If we go by what he says, my friend Suresh has made the investment of the year. Eight months ago, he bought what he calls 10 sites, Rs 40,000 each, in a village, some 370-km from Bangalore. The 30 feet by 40 feet ‘sites’ are now worth Rs 1 .3 lakh each, he says. That’s a return of 225 per cent in less than a year and no cut/fee to the fund manager or the financial advisor.
While in cities and larger towns it has stagnated or in some cases even fallen, small town realty is still in its youthful prime, Suresh says. Even if you discount his love for his own assets and their relative illiquidity, Suresh’s sites seem to have beaten global stocks, oil and yellow metal hands down. He is not even doing any leverage.
One advantage Suresh has over city-folk is that the location of his day job is close to his asset, a luxury few of us living in cities can afford. Maintaining and safeguarding your holding from grabbers and encroachers becomes an issue. But, it still seems worth the risk.
After all, even the brokers who sell us equities are betting big time on real estate. Stock brokers are smart people. If they are betting on real estate there must be some reason. At another level, it is also a reason for you to double-check their equity pitches.
The latest to join the realty race is listed brokerage Motilal Oswal. A multi-storey glass and steel structure bearing the MO name has come up just opposite the Parel bus depot. Only a few hundred metres to the west, Indiabulls has its towering Indiabulls Financial Centre.
A minimum taxi fare away, India Infoline has its own tower inside the Kamla Mills complex. Edelweiss unveiled its Edelweiss House only a few months ago. Centrum, Angel—you name them—they all have towers named after them.
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Till a couple of years before, most of these entities were operating out of leased spaces. Experts say keeping hard assets is critical to remain solvent in this hyper-volatile market environment. Real estate assets help these brokers to raise money quickly and cheaply. Bankers and other financiers prefer these any day over paper assets such as stocks, especially when the going gets tough.
This crisis value of real estate is only an icing on its intrinsic value of owning a piece of Mumbai. Does that leave you confused whether to buy fast growing but difficult to maintain real estate in faraway small towns or to bet on overvalued, leveraged but always reliable big town realty, where maintenance is easier and downside is limited?
Trust in Securities and Exchange Board of India (Sebi) to show you the way. Sebi is spending Rs 280 crore this year. It should know. It is buying more land in the super-expensive Bandra Kurla Complex and flats (costing not less than few crores) for senior executives. But it is also buying for offices in small towns. Thus, the market regulator is going for geographical diversification in real estate. So should you.