High Priced or Low Priced: Which one should I go for?

Many often, we come across this dilemma when we wish to make an investment, not only in Real Estate, but even while investing in Equities and Bonds. Let us try to decipher this confusion.

Define a Time Horizon

The first thing you should do is to decide is the time window you are looking at while making the investment. The decision of high/low valued assets will follow your time horizon. We typically define the windows as follows:

1-5 years: Short-term Investment

5+ years: Long-term Investment

Everything has a Limited Upside

This is one fact that you should imbibe in your thoughts if you want to be a successful investor in any asset class, real estate included. You cannot count indefinitely on the increasing prices and trust that they will keep on increasing forever. There will be a stage when the price movement will virtually halt and the growth rate will shrink manifolds.

The Decision!

Once you have decided your time frame and imbibed our above advice in your wits, it’s time to take the decision. Check the analysis done below:

Here we are taking an assumption that the upside for High Priced property is 10 years & for low priced, it is 7 years. This is justified because generally the high priced property is more sustainable as compared to the low priced property.

	Initial Investment	Initial / Long Term Growth Rate (%)	Short Term (1-5 years)	Short Term Returns	Long Term (5+ years)	Long Term Returns	CAGR
Low Priced	$ 100,000	13 / 8	$ 163,047	63.05%	$ 190,178	90.18%	7.40%
High Priced	$ 1,000,000	8 / 8	$ 1,360,489	36.05%	$ 1,999,005	99.90%	8.00%

As is apparent from the above analysis, the Low Priced Property yields more returns in short term and comparatively lesser returns in the long term as compared to the High Priced Property.

With this illustration, this discussion comes to a conclusion:

Low Priced  :	Short Term
High Priced :	Long Term

Disclaimer: The above analysis holds good for most of the cases, but not all. Hence it is advisable to take an informed decision before making any investment.

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Is this the Right Time for NRIs to Invest in India?

NRIs (Non-Resident Indians) comprises of an important chunk of population which contributes the most to Indian economy, without even being physical present here. India is blessed to have such a huge Indian population fueling its growth from abroad and the same is true for NRIs, who are blessed to have India as their motherland which provides them such fantastic investment opportunities. Let’s see how.

INR vs. $: Who all get benefitted with their movements?

 If you follow the Asian Financial and Economic markets, you would know what is going on in the volatile Indian markets. INR has been falling continuously against US $ before lately regaining some strength. At the time of writing this post, INR was placed at Rs. 61.20 against $ 1. But the situation had been worse a few days back when INR had touched Rs. 67 = $ 1 mark, creating an all-time low record; So much so that people had started comparing INR with US Cents; Rs. 1 = 1.5 cents.

So how is the above information related to our topic on NRIs? Well, let us tell you how. We will be extremely straight forward in putting forth our views on this topic. Consider the following situation:

• Mr. A is an NRI, residing in Michigan, USA.
• He aspires to invest in India and his obvious choice would be to invest in Real Estate; because he is sane ;-).
• He wants to invest in a range of INR 5 million to INR 7 million.
• Let’s compare the scenario when INR was 67 and when it is 61 (rounded off for simplicity) against $.

Cost of Property	Cost in $ (Case: INR/$ :: 67)	Cost in $ (Case: INR/$ :: 61)	Absolute Difference	% Difference
INR 5 million	$ 74,627.00	$ 81,967.00	$ 7340.00	9.8%
INR 7 million	$ 104,478.00	$ 114,754.00	$ 10276.00	9.8%

Just look at the above figures. Mr. A would have saved a fortune, at a discount of ~10% if he would have invested in the same property when $ was making rounds near INR 67 as compared to the current situation!

Closing Thoughts

Dear NRIs,

India is a great destination for investment – this statement needs no evidence. So just be a little more rational and act as soon as possible to make investments. This is because you never know where our new Governor & upcoming new Government will take the INR ;-). It is always better to be late than never J.

Sincerely,

RealT Horizon

PS: We would have made the investments if we would have been in your place, you may not. It’s subjective as well as cognitive.

------ Thanks for reading RealT Horizon J ------

What will be the future of Hyderabad Real Estate post Telangana?

After taking the example of Hyderabad Real Estate to demonstrate our Rent by Price Ratio for Valuation <link> and sharing views on other Real Estate Valuation Methods <link>, today we are taking up a very hot topic of Indian realty sector after much reluctance – Hyderabad post Telangana. We did not want to discuss it on the public forum but due to increasing demand from our readers, we are finally expressing our views on Telanganized Hyderabad.

What is Telangana?

For our international readers, let us first introduce the issue. Telangana is going to be the next state in India which will be formed by dividing existing state - Andhra Pradesh. There are a lot of issues prevailing around this topic and a lot of political and social arguments have already been exchanged. Finally the air is – the state Andhra Pradesh will be divided to make way for a new state Telangana.

But this gives rise to another domino issue – where will the golden hen, Hyderabad go? – Andhra Pradesh or Telangana? Government seems to be struggling hard with this issue and looks like Hyderabad will act as shared Capital for both the states or will be given a status of Union Territory. So which way the real estate market of Hyderabad take turn – will it shoot up; or will it experience an avalanche? Let’s explore the possibilities.

Related Read: Rent Scenario in Hyderabad

Effect on Social, Political & Economic Scenario

Now	Then
Social Impact
Social unrest, communal riots now and then, clashes between pro & anti-Telangana communities.	No unrest, demands of both the groups shall be considered.
People not sure of their identity – whether they belong to Andhra Pradesh or Telangana!	Well defined boundaries, identity certainty.
Political impact
This has been a long political agenda and leaders too are divided over the issue.	Along with the views, leaders will be divided geographically too. Politics will focus more on development rather than the division agenda.
Development work is crawling at a slow pace as the leaders from different groups don’t promote regional developments.	New projects will emerge and existing projects will pick up pace.
Economic Impact
Hyderabad, being the IT capital of India, attracts software investments worth billions of dollars every year. But due to this uncertainty, international firms are being hesitant in investing in Hyderabad market.	With incorporation of Telangana, this uncertainty will do away and investors will be more confident in investing there. Companies like Facebook, Google & Apple have long awaited plans to spread their legs in Hyderabad.
Due to restricted investments, new jobs are not being created in this market – very less immigration.	Once the scenario gets clear and investors start investing in Hyderabad, new jobs will be created and huge chunk of IT population will migrate to the town.

Interesting Read: Real Estate after BJP Modi Sarkaar <link>

Effect on Real Estate markets

As is clear from the above table, the social, political & economic scenarios provide a promising picture once division is complete. So if we extrapolate them, there seems to be no reason why Real Estate market shouldn’t flourish. But that would be a vague approach to come to any conclusion. Let’s try to add rationale to this extrapolation.

Sector	Change	Effect on Real Estate
Social	A more sustained & stable social scenario	Definitely gives a boost to sentiments of locals and prices shall go up
Political	Leading towards a stable and productive government	New development projects => Boost to real estate
Economic	A safer investment paradise for investors	Increase in immigration => higher paying capacity => increase in demand => increase in real estate pace

So if we consolidate the above factors, it looks like that you should rush and grab a property in Hyderabad as soon as possible. We have done it, following our instincts and analysis; will you?

Disclaimer: The above analysis is done solely by RealT Horizon. These are our views and you should add yours before going for an investment or disinvestment in Hyderabad. <Long term position in Hyderabad>

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