Why would you buy apartment in Mumbai if..: Nikhil Kamath on housing market

In a series of tweet, Kamath wrote, “The housing market in India currently looks something like this. Interest rates are going up (a lot, significantly higher EMIs) with an ageing population, fertility rates below replenishment in most states (avg. age will go up with time, older people need lesser space).”

He further added that residential rental yield is ~3 percent which is nowhere near beating inflation.

“Whenever the black money problem is resolved in India, this market would be most affected (for obvious reasons). Real Estate as an asset class becomes illiquid quickly, if you and a few around you sell together,” he wrote.

He further questioned, “Why then does a 1000 sqft. apartment still cost so much in Mumbai? And why would you buy, if you can rent at 3 per cent.”

Prior to this, in July, Kamath had tweeted the question to ask when investing in real estate in a series of tweets.

He wrote, “If 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 further explained that house will provide financial and emotional security, but financial returns as an investment won’t be enough to cover for retirement as in the past. Kamath added that real estate prices can also go up without good fundamentals just like stocks, real estate, crypto and other markets but “prices don’t stay up there for too long.”

He further added that for real estate, rental yields are probably the best measure of fundamentals.

“Of course, like stocks, real estate prices can also go up without good fundamentals. Usually when that happens, stocks, real estate, crypto, etc., prices don’t stay up there for too long. For real estate, rental yields are probably the best measure of fundamentals. Real estate is illiquid, just like private market valuations. Real price vs last transacted price that sellers claim could be way off. The other risk is since the price is fixed & paid upfront, you can’t take advantage of price fluctuations through a SIP as in Stocks or MF,” he had wrote.

A report by property consultant Anarock on 2 October stated that the housing sales across seven cities between January-September period surged 87 per cent to 2,72,709 units and had breached the transactions clocked in entire 2019 pre-COVID year on strong demand. The report added that the sales stood at 1,45,651 units in the January-September period of 2021.

So far on the housing market the impact of rise in interest rates on home loans has not been felt despite the Reserve bank of India hiked the repo rate by 190 basis points since May this year to contain inflation. However, the housing prices too have gone up by at least 10 per cent in the last one year.

Meanwhile, property buying and selling portal Magicbricks in its recent report said that in Q3 2022, the Pan India rental housing demand (searches) witnessed a cyclical decline of 3.9 percent QoQ, even as the YoY growth was 29.0 percent.

The demand in Greater Noida, Noida and Gurugram, witnessed the highest growth of 37.0 percent, 12.7 percent, and 8.5 percent QoQ, respectively. The rental demand in Thane remained stable, while Delhi, Pune and Mumbai registered declines of 2.6 percent, 4.5 percent and 5.1 percent QoQ, respectively, the report stated.