In the world of investing, there is a separate audience for investment in equity markets and real estate. We have seen brilliant minds like Blackrock’s Larry Fink in the field of trading and investing in equity markets while Blackstone’s Stephen A. Schwarzman has made fortune in real estate and other private equity. Therefore, we can state that investing in both asset class have made fortune for potential investors. For an investor, clear requirement is to generate alpha after deducting the associated expenses. So, what could be a better situation than investing in equity markets bring premium of both assets?
Performance of Real Estate sector in Equity Markets
It is worth-mentioning that the sunshine in equity markets was largely supported by financials, FMCG and technology stocks in last few years while real estate sector has not performed well and failed to complement the returns from index. No one can forget the 2008 financial crisis in which banking and housing finance companies were collapsed due to sub-prime loans issued to the general public against residential real estate. This was the time when real estate sector took a hit and has not performed since then. The situation of Covid-19 has dented the demand of real estate more as Work from Home (WFH) facility advocated by various companies has dented the demand and various MNC’s are expected to continue the same policy further as they have realized that the WFH facility will hammer their rental, HR and other maintenance expenses.
Factors that are making investment in real estate sector favorable
- Interest rates at ground level: Central banks in various countries have hammered their benchmark rates at lowest levels in order to get the aggregate demand at restoration levels. Federal Reserve is keeping interest rate at 0-0.25%, RBI has kept rep rate at 1.0% and European Central Bank has kept the benchmark rate at zero levels. Moreover, their commitment over keeping rates to ground to support the GDP and macros will keep injecting liquidity into the economy. This would boost Housing Finance Companies (HFC’s) and other financial institutions to disburse more loans to homebuyers. So, what would be any other ideal scenario for a homebuyer to make his dream home when interest rates are grounded?
- Reduction in stamp duty rates in Maharashtra: One more quantitative factor to advance the demand of real estate has been taken by Maharashtra government. The government has reduced stamp duty by 3% on buying real estate in financial capital of India. This will help in sales recovery of the real estate which was plunged due to Covid-19 epidemic. The initiative taken by Maharashtra government is expected to push other states too that may further onset the real estate demand.
- Heavy leakage of liquidity into economy: The rationale behind investing in real estate stocks lies in the unprecedented liquidity infused by administrations and central banks from US to India. We have seen that the helicopter money deployed the governments have fueled the precious metals and equity markets. On the basis of rotation policy followed the value investors, it is high time that real estate will witness a buzz and investing is real estate stocks is a healthy bet to bank upon.