Home Real Estate Why would you buy apartment in Mumbai if..: Nikhil Kamath on housing market in India

Why would you buy apartment in Mumbai if..: Nikhil Kamath on housing market in India

by Ozva Admin

Zerodha co-founder Nikhil Kamath explained the current state of real estate markets in India.

Explaining what the Indian real estate market looks like, Kamath wrote in a series of tweets: “Interest rates going up (much, EMI significantly higher) with an aging population, fertility rates below replacement in most of states (average age will increase over time, older people need less space.)

He further added that residential rental yields are ~3 percent, which is nowhere near outpacing inflation.

“Whenever the black money problem in India is resolved, this market would be the most affected (for obvious reasons). Real estate as an asset class quickly becomes illiquid if you and those around you sell together,” he wrote.

He also questioned: “Why then does a 1000 square feet. apartment still cost that much in mumbai? And why would you buy, if you can rent at 3 percent?

Before this, in July, Kamath had tweeted the question to ask when investing in real estate in a series of tweets.

He wrote: “If they yield [is] negative, the price has to go up at least 10 percent a year to beat inflation, or the price has to double every ~7 years.”

He further explained that the house will provide financial and emotional security, but the financial returns as an investment will not be enough to cover retirement as in the past. Kamath added that real estate prices can also go up without good fundamentals, like stocks, real estate, cryptocurrencies and other markets, but “prices don’t stay that way for long.”

He further added that, in the case of real estate, rental yields are probably the best measure of fundamentals.

“Of course, just like stocks, real estate prices can also go up without good fundamentals. Usually when that happens, stocks, real estate, cryptocurrencies, etc., prices don’t stay high for very long. For real estate, rental yields are probably the best measure of fundamentals. Real estate is illiquid, as are private market valuations. Actual price vs last transaction price which sellers claim could be a long way off. The other risk is that since the price is fixed and paid in advance, you cannot take advantage of price fluctuations through a SIP like in Equities or MF,” he wrote.

A report from a real estate consultant Anarock on October 2 stated that home sales in seven cities between the January-September period rose 87 percent to 2,72,709 units and had surpassed transactions recorded in the entire pre-COVID 2019 year with strong demand. The report added that sales stood at 1,45,651 units in the January-September 2021 period.

So far in the housing market, the impact of rising interest rates on home loans has not been felt despite the Reserve Bank of India raising the repo rate by 190 basis points since May. this year to contain inflation. However, house prices have also risen by at least 10 percent in the past year.

Meanwhile, property buying and selling portal Magicbricks in its recent report said that in the third quarter of 2022, the demand (search) for rental housing in Pan India witnessed a cyclical decline of 3.9 percent QoQ , even when year-over-year growth was 29.0 percent.

Demand in Greater Noida, Noida and Gurugram, witnessed the strongest growth of 37.0 percent, 12.7 percent and 8.5 percent QoQ respectively. Rental demand in Thane remained stable, while Delhi, Pune and Mumbai saw declines of 2.6 percent, 4.5 percent and 5.1 percent on-quarter, respectively, according to the report.

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