a land acquisition spree and made many investments. This resulted in very high debt levels. In the last few years, real estate companies have been able to effectively pare their debt. This is likely to provide some cushion to the real estate companies even if the economy cools off in the short term. An investor with a 3-5 year perspective can look at making investments in the real estate sector. It is ideal to try and identify the areas that are likely to see the best growth in the next cycle. Areas on the outskirts that are likely get engulfed into the city are places that can be focused on. Further, if there are factors like proximity to airport, a new industrial area etc, you could consider investing there.
– Author is Real Estate Professional


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