Real estate and stock market: The correlation
The Sensex, has always been mulled over as the barometer of the economic climate of any country. The real estate sector,on the contrary, tie in with the sentiments of the realty developers in the nation. The stock market and real estate market are not that dissimilar with each other and run through the same road, with its ups and downs always seeming to make the perfect sense in afterthought.
The correlation
The correlation, that endure between the real estate and stock market is clear as a bell. Stock investments inherit a higher profit margin in comparison to other asset class zones. Liquidity and flexibility are some of the benefits offered by stock market investments, which realty markets hardly display. Moreover, tracking of prices in stocks is a cakewalk, whereas in real estate it is difficult since there are often opaque transactions.
- At a time when the stock market is on a high run, investors leave no stone unturned to book their profits in stocks and dress them into real estate. Such a step, taken by the investors, is an attempt to diversify their portfolio significantly.
- On part of the end-users, wealth effect is put into play. As the skyrocketing stock prices trigger the net worth of households on an ascending note, people feel tot up with more balance in their bank accounts and owing to surplus income they tend to invest in the real estate sector without inhibitions.
- To add to it, when stock market is on the skids, end-users divert their focus on real estate since it is considered as a safe asset class zone as they have more options to invest in the real estate ensuring long term returns. It has been observed that real estate depreciate very slowly in comparison to their appreciation, hence people are more hesitant to sell them off during low time In tune with this view, the loss of stock market can be deemed as real estate’s loss.
Real estate-the decisive factor for Indian economy
Stock and real estate markets have a direct link. In a growing stock market, real estate is the best place to reintroduce the profits, which eventually calls for hike in property prices. By the same coin, the steady decline of the stock markets apparently reflects on the realty markets. Both the markets let on investors to take part in long-term acknowledgement of values.
The real estate sector open important doors for the Indian economy in terms of contribution to GDP and employment generation. The housing sector chime in almost 5 % of the GDP and is likely to experience an upward surge in the coming years. Real estate investments also offer ample benefits unlike stock investments such as stability, capital appreciation and tax deduction on home loans.
Calculated annotation
The financial year 2011-2012 enlightens on the aspect of relativity between Sensex and real estate. The financial year started off with bulls and fired up the markets by 19% up during Feb. However, with ongoing issues such as high inflation, depreciation of rupee, issue with lending rates and paralyzing of the policies, the Sensex transpired and by the end of June 2012 it somehow touched the 2011 level.
The market correction in the FY 2011-12 have pulled down the India realty stocks and the high purchasing power to a great degree. The below-mentioned diagram will throw light in this regard.
