How to Align a Real Estate Portfolio with Stock Market Sectors?

Due to their increasing demand for the last two decades, real estate properties have emerged as a desirable asset class. As a wise investor, you can utilise this trend to your advantage by purchasing property in sectors that correlate with your preferred stock market sectors.

For example, if you believe that the tourism sector has good growth potential, buying a property in a tourist location can help you replicate returns similar to the returns that an equity investment in a tourism company is likely to generate. Selecting alternative investment options like real estate is also necessary to combat the stock market’s volatility.

With the enactment of the Real Estate (Regulation and Development) Act, 2016, the real estate market in India has become organised, and investors are now safeguarded to a large extent from defaults committed by property developers. Coupled with the post-pandemic revival in economic activities, real estate as an asset class offers great potential for wealth creation to investors.

Continue reading to understand how to target specific properties to gain returns at a level similar to stock market returns. 

How to Build a Real Estate Portfolio?

To safeguard your investments against the risk of a recession in the real estate market, as a real estate investor, you should keep a few things in mind.

Buying properties in different locations can limit your chance of incurring losses. It is also important to check the developer’s background while evaluating an investment prospect. The factors mentioned below can be of further help to make informed decisions when trusting your money in real estate projects:

Consider investing in the tourism sector 

Although rental income earned through tourist accommodations do not give you year-round returns, there are still chances of getting high returns in the peak season. The tourism sector has rejuvenated after the pandemic and fresh enthusiasm can be seen among those who could not find an escape during the pandemic. 

Buying a vacation home at your favourite tourist destination is a good investment idea. The idea seems to become better when you consider that you can generate passive income by renting the vacation home to other tourists when you are not using it. 

Before purchasing a property in a tourist destination, capital appreciation should not be your sole objective. You should also take into account the following factors:

• Market dynamics of the destination in the upcoming ten years
• Construction of similar properties in the neighbouring area
• Transport options for tourists who will stay at the property
• Cost of maintaining the property

What makes investing in vacation homes more lucrative is the associated tax benefits. As a property owner, you will be eligible for a 30% standard deduction on the net annual value of the property that is chargeable to tax. If you apply for a home loan, the interest and the principal amount of the loan paid can be availed as tax deductions subject to certain limits. 

Anticipate the growth prospects of the IT sector 

Cities like Bengaluru and Pune have growing IT sectors, which has also led to steady growth in their real estate markets. 

Infrastructural developments generally occur in locations where companies attempt to select and cultivate talents. Real estate investors can be among the major beneficiaries if they identify such opportunities in the nascent stages. 

Preview the investment options in the healthcare sector 

When the pandemic struck, the entire country bore the brunt of the lack of quality healthcare facilities. 

Rural areas, in particular, are still deprived of primary healthcare centres, and the major problem faced by the country is the uneven and inadequate distribution of beds. As per the Ministry of Health and Family Welfare, there was only 1 bed for every 1000 Indians in 2020-21. Such statistics point out the under-investment in the healthcare sector. As sound investors, you can scout investment prospects by evaluating a locality based on the following:

• Number of healthcare facilities having a shortage of beds
• Hospitals with ventilators and ICU facilities in tier-2 and tier-3 towns
• Regions having quality medical colleges producing talent that can be utilised for providing healthcare

Track the progress made by the logistics sector 

Mumbai has established itself as the commercial capital of India by securing connections with more than 200 international ports. Today the city handles 55% of the country’s container traffic, with bulk trading occurring for cement and petroleum product companies. 

Investing in Maharashtra’s international ports can be a game changer as these ports also have enviable road connectivity.

Other states also have international ports connected strategically with the Indian Railways. Port cities of Gujarat, Andhra Pradesh, Tamil Nadu, and West Bengal also offer good opportunities to invest.

The recently released National Logistics Policy is set to improve India’s trade competitiveness by addressing the cost and inefficiency issues of the logistics sector. Therefore, making an investment in logistics real estate has the potential to generate good returns.

Final Word

Real estate investments provide a good diversification investment opportunity  especially when the stock market is volatile. However, generating good returns on real estate investments require thorough market research. Investment decisions based on an analysis of sectors that have good growth potential can protect your portfolio from the volatility that is generally associated by investing in the stock market. It is also wise to follow the patterns that influence buying decisions of seasoned investors. 

Frequently Asked Questions