As appealing as it sounds, investing in real estate isn’t everyone’s cup of tea and Zerodha co-founder and CEO Nithin Kamath has some advice for real estate investors.

When investing in real estate, Kamath asked investors to rate whether the return on property is higher than inflation.

If the yield is negative, the price must rise by at least 10% each year to beat inflation, or the price must double every seven years, Kamath tweeted.

“For the price of the property to double every 7 years, rents must also increase by the same amount. This does not happen in most places in India,” he added.

Citing an example, the CEO of Zerodha said, “If a fixed cost 1cr can be rented at 20k/month. For the price go 2 cr, ideally rent to go 40k/month too.”

Like stocks, he said, house prices can also rise without good fundamentals. “Usually when that happens, stocks, real estate, crypto, etc., prices don’t stay there too long,” Kamath said.

The Zerodha co-founder added: “For real estate, rental yields are probably the best measure of fundamentals.”

He also said real estate is illiquid, as are private market valuations. “The actual price compared to the last traded price that sellers claim could be way off,” he noted.

The other risk, Kamath described, is that since the price is fixed and prepaid, one cannot take advantage of price fluctuations through a Systematic Investment Plan (SIP) like in stocks or mutual funds.

“Of course, buying where prices have not yet appreciated (in levels 2 and 3, on the outskirts of a metro) can mean a good return on investment,” he said.

He added: “But it’s like buying a small cap stock hoping it will become a large cap, only a few do. It is a high risk strategy and therefore the capital allocation should be lower.”

Meanwhile, home sales rose 60% annually in January-June 2022 in eight major cities to 1,58,705 units, the highest half-yearly demand in nine years, mainly due to the lower effect base as well as mortgage rates, according to Knight Frank India.

Home sales stood at 99,416 units in the first six months of 2021, the consultant said in its 17th edition of the semi-annual report “India Real Estate: Residential and Office Market H1 2022”.

Knight Frank India pointed out that the residential sector recorded a 9-year high sales volume in January-June 2022. The previous high was recorded in the first half of 2013, when sales stood at 1,85,577 units.

Hyderabad, Mumbai and NCR also saw a moderate increase in their rental values, while rental values ​​in Chennai, Ahmedabad and Kolkata remained stable.

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