The writing is on the wall – the world is dealing with an unprecedented demand contraction. Buying decisions are being deferred and the major reason is financial insecurity.
Our recent consumer sentiment survey showed that the major reason for postponed home buying decisions is the fear of job loss or future unemployment.
Global investment icon Warren Buffet had famously stated that the time to buy is when others are fearful. Easier said than done, since fear triggers natural safety-seeking responses. But the basis of this philosophy holds true – acting contrarily to initial instincts has its advantages.
The time of the COVID-19 pandemic will, like many other outsized events that shook human confidence, leave behind its share of winners who believe in the motto ‘carpe diem’ - seize the moment. Forward-thinking NRIs can do just that with Indian real estate.
A sentiment that still holds sway
Historically, the major demand driver for NRIs investing in Indian real estate was their eventual inevitable return to India. The general sentiment of a post COVID-19 reverse exodus to India has thrown this driver into sharper relief.
Also, the lockdowns and increased focus on work-from-home (WFH) have caused a lot of introspection on how much home is required to accommodate both the family and a home office. Not surprisingly, our consumer sentiment survey highlights than the highest demand is currently for mid-income housing.
Simultaneously, we are now realizing that in a world of professional uncertainty, rent is pure expense with no long-term value. Home loan EMIs, on the other hand, are investments into a lifelong asset central to a world where WFH is set to become the new normal.
Let’s examine where we should be funneling our hard-earned money in a post-pandemic world:
Gold and silver have historically offered only capital protection after adjusting for inflation. As such, it does not qualify as an appreciating asset.
Bank deposits and mutual funds
The substantial lowering of interest rates has dented whatever inclination risk averse investors had to these products.
These need to be examined a little more closely.
Equities were investor favourites, especially for those with a higher risk appetite. They consistently gave the best returns until the markets wiped out close to 30 per cent of global investor wealth in less than three months. As we speak, the equities markets are trading at levels where they were five years ago.
That means zero growth for investors. If we consider inflation of 4 per cent on this, equities have given negative 20 per cent return to investors over the last five years. Yes, it is an opportune moment to value-buy stocks - but can we predict that these stocks will not lose further value? Can we assess when the next market collapse happens?
There is talk of a global recession – can equities be considered tangible in-hand assets?
The viability of property as an investment asset class has never been higher. Today, NRIs are viewing properties in India from their homes via virtual site visits, speaking to developers and channel partners through video conferences, and paying booking amounts through online digital platforms.
In the midst of the COVID-19 turmoil, several reports highlighted the stellar performance of Indian real estate players during the lockdown. This logic-defying scenario is the proverbial silver lining on the coronavirus-shaped cloud. Quality projects are finding buyers – now, in the midst of the pandemic, with no end to it yet in sight.
In Anarock’s survey conducted during the pandemic, 48 per cent respondents preferred residential real estate as their best investment option; 50 per cent affirmed they see this as the best time to invest in homes.
Prices are at an all-time low, home loan interest rates have gone below 2008-09 levels, and the perception of housing as the most viable – and indeed the only usable asset – has never been stronger.
While real estate always appreciates eventually, the real value in current times is that it either eliminates rent, or earns rental income even as the usual market forces are given time to take care of appreciation. Also, unlike gold, mutual funds and equities, the deal on real estate can be improved with strategic negotiation.
Enter tech-driven deals
Indian real estate was adapting to technology even before this crisis, but COVID-19 gave the process “escape velocity”. Digital assets have become a crucial enabler for deal closures, with an increasing number of developers now swearing by this process. Our integrated one-stop real estate sales solution IDSS is an India-centric example of how the entire journey of home buying - from search and discovery to site tours, from negotiation to home loan approvals, on to deal closures and post-sale relationship management can be conducted online.
Every crisis brings challenges as well as opportunities too. COVID-19 has rapidly converted millennials – otherwise die-hard advocates of all things rented – into enthusiastic homebuyers. For this tech-savvy generation that expertly navigates digital solutions, owning a home has now become a priority.
The entry barriers for real estate have also come down substantially.
For NRIs - the focal point of lucrative real estate deals and the primary beneficiaries of the rupee’s depreciation of almost 7 per cent since January - the time to invest in the most tangible and rewarding asset in a post-pandemic world has never been better.
- Shajai Jacob is CEO – GCC, Anarock Property Consultants.