Real Estate - An Investment Option For the Prudent Investor

When planning one`s personal finance to what extent one should invest into real estate?

That is a choice between the devil and the deep sea! Considering the volatile swings in the Sensex, investors are left with the option to put the money in land or buildings. Land is always a better long term investment option than buildings. A more prudent option will be for investors to carefully sift through many options of mutual funds that are parking their money into real estate or infrastructure projects. This will give a lower return, but a safer one.

Please state your views on the current real estate industry in India.

The consistent 9% growth in the economy on a CAGR basis has lead to a boom in incomes of the middle class. The focus of the RE industry has been on meeting the aspiration of the middle and higher income classes in urban India. Rapid urbanising of smaller towns has also sharpened growth of the industry. The huge shortage of water and power that new buildings will create, and the concentrations of waste that such communities will generate need serious mitigation. The surge in demand for steel and cement, both of them extractive resources, will hurt forests and poorer communities in many districts of India. The industry needs professionalizing. Most of it is feudal, led by one person, and in need of management practices. The need for different skill sets is another area of grave concern. Builders rarely meet time targets, and offer quality that leaves much to be desired. Customers need greater choice, and competitive pricing.

When deciding on a new house what factors should be kept in mind?

The potential for capital appreciation. The long term concern on water availability in the project. The density of the project in terms of the no. of houses per acre - there are many with over 85-90 flats per acre. It will be useful to do some mental math on the carrying capacity of the land before you sign on - with higher density of population, the demand on water and energy is greater. The other questions that you need to answer are - will the developer company maintain the project as part of house keeping? What will be water storage capacity built for the project? What will be the energy bill every month? What is the long-term solution that the builder offers for water availability? Will the rooms be warmer inside than the temperature outside, as it usually is thanks to cement and concrete trapping heat inside the house at end of a day. There are many such questions.

How is an eco-friendly home different from a normal house? Please throw some light on the cost aspect.

An eco home looks at every material is living. All materials are living things in a manner of speaking. Because they live so much longer than you and I, we think they are ``inert``, ``dead`` things. An eco home looks at a building as an energy system -- consciously you think of what you use for walls, floors and roofs as materials. Use of bricks means depletion of rich, fertile topsoil; use of sand means killing river near your town for sand is brought from only such river beds; use of clay tiles and blocks means use of energy as much as 600 deg. C to 1200 deg. C [in case of ceramic tiles]. One teak door means a full-grown, over 50-years-old forest tree. Use of steel and cement means that you are destroying some other land far away from you, to create your own home. So what are the options? You can make building blocks out of the earth you excavate for building your house. These are called compressed, stabilized earth blocks. You can use plantation timber coming from man-made forests, under certification from authentic international and national bodies. You can use treated and pressed bamboo for floors in rich and warm colours -- this is a fast-growing grass species and so is renewable. You can reduce use of steel and concrete with clever design engineering. You can avoid use of chemical-based paints that pollute rivers and ecology in areas where they are manufactured - instead use non-toxic paints. Use earth plastering in a way they are built to last. There are many different ways. We are not, however, saying you can eliminate completely use of materials; obviously that is not possible. There are then excellent options today for lighting where you save on energy and so save on use of coal that our power sector needs for generating electricity. You can achieve all this at about the same cost as these conventional materials that the world has used for the last 50-60 years. For a thousand years before that, the world built in eco-friendly ways!

How buying an eco-friendly home makes financial sense as compared to a regular property?

It doesn`t make any greater or lesser financial sense than buying a regular property, at the time of purchase. But look at it from the long term, and you will see a major financial gain because of the energy efficiency that eco homes offer. 40% less on energy bills every month. If you are living in an apartment, your Society bills will be one-third less at the minimum. There will be greater water security in such eco homes because of the original design orientation. A typical 1500 sq feet home in an ecofriendly apartment can save you as much as Rs 5 lacs in five years!

What are the other eco-friendly investment options available for a prudent investor?

Investing in companies that are developing or selling clean-tech options on the market. Wind mills that produce energy, solar technologies that help to produce electricity or heat water... there are even companies that offer air-conditioning today, with solar heating that exchanges the heat to produce ``coolness`` in your room! These are nascent technologies, but with high profits for the new crop of companies that are specializing in these. If you look carefully at several clean-tech venture funds, may be you will find a company that will offer a higher, or secure, return for your investment in the short and long term. Author is a CEO, BCIL, a Bangalore based real estate company.