Investors Expect Moderate Returns from Realty in 2014

During the last decade when the economy was vibrant, real estate investors had good expectations on the return on their real estate investments (more than 15%). With the slump in the country’s economy over the last 5 years, they have lowered their expectations on these returns. The year 2013 was a bad year for real estate with inflation going up and the rupee value as well as property sales going down. Hence, the ROI for the real estate sector took a hit. However, many investors have kept up their hopes for good returns this year, especially with the upcoming general elections.

Investors have moderate expectations

A survey was recently conducted by Commonfloor.com in order to understand the expectations of returns by investors from their real estate investments across the country. About 32% of the participants felt that they could expect 9-12% annual return from their real estate investments and about 29% of the respondents have expectations of 5-8% annual rate of return. Only about 19% respondents have expectation of more than 16% annual return. This means that about 61% of the participants have very moderate expectations this year, which is in sharp contrast to the previous decade where one could expect more than 15% annual return on their real estate investments. The expectations are also moderate compared to the international figures.

Reasons for moderate expectations

The moderate ROI expectation is primarily due to the subdued economic growth over the last five years. In addition, the steep fall in rupee value and high inflation in the country are also cited for lower expectations. The RBI increased the repo rates three times since September last year which has led to high interest rates. This, too, has curbed the demand for real estate sector in the country.

Investors keep up hope this year

Though the hopes are lower compared to previous years, investors have high expectations on account of the general elections in May-June. Investors are expecting a stable government and, hence, a change in existing policies as well as new policies that will encourage them to invest in the country’s real estate. Some of the respondents of the survey also expect price corrections in different real estate markets post elections.