Why to invest in Real Estate During Lock Down

I am sure no one of us had ever witnessed this country lock down situation. When India entered in March 2020, we were set to celebrate the colors of happiness. Ever did we thought that the last week of month will shut us in our homes? At least I did not imagine this.

Yes there is panic everywhere and yes the situation is critical, I do not deny the facts that are rolling up on all news channels and filling up the internet. But do you want to end up this lock down time to just anticipate the outcomes and listening all the time about this corona outbreak or do you want to crack this opportunity to dig the gold? This pandemic has rightly taught us that uncertainties comes unexpectedly. So are we prepared to face any such situation again?

If the answer is No, I suggest that utilise this time to invest on sources of passive income. Yes, this is the best time to understand various possible investment options available where you can start your passive income and secure your future and safeguard your family.

Although there are options like SIP, Mutual Funds, Shares etc. than why Real Estate?

Real Estate has proved to be the most reliable investment option so far considering the conditions of banks, share market crash and no capital appreciation on any other option that may look safe initially.

5 REASONS TO OPT REAL ESTATE

1. Competitive Risk- Adjustment Returns : Based on July 2018 data from National Council of Real Estate Investment Fiduciaries (NCREIF), private market commercial real estate returned an average of 9.85% over the past five years. This credible performance was achieved, together with low volatility relative to equities and bonds, for highly competitive risk-adjustment returns.
2. High Tangible Asset Value: Real estate is not paper money, this is the asset you can hold tangibly which again increases its reliability and return on investment.
3. Attractive and Stable Income Return: The rental yield from real estate is much higher than returns on any traditional sources of investment. Commercial investment can yield upto 12% ROI and lowest to 5% ROI (with capital appreciation) depending upon the construction stage and lease terms of the property.
4. Inflation Hedging: The inflation hedging capability of real estate stems from the positive relationship between GDP growth and demand for real estate. As economies expand, the demand for real estate derives rents higher and this, in turn, translates into higher capital values.

Why Real Estate During Lock Down?

Probably most of the people interested in buying real estate would be holding their decision till the lock down opens due to speculations in the market or risk pertaining to economic conditions. Yet for any clever investor who is observing the current market will testify buying of real estate during lock down to be the smartest move. Here is why –

1. Deficit Demand: Real estate is facing deficit demand in the market which leads to generation of various attractive offers by Developers. To maintain the good books, builders are currently offering very low rates, lucrative payment plans and additional offers resulting in lowering the cost of property. End-user can expect to buy a property as low as the launch price during this lock down.
2. Reduction in Repo Rate: RBI announcement for reducing Repo rate by .75% and the new base rate is 4.4%. This will reduce the loan interest rates by at least 0.75% . This turns the sentiments of home seekers – positive. So indeed this is good time to buy your home if the decision was just hiding behind the corner for some better rates or good units.
3. Passive Income: Various small investment options are being introduced in the market starting as low as 5 lacs in real estate that too with a rental income. This is again an opportunity to create a separate asset class in your portfolio and start a source of passive income.
4. Demand- Supply breakthrough: Due to low demand, discounted rates on good inventories are available. But once the economic condition will start settling, the bargain will reduce and demand will also start floating upwards. The rates will not be as low as they are now during lock down.
5. Strike the iron when it is hot: We all must have heard this at least once. But its time to implement the strategy to gain extensive returns on the investment. Not only the rate are striking low, the return on investment are being offered by some builders as high as 18%.
6. Brand Integrity: Though its a shooting star opportunity to buy real estate now, yet always go for a grade one category developer. During lock down, you have additional time to do your diligence about the projects, builder background and future prosperity of the investment. Use this time to chose best proposition for yourself, take expert advice and than book your dream asset.

The Drawback: Lack of liquidity

Unlike other financial assets, real estate take 2-3 months time to liquidate. Till you are getting good rental income or this is your own use home or office, you have to keep patience for one quarter time on a minimum side to liquidate your property.

The Bottom Line

Real estate is a distinct asset class that is simple to understand and can enhance the risk and return profile of an investor’s portfolio. On its own, real estate offers competitive risk-adjusted returns, with less principal-agent conflict and attractive income streams. Though ill-liquidity can be a concern for some investors, there are ways to gain exposure to real estate yet reduce ill-liquidity and even bring it on-par with that of traditional asset classes.