Real estate does give better ROI than any other investment instrument but can an end-user afford to act like an investor? Here are some answers

The psychology of home buyers and their expectations vis-à-vis return on investment (ROI) have traditionally been different for investors and end-users. However, this difference may be gradually disappearing, at least in the top eight cities.

Thinking in terms of risk-versus-return is something that is predominantly done by investors. The mindset of an average end-user is similar to that of a seasoned investor today, is very much debatable. Take the case of a person who rented an apartment in Atta Market, close to the central business district of Noida, at Rs 18,000 per month. With 12 years to go before his retirement, he invested in a property in Ghaziabad.

He did this with the belief that he made a sound investment decision. He felt that when he can buy the same kind of property at Rs 60 lakh in Ghaziabad then what is the point in investing Rs one crore in Noida? It does not make sense to pay extra for a property that has lesser chances of appreciating; as against an upcoming market, was his logic. Moreover, this investment gave him the flexibility of mobility, if he is transferred in future.

This raises a fundamental question, as to whether houses have become more like trading commodities and the emotional quotient associated with its purchase, has diminished in leading Indian cities. In real estate, even if the investor does not have very sound economic wisdom, the chances are that he will not lose his money. Compared to real estate, stocks are risky, as most of the companies are not blue chips and will have debt. So, even if the quantum of return is not that high in real estate, it remains a safe investment avenue, he maintains.

Experts point out that one also has to consider the buying pattern. Indians generally prefer to buy property in the top eight cities where they work, or in their hometowns where they intend to retire, even if they live on rent in the city where they work. So, if a person is not an investor and even if he is advised that the research has established that there is fantastic return in a city other than his place of work or hometown, it is unlikely that he will invest there.

Analysts maintain that end-users should not buy homes on the basis of expected price appreciation. A house may give better ROI than any other investment instrument but one has to look at a long-term time frame – of around ten years. In the residential segment, even if you pick the right project at the right price, it may take three to five years to get ROI. The time frame is important for investors as well, and the product will vary accordingly. For instance, in the residential segment, speculators can opt for pre-launch properties in north India and make money in one or two years. For mid to long-term investors, the commercial and retail segments may be a better option.

However, if one is looking at a fairly long-term period, then, investing in the land would be ideal, as the returns are highest in this category. There are instances where people have made returns worth a thousand times their initial investment, over a period of 15-20 years. Ultimately, each homebuyer has to take a conscious call, on whether s/he is an investor or an end-user.