Nithin Kamat feels real estate can be less profitable for the new generation; Here’s why

Nithin Kamath, Founder, and CEO of the country’s top online brokerage firm Zerodha took to Twitter to share his views on real estate as an investment for the younger generation. 

As per his tweet, investors who have had exposure to real estate for more than a decade have earned a decent return on investment. The reason is that the returns from their investment were enough to beat the Inflation plus interest cost by a fair bit until early 2010. 

For the new investors, it might not be the best time to enter the real estate sector, mentioned Kamath in his tweet. According to him, the current returns might not e sufficient to beat the Inflation plus interest cost going forward. 

The assumption may be based on the rising Inflationary situation in India. Data shows that India’s inflation rate has been hovering above its upper tolerance limit of 6 per cent since January 2022. The consumer price index-based (CPI-based) inflation rate for May 2022 was at 7.04 per cent. 

Inflation in the real estate sector leads to a number of changes like higher mortgage rates, higher home prices, devaluation of long-term debt, increase in the cost of construction and increases in rental rates. 

Kamath also shared an image along with the tweet which depicted the compounded annual growth rate of prices in the major cities viz Mumbai, Delhi NCR, Chennai, Bengaluru and Hyderabad. The image shows the difference in per square ft rate in these cities in 2009 versus 2022. On average, the prices have increased by more than 50% in all of these cities. 

Taking a look at the broader indices shows that the real estate sector hasn’t faired well since the beginning of 2022. The Nifty Realty is down by more than 19% YTD. 

Written By – Anoushka Roy