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Will real estate investment be a bad idea now?

real estate investmentReal estate in India has become a trend of non-performing asset classes. Real estate has outperformed equities, currency and bonds by a wide margin.

It is noticed that the factors that go into driving real estate prices are definitely negative and will continue to remain negative going forward. The factors include lending rates and terms, price to income ratios and rental yields.

In a report it is found that the interest rates have gone up and loan to value ratios (LTV) have come down over the last couple of years. Hence, bank lending to real estate is facing headwinds.

It is also noticed that the growth of rental rates have not seen to that extent for the residential properties in India. The reason is that investors buying property have increased over the last few years and this has increased supply of rental properties.

According to the report, rentals provide returns at 2 percent to 3 percent against fixed deposit rates of 8 percent to 9 percent. It is wide and unless capital gains can make up for the 6% to 7% differentials between rental yields and fixed deposits, it is not a paying proposition to invest in property.

To read more real estate news:

Cost of Property in India increased by GDP growth

Government plans to stop black money in real estate

Source: Investorsareidiots

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