Why property investment is a better bet than equity

With the global economy in doldrums and the domestic economy also not faring well, return on property investment in the last five years has beaten equity hands down but lagged gold which is regarded as the ideal safe-haven investment when all is now well with the economy.

According to the latest study by real estate research firm, Knight Frank, property investment has yielded 74 percent returns, while investment in equity, as measured by Sensex, has lost money and gold has yielded a massive 210% return during this same time frame. From Rs 9,195/10 grams in 2007 it appreciated to Rs 28,551/10 grams in 2012.

[caption id=“attachment_737559” align=“aligncenter” width=“546”] Source: KnightFrank[/caption]

As seen in the graph above, during 2007-2012, equity lost a lot of money due to the financial crisis in 2008. “This happened as the benchmark index, that was trading at 20,287 at the end of 2007 closed at 19,427 at the end of 2012, yielding -4% returns over a five year horizon,” said the report.

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For the performance of property market, KnightFrank took a global house price index derived from the National Housing Bank’s data for 15 cities in the country and reflects the price movement in residential property in the country.

Clearly, this asset class outperformed equity by a wide margin.

However, the prime property market, which is the most desirable and expensive property in a given location, appreciated by only 5 percent in Mumbai (This takes in to account marketslike Napean Sea Road, Colaba and Cuffe Parade) in the last 5 years. But, even with this kind of movement in the index, prime property performed better than investment in equity.

“Notwithstanding this underperformance, prime property continues to evince strong interest from the wealthy. Clearly there are stronger attributes than just returns when it comes to prime property investment,” said Dr Samantak Das Director, Research & Advisory Services.

This is because in the global perspective, the safe haven appeal of prime property remains a very significant factor attracting the wealthy to invest in real estate.