Housing: An Exciting Investment Theme

The Road Thus Far

India has faced a shortage of housing since decades. But today the Indian real estate sector stands at an interesting juncture. In the past few years, it has witnessed a plethora of changes- demonetisation, RERA, GST and the fallout of the Covid-19 pandemic. All these measures, reforms, and scenarios have triggered an evolution in this industry. Owing to all these and several other factors India’s real estate sector have been going through a seven-year long down-cycle which finally seems to be coming to an end.?

Historical analysis since 1996-97 suggests that Indian housing up-cycles and down-cycles typically last for 6-8 years. 2012-13 to 2020 was a prolonged down cycle and 2021 is the first year of upcycle with visible uptick in volumes and pricing.

The Road Ahead

The housing sector in India is expected to reach US$ 1 trillion by 2030. By 2025 it is expected to contribute 13% to India’s GDP. In the same timeframe, India’s population is expected to grow till 2050. With increasing population, more housing would be required. Also, increasing trend of nuclear families would also help in driving the demand for housing.?

Following Covid-19, the concept of property ownership has gained traction. Housing sales volume across seven major cities in India surged 113% YoY, signifying healthy recovery post lockdown. This has helped form positive consumer sentiment towards residential real estate.

The government also has been trying to stimulate activity in the sector through supportive measures such as allowing higher FDI in townships and settlement development projects, 35% increase in capex, launching affordable rental housing complex scheme and stamp duty cuts by a few State governments to name a few. Under the ambitious Pradhan Mantri Awas Yojana (PMAY) scheme, the residential sector is expected to grow significantly.?

Along with these, the RBI too has maintained accommodative stance with interest rate unchanged at 4% which is another major supportive measure which provided additional momentum. As a result of the combination of these factors, inventory pressure in urban spots has been steadily on a decline. In effect, India’s favorable demographics, increased urbanization, better affordability, lower interest rates are all creating a conducive environment for an up-cycle trend in housing.

Since the median age in India is around 30 years even in 2030, the country enjoys a demographic advantage. In fact, India will be one of the few nations in the world which is expected to enjoy a higher working population and lower dependent population for the next three decades. This demographic advantage is likely to give a strong boost to the housing sector in the coming years.

Ways to Invest

Housing theme is a broad one which encapsulates various sectors like banks/ housing finance companies, steel, power, cement, cement products, paints, flooring, home appliances, sanitary ware, construction, oil & gas and consumer electronics to name a few. ?Investing individually in each of these sectors is impossible. So the easiest way to take exposure to all of these is through a mutual fund which is based on housing as a theme.?

Keeping in line with the times, the NSE recently launched the Nifty Housing Index. Based on this index as its benchmark, one of the leading house has launched its Hosing Opportunities Fund.?

To conclude, if you are a long term investor and is ready to stay invested over the next three to five years, housing is one theme which is likely to deliver encouraging investment experience. The optimal approach is to invest in a staggered manner through SIP. This will ensure that as an investor you have the opportunity to accumulate units over a period of time.?