High net worth individuals continue to look for income generating assets despite the economy being at 7.24% on the inflation graph and India's growth rate pegged at an abysmal 5.5% for 2012. But, HNIs, according to a standard definition, are those with surplus income of at least Rs.2 crore. Those with Rs.25 lakh to Rs.2 crore are defined, by the real estate industry, as emerging HNIs.
While real estate has consistently brought in healthy returns for HNIs, would it continue to be the best investment option in the years to come? The issue was the first topic of discussion at the Hindustan Times' Real Estate Conclave 2012 - Smart investment for HNIs on Friday.
Industry data suggests that real estate is not exactly at its most attractive at the moment, investment wise, with almost no appreciation in property prices in 2012, especially in metros.
HNIs, who typically get into a real estate project at the initial stage and then exit when the project is completed, are now looking at other investment options.
"The situation has changed so much now that HNIs have to look for both returns and good capital appreciation," said Sanjay Dutt, executive managing director, Cushman & Wakefield.
Industry experts say real estate has given the best returns for decades. "Real estate prices moved upwards between 1976 and 1996 but at that time there was no stamp duty, so investors would buy property and sell it easily," said Anil Harish, advocate, DM Harish & Co.
Many HNIs have complaints against real estate developers. "A big concern for all investors is the exit. In all projects that an investor has come on board for, he currently does not have an exit. In equity, one knows that one can liquidate just by the click of a button," said Atul Zaveri, MD & CEO, Phoneshop Telecom India.
Also, investors complain that while real estate developers ask for astronomical prices, investors have to exit at a lower price. "That would be self-defeating because if the resale property is sold at a lower price then that sets a benchmark for the project," said Prakash S Shah, director, finance and marketing, Hiranandani Developers. A study by an independent real estate consultancy says around 50% of the total buyers of real estate in Mumbai are investors. "If real estate developers are confident of real estate prices going up, why don't they ink a contract with investors and give them fixed returns on investments?" Zaveri said.
While developers say they cannot give written commitments they do give assurances based on their relationships with an HNI. "In many projects HNIs, who had entered at various lifecycles of a project, have been given written commitments for returns," said Vinod Rohira, director, K Raheja Corp.