Here’s what Zerodha founder Nithin Kamath has to say about investing in real estate

Founder and CEO of online broking platform Zerodha Nithin Kamath have, talked about investing in real estate in a series of tweets. Kamath said that the question to ask when investing in real estate is whether the property yield is greater than inflation. He added, “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 rents will have to go up as much for property prices to go up every seven years and this is not happening in many places in India. 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.”   

The Zerodha founder added that rental yields are likely the best measure of fundamentals in case of real estate. He further said, “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 and paid upfront, you can’t take advantage of price fluctuations through a SIP as in stocks or MF.” 

He said towards the end of his Twitter thread buying where prices haven’t already appreciated, especially in tier-2 and tier-3 outskirts of metro cities, can mean good return on investment or ROI. Kamath underscored, “But this is like buying a small-cap stock hoping it becomes large-cap, only a few do. It is a high-risk strategy and hence capital allocation should be lower.” 

This, however, is not the first time that Kamath has talked about investment in the real estate sector.  He said in a tweet on Sunday that being overexposed to the real estate worked out for investors belonging to the above 50 age group since ROI beat inflation and interest costs until early 2010s.  

He added that isn’t the case anymore, which is why those belonging to the above 50 age group at present will have to reconsider investing in the sector.  

He explained further, “At today’s prices, real estate is unlikely to beat inflation + interest costs in the long run. A 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.” 

Meanwhile, Chairman and Managing Director of real estate consultancy Knight Frank India Shishir Baijal said, “The surge in global commodity prices have increased the cost of construction substantially in the last six months, resulting in appreciation of housing prices.”

Also read: Real estate sector facing difficult times again, warns Knight Frank India

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