The founder and CEO of the online broking platform Zerodha Nithin Kamath talked about investing in real estate in a series of tweets. Kamath said that the question to ask when investing in real estate is whether the property yield is greater than inflation. If the yield is negative, the price has to go up by at least 10 per cent per year to beat inflation, or the price has to double every 7 years, he said. He stated that rents will have to go up as much for property prices to go up every seven years and this is not happening in many places in India. Kamath said real estate prices can go up without good fundamentals like stocks, real estate,Cryptocurrencies, and other markets, but prices don't stay up there for too long. The founder of Zerodha said that rental yields are the best measure of fundamentals in case of real estate. He said that real estate is illiquid, just like private market valuations. The real price is compared to the last transacted price that sellers claim to be way off. Since the price is fixed and paid upfront, you can't take advantage of price fluctuations through a SIP like stocks or MF. He said at the end of his Twitter thread buying, where prices haven't already appreciated, particularly in tier 2 and tier 3 outskirts of metro cities, can mean good return on investment or ROI. Kamath said, But this is like buying a small-cap stock hoping it will become large-cap, only a few do. Capital allocation should be lower because it is a high-risk strategy. Kamath talked about investing in the real estate sector before, but this is not the first time. In a tweet on Sunday he said that being overexposed to the real estate worked out for investors belonging to the above 50 age group since ROI beat inflation and interest costs until early 2010 s.
He said that isn't the case anymore, which is why those belonging to the above 50 age group will have to reconsider investing in the sector.
He said that real estate is unlikely to beat inflation interest costs in the long run because of today's prices. Financial and emotional security will be provided by a house, but financial returns won't be enough to cover retirement as in the past. The surge in global commodity prices has increased the cost of construction in the last six months, resulting in appreciation of housing prices, according to Knight Frank India Shishir Baijal, Chairman and Managing Director of real estate consultancy Knight Frank India Shishir Baijal.