Is real estate the best investment class?
Oct 26, 2015
Source : ET

The iconic Lincoln House in Mumbai was recently bought by industrialist Cyrus Poonawalla for Rs 750 crore. The 50,000 sq. ft property had been leased to the US government by Pratabsinhji Jhala, the Maharaja of Wankaner, for a sum of Rs 18 lakh in 1957. In the past 58 years, its value has grown 4,000-times at an annual growth rate of 15.45%. Most people infer that the property has given astronomical returns. Has it?

If you go beyond the headlines and dig deeper, you will find that the return is not as spectacular as it appears. There was no Sensex when Lincoln House was being leased to the US Consulate in 1957. But if we assume that it existed and extrapolate the same 17.22% returns it has notched since its launch in 1980, an investment of Rs 18 lakh would have grown to Rs 1,809 crore by now. In absolute terms, the money would have grown more than 10,000 times.

Investment in equity would have given a 2.5-times higher return than real estate. What if the money was not invested in the Sensex but handled by a skilled portfolio manager? He would have worked harder to pick winning stocks and invested the money to earn better returns than the index.

If his equity fund gave 1% higher returns than the Sensex, then the same sum of Rs 18 lakh would have exceeded the return from real estate and the average Sensex return, swelling to a Rs 2,960-crore corpus, a staggering growth of 16,000-times—four times more than the 'spectacular' return delivered by real estate.

If the fund manager was able to outperform the index by a bigger margin of, say 3%, the investment would have grown to Rs 7,833 crore. True, equity can be volatile in the short term. But in the long term, no other asset class can churn out such high returns. Since its inception in 1980, the Sensex has fallen by a maximum 60% in a year.

But every decline has been temporary and the index has eventually moved up. Had the Maharaja of Wankaner invested Rs 18 lakh in equities, his investment might have suffered a few ups and downs. But today his investment would be worth almost Rs 7,800 crore—more than 10-times what Poonawalla paid.


Latest Realty News

Oct 26, 2015
NASHIK: The Confederation of Real Estate Developers' Association of India (CREDAI) has decided to conduct business to business (B2B) meetings with real estate brokers in Nashik and Mumbai in a bid to boost real estate sector in Nashik, which has been passing through a phase of recession.
Oct 26, 2015
Bhubaneswar: Real estate developers in the state are pinning hopes on the state’s new housing policy combined with the recent Reserve Bank of India(RBI) decision to increase loan to value(LTV) ratio to revive the sluggish housing market in the festival season.
Oct 26, 2015
New Delhi: The Centre would hold discussions with the state governments about measures being taken to promote affordable housing projects for the Economically Weaker Sections (EWS) and Low Income Groups (LIG).
Oct 24, 2015
BENGALURU | MUMBAI: Private equity and venture funds' appetite for India's real estate portals and related startups has not waned despite sales in the sector winding down, industry data shows. The segment has attracted nearly $250 million, or over Rs 1,600 crore, in investments in the last 18 months mainly from Helion Ventures, Nexus Venture Partners, SoftBank Group, Accel India, Horizen Ventures, Qualcomm Ventures and Nirvana Ventures.
Oct 24, 2015
CHANDIGARH: The Haryana government has reduced the minimum land requirement to build townships from 100 acres to 25 in its new integrated licencing policy (NILP), which it unveiled on Friday.
Oct 24, 2015
Mumbai: Indians invested nearly $2 billion in the Dubai's real estate during the first half of this year.
Oct 23, 2015
The Nagpur chapter of Confederation of Real Estate Developers Association of India [CREDAI] has organized the sixth edition of its four-day long property expo where over 4000 home aspirants thronged the expo at Rani Kothi, Civil Lines.
Oct 22, 2015
MUMBAI: Sanjay Grewal, IDFC's board member is joining Altico Capital, the nonbanking financial arm of Clearwater Capital. RK Narayan of Jones Lang Laalle is moving to head the $400 million real estate fund of Macquarie Group. There are more than half a dozen top-level hires in the last couple of months among real estate private equity funds.
Oct 22, 2015
SINGAPORE: Singapore sovereign wealth fund GIC has formed a 50-50 joint venture with Tishman Speyer to invest in the developer's office project in the southern Indian city of Hyderabad, the firms said in a joint statement.
Oct 22, 2015
New Delhi: Indiabulls Real Estate has received approval from a UK authority for the plan to redevelop its project in London.

Latest Realty News Of State

Realty Talk's