A recent report suggests that households in India have a repository of 16,000 tonnes of gold primarily in the form of jewellery. As per the current price, this is a whooping INR 27.2 trillion or $591 billion! Difficult to believe but this is almost twice of foreign exchange reserve of our country! However with the changing market dynamics and despite all the clamour for joining the gold rush this Akshaya Tritya, most of the investors it seems are losing appetite for this yellow metal as alternate investment verticals, primarily real estate which offers more consistent and robust returns.
Has gold really lost all its lustre? The answer is no because historically gold acts as a perfect hedge against inflation. Especially in today’s economy which has seen very volatile times since 2008 and with giants in the world stage still struggling, it will be sacrilegious to say so. On the other hand we also have to appreciate that the world has changed a lot since Lehman Brothers closed shop sending shockwave to the entire world. Many experts today are of the view that gold is slowly being substituted by Platinum and other non-metal commodities.
Confining my thoughts to the current topic, when it comes to our gold versus real estate predicament, the latter is winning hands down and here are the reasons why:
Cannot shield against inherent weaknesses in currency: Market gurus advocating for gold debate that it remains the most potent anti inflationary tool while property investors believe that real estate continues to offer the security they seek. They have a very valid point though, the argument is gold and silver are essentially money. Thus, precious metals are equivalent to savings or wealth, but not investments, as they are vulnerable to the weaknesses inherent in currency; typically any rise in value, often coincides with the devaluation of paper money.
Forms of buying gold: They are different forms of buying gold. Surprisingly, jewellery, the most dominant form of buying gold in India is in fact not an investment idea. It involves lot of wastage in the form of making charges which can vary from 10% to 35% (for complex designs).
Bank coins, again not an investment idea as the premium that banks charge for their coins is anywhere between 5% to 10%. Also the bank coins have lesser liquidity as they are not bought back by the banks.
World Gold Council coins, these are coins issued by jewellers who are part of the WGC network. They have lesser premium over the market price (1% to 2%) and are redeemed at the market price when one takes them for selling off.
Bullion Bars are good modes for investment but the minimum investment here is much higher than a common investor can think of.
Gold exchange traded funds, are a hot option these days. These are like mutual funds that invest only in gold. They are proving to be an easier and safer mode to buy gold. The charges are very less and the gold can be accessed electronically. The disadvantage is that one never gets to 'see' one's holdings.
Current income: Gold in any form does not give any current income. The only exception is the dividend option in the Gold ETFs. If held in the physical form, there is only outflow of cash for the maintenance of lockers.
Capital appreciation: Historically, gold has been the perfect hedge for inflation. This is based on data from the year 1800 AD. But in terms of absolute returns gold has fared rather poorly giving returns at only 0.8% above inflation. Real estate and shares beat gold squarely on the capital appreciation front. Real estate and shares have given returns of about 11% over inflation since 1979 (1979 as that was the year when Sensex was formed).
In the short run however gold is a very strong bet, compared to shares which are highly volatile. The idea for gold investment will be to use it at times when the markets are falling and when the inflation is very high. A 5% of the overall investment portfolio can be considered for gold investments (bullion, WGC coins, Gold ETFs). Jewellery is not an investment as far as personal finance goes. It is only an expense for pleasure, symbolising wealth.
Risk: Gold does not carry much risk at least in India, as we hardly see deflation in the real sense. Even when the official figures where showing negative inflation (deflation) during the last year, the actual prices of food items were increasing. This was reflected in the gold prices too. The real risk with buying gold is in the opportunity cost of investing in other avenues that can actually give higher returns.
Liquidity: Gold scores the highest in terms of liquidity, compared to all other investments. At anytime of the day and any day gold could literally be converted to cash. Banks would give you a jewellery loan. Remember though that many banks do not give loans on coins, including their own. So would your friendly neighbourhood pawn shop. They can also be sold in some pawn shops, though many are cautious to purchase in these outlets for fear of 'stolen jewellery'. Gold jewellers would exchange your gold possessions for other gold jewels. But the problem here is that there is going to be making and wastage charges involved again. Here we lose the value (to the extent of 10% to 35% as stated above) of gold jewels. An unfortunate social aspect in most families in India related to liquidity is that, gold has sentiments attached and is the last item to leave the house in case of financial difficulties. This negates the entire purpose of gold having liquidity.
Tax treatment: Gold suffers capital gains tax as per the IT act. So it is better to ask your jeweller for the bill. Close to 90% of the gold jewellery traded in India is unbilled. This is a serious problem for those who look at gold as an investment. Only the branded jewellers would automatically give you a bill. At other places ask for one. Gold does not have any other tax benefits.
Convenience: Gold scores very high here. But with the per gram price rising, the smallest single investment is becoming higher. With the emergence of Golf ETFs the convenience to hold gold for the short term has increased many folds. Instead of holding cash for the short term, one can today make investments in Gold ETFs.
Gold has proved itself time and again to be the perfect hedge for inflation. But to look at it as a hedge avenue, Indians are yet to consider this market actively as the purchases continue to be dominated by jewellery. Gold only beats inflation. It fares poorly when compared to real estate or shares when compared on the basis of real inflation adjusted returns. It just reinforces that property is still a safe and secure, ideal place to invest you hard earned money, for it has always been demonstrating great resilience in the face of very difficult economic conditions.
More so with cities like Bhubaneswar where property prices have skyrocketed over the last decade or so offers an excellent avenue. We still see a gap between demand and quality supply and this presents itself as a wonderful opportunity.
At Trellis Infrastructure Pvt. Ltd. a young and energetic team is working tirelessly to add value in this market space with our signature projects coming up at breakneck speed in Balabhadrapur, Sundarpada (Vaishnomata Vihar Phase 1, Royal Castle, Royal Manor, Sprint Opel) and Trellis Topaz (duplex units) at Bhotunda, Sundarpada. We understand that these projects will our key to a successful future and will add gravity to our proverbial curriculum vitae by not only meeting our customers’ expectations in terms of quality housing, but exceeding them. For us, the journey has just started...
“Success is not a place at which one arrives but rather the spirit with which one undertakes and continues the journey.”
As the world reeled under the worst economic crisis since the great meltdown of the 1930s coupled with a steady rise in home loan rates, these two factors acted as major hindrances for potential home buyers in the year 2011. Some reports suggests that property prices came crashing down in tier 1cities by 20% to 40%. As we are almost halfway through year 2012, this is a great opportunity to look into the year gone by and also assess what future has in store for real estate market in and around Bhubaneswar.
The construction work of AIIMS progressing at a rapid pace near Retanga, and campus for Indian Institute of Technology at Argul, near Jatni has given tremendous impetus to the real estate environment in and around that area. With a handful of other institutes of repute planning their permanent campuses nearby and work on Bhubaneswar – Bolangir rail link which has started recently gathering steam, this part of the city has come under the radar of an intelligent investor.
A senior BDA officer admitted that there was a master plan road from Ebaranga Mouza near Sundarpada area to Jatni. The current road which is about 40 feet in width will be expanded to 200 feet wide road and this will have a major impact on the property prices in that area starting from Kapilprasad and going all the way through Orissa Engineering College. However, regarding the other road from IIT-BBS to NH-203, he added that the area is outside the purview of comprehensive development plan (CDP). “We hope that the new areas around the proposed IIT-BBS would soon be included in the CDP as 367 new notified villages, as per an advertisement of the housing and urban development department, would be ready for consideration soon,” he added.
“Sewerage work of the proposed campus will be included in the integrated sewage treatment plant of the city as the sewerage programme was planned with a projection of 25 lakh population. There will be a sewage treatment plant near Ebaranga. It can possibly have the capacity to receive the sewage from the proposed IIT-BBS campus in future,” said B.K. Parida, an engineer with the Orissa Water Supply and Sewerage Board.
Jagannath Debata, who is working as a writer at the sub-registrar’s office near Jatni, said: “Institutes apart, establishment of several engineering colleges near Jatni Industrial Estate and along the NH-5 near Khurda will also enhance the real estate price near Arugul and Jatni.”
This part of Bhubaneswar was all set to explode as the market revived post the lacklustre performance in the preceding years however with the incessant rainfall in 2011 which led to the part of area being flooded, the rate of development is not what was expected. This dull scenario was further exacerbated by the rumour mills going on an overdrive with people claiming that it will be declared a flood zone. The competent authorities could have done better to quash those rumours thus adding muscle to the growth impetus, however a murky silence added on to the confusion. Thank goodness that sanity prevailed at the end and now we see a steady increase in the number of projects coming up in that area starting from Kapil Prasad to Orissa Engineering College (approximately 11 kms of road line dotted with projects on both the sides).
To meet the demand of our patrons, who have been sources of strength for our company since its inception in 2005, we at Trellis Infrastructure Pvt Ltd have come out with two signature projects in that area. In fact I feel very proud to say that our flagship project ‘Vaishnomata Vihar Phase 1’ is the very first project in that area. Here we offer multistoried apartments giving our customers a myriad of choice (from 690 sqft to 1485 sqft for our 1,2 & 3 BHK apartments). Around 550 units are on sale in this exclusive gated community which will boast of amnesties like shopping arcade, aesthetically designed children’s play area, jogging track, swimming pool, WI-FI connectivity, temple, etc. This project is strategically located with easy connectivity to railway station (3 kms), airport (5 kms), schools and colleges of repute (DAV, Ekamra, Indus, Aryan) in close vicinity.
Barely a kilometre from ‘Vaishnomata Vihar Phase 1’ in Bhotunda Mouza is ‘Vaishnomata Vihar Phase 3’ named as Trellis Topaz. Here we have duplex on offer with a land area of 1200 sqft and the built up area of 1372 sqft. This project will have black top roads, independent boundary walls and bore wells. Here we have 16 units in phase 1 and all of them were sold out within a month from the date of project launch!
Needless to say all our projects are approved from competent authorities and finance is available from leading banking and non banking institutions like HDFC Ltd, DHFL, IDBI & GIC.
Another project which is very close to my heart is our mini township which is coming up at Retanga, Bhubaneswar, Vaishnomata Vihar Phase 2, ‘Kaushalya Garden’. This proposed mini township comprising of 2500 units is set amidst the lap of nature with serene surroundings. This exclusive gated community is designed with an aim of making quality housing available for the entire cross section of the society. These G+ 3 structures will have 1 & 2 bedroom apartment units with price ranging from Rs. 649,000 to Rs. 869,000. To top it all, the entire payment plan is deferred over a period of 60 equated monthly installments. No interest charges, no hidden charges, no price escalations, to sum it up succinctly, no ugly surprises. For as low as Rs. 164 a day, one can become a proud owner of an independent apartment unit!
With a recent rate cut by the RBI, this proposition of owning a property has become more attractive. We are looking forward to an action packed 2012 and I am sure the surge will become more potent as we go along.
According to Kumar S, director of a leading property consultancy business, serviced apartments is noticing a spike in demand across the country and prominent developers are taking interest in constructing these apartments. There is an enhanced demand for premium accommodation options perfectly suited to IT professionals, executives, business people and high net worth individuals.
Easy and consistent returns from the big corporate houses are the main attributes prompting developers and builders and even individuals to enter into this business. This surge is especially more noticeable in Tier 2 cities like Pune, Chandigarh, Bhubaneswar, Noida, Gurgaon which has fast become the IT hubs.
What is a service apartment? So what is this fuss all about? When an apartment becomes a fully serviced apartment?
Serviced apartments are fully furnished and equipped service studios offering one-two bedroom apartments that are apt to individuals coming to city on short term contracts or maybe looking to relocate there. It is a temporary accommodation that offer the space required for visiting families or work colleagues traveling together. Such apartments are generally located very close to business districts and with the added range of optional services; it is an ideal alternative to a hotel. The trend is rapidly picking up and big IT companies such as Infosys, IBM, TCS, HCL, Polaris etc generally have their serviced apartments in all the cities where they have a presence. It is a massive hit with individuals who are willing to enter into such type of an arrangement with a corporate house owing to less risk and more profit.
It makes economic sense as well. Imagine you have a 3BHK property which will return a monthly rent of Rs. 12000 a month. Now on the same property if you are willing to make a capital investment of Rs. 1,50,000 in the shape of a modular kitchen (approx. Rs. 50,000; basic furniture for living room and bedroom and don’t forget a dining table – Rs. 75,000; add another Rs. 25,000 for some miscellaneous expenses and this takes the total to Rs. 1,50,000). Now the next obvious question is what’s in it for me. This when coupled with services which you can provide to the guests, I can vouch for the fact that such an investment if done prudently and you have got stuff which is really a value for money, your monthly rental will easily go up to Rs. 25,000 a month. This is whopping 110% increase month on month. You hit break even by the end of year 1 and then there is no looking back. If marketed properly to the niche segment, rental value can potentially can go as high as Rs. 45,000 to Rs. 60,000 a month!
Bhubaneswar is fast becoming a preferred IT destination for big boys like Infosys, Mahindra, Satyam, etc. and we have seen demand for serviced apartments skyrocketing over the last 2-3 years. Area in and around Patia is barely recognizable from what they used to be earlier. With opportunities getting saturated in that part of the city, now we see the same thrust in other areas like Khandgiri, Sundarpada, et all. Premium multistoried apartments in Sundarpada offer amazing value for money as they are placed strategically in the value chain.
With a recent rate cut by RBI, investing in property was never this lucrative. After being sluggish for the last 10 to 12 months, the real estate industry is expected to see heightened activity in the coming months. You have to be a Nostradamus to find out how exactly market will shape up in future but if there is a right time to invest in property, then it has indeed arrived.
The rate cut by RBI has evoked mixed reaction from the real estate sector. The industry was reeling under the enormous load of increasing interest rates. There is no doubt that the 50-basis point cut in rates is a ray of hope for the real estate sector. With an anticipation of lowering of home loan rates, there is now an expectation those buyers who have been sitting on the fence waiting for a rate cut, will finally take the plunge and buy homes. And developers will be encouraged to launch new projects with the increase in demand for homes going up. Vaishnomata Vihar Phase-1 is an example of developers taking the lead and launching an ambitious residential project in the upcoming locality of Sunderpada, Bhubaneswar.
However several industry experts are skeptical. A relief in the balance-sheets of companies is hardly likely. The real estate industry, which pays on an average 13% interest rate on loans, is expected to see its interest cost on an annualized basis come down by 3-4%.
For highly leveraged companies, it will mean Rs 120 crore less in interest cost payments. Builders and Developers in Bhubaneswar are less exposed to loans from banks and are adequately capitalized with internal accruals. This change will have no impact on these developers.
In all, according to a estimate, the top ten listed real estate companies, with a debt burden of Rs 38,182 crore and bearing an interest cost burden of nearly Rs 5,000 crore annually, will be able to save only Rs 200 crore.
This stress in the balance sheet would have eased if the RBI had left any indication of a further reduction in rates. But unfortunately, the RBI's tone suggests quite the opposite.
So the expectation of a price reduction is low. On the contrary, some feel that prices might now increase as the trigger eagerly looked forward to, is already over. The demand is expected to perk up both in apartments as well as independent houses.