Real Estate as an Asset Class

  • Home >
  • Real Estate as an Asset Class

Real Estate as an Asset Class

Traditionally and i.e. not so long ago, existed three main asset classes – Stocks or Equities, Bonds and Deposits and Cash or cash equivalent which also included Gold.  Gradually many other investment avenues came to be recognized as an asset class – e.g. Mutual funds, Real Estate and more recently Intellectual Property Rights & Patents and Virtual Currency. Whereas there is considerable dispute as to whether IPR ,Patents and virtual currency can be viewed as an Asset Class, there is a thumping consensus on Real Estate as an Asset Class.

There is a 4 way litmus test to decide whether any investment can fit description as an Asset Class : An asset must give:

  • Relatively Stable Income.
  • Provide protection against inflation – at least partially.
  • Protection against economic fluctuations i.e. ups and downs (Non Speculative fluctuations)
  • Quick monetization in emergencies.

Real estate fulfilled this 4 way test and started figuring prominently amongst asset classes.

Earlier real estate did not grow that substantially so as to prompt investors to look at this investment option as an Asset class. Untill late 70s this picture remained unchanged. Land appreciated but prices of constructed property more or less remained stagnant. Inflation was under control, bank interest rates did not change that frequently and the only thought in procuring real estate or land was to provide for children / next generation. From eighties this situation started changing dramatically. Interest rates started changing frequently, economy which was relatively isolated from global cues, started depending most on it, industrialization picked up and urbanisation started in a big way. This led to shortage of real estate ready stock.  Till then Real Estate developers were operating largely in seller’s market. Most of the schemes used to get fully booked on the day of its launch itself.

Eighties changed this situation. Due to rapid urbanisation, demand for real estate picked up and smart investors sensed an investment opportunity in Real Estate as the gap between demand and supply was widening. Open parcels of land started dwindling within city limits due to increased construction activity. The idea of acquiring real estate for possible quick future capital appreciation started getting more and more acceptance rather than acquiring Real Estate for relatively steady rent income.

In early nineties, Real Estate started attracting many established corporate players as a means of serious business opportunity. Many established corporates started their real estate divisions and started monetising their land parcels, skirting the then existing ULC rules in metro cities. Govt. also started giving more and more attention to this sector and brought in many rules to regulate this sector. Increased regulations pushed real estate prices further north and real estate as an investment started becoming really lucrative proposition.

Sub-prime fiasco in USA and resultant global melt down in equities in early 21st century firmly established Real Estate as a star Asset Class. Real Estate prices increased many fold in high demand localities in Metro and other tier 2 and tier 3 cities.

This situation and its after effects continued almost for one full decade and half. Of late with stringent regulations in place like RERA, real estate became a less favoured Asset Class since people started propagating theories that real estate prices will collapse. Though there is a temporary blip in the demand, the prices will soon start firming. Government’s increased infrastructural spend, more and more cities being developed as smart cities, relaxed rules of financial institutions in lending money for residential purpose, affordable housing schemes being launched with greater regularity and above all increased inclination towards acquiring week end second homes, will slowly push the demand for real estate. In fact this year is considered to be the best year for new real estate acquisition or purchase of residential property, since it is the general perception that real estate market has reached its bottom and the only way it can go from here on is north wards.

Crowding of metros, lack of open spaces, high vehicular population and resultant pollution, reducing employment opportunities due to automation, has shifted focus of consumers and investors towards tier two cities like Nashik.

Its predominantly cool temperature, increased business opportunities, having 5 domestic and international airports within 3-4 hours of drive, well developed road infrastructure has increased Nashik’s popularity many fold and so is the demand for it’s real estate. It is not only owner’s paradise but also heaven for smart and wise investors. Viridian Vallis – a large upcoming project spread is soon going to be home to over 3000 fortunate buyers and the most prominent address of Nashik city.

With every conceivable amenity being provided in this plush project, real Estate Investment inSuyojit’s Viridian Vallis is not only going to be just an Asset Class but a Class ApartAsset.