‘Why Would You Buy’: Zerodha’s Nikhil Kamath on Curious Case of Soaring Mumbai Property Prices

Nikhil Kamath, the co-founder of Zerodha, shared his take on the housing market trend in Mumbai. In a tweet thread, the entrepreneur shared how perplexed he was about the sky-high property prices in Mumbai. He was even more puzzled by people’s decision to invest in a house to live in when they could rent at much cheaper rates in the city. In his observation, Kamath covered everything from inflation and return on investment to population demographics to other ‘obvious reasons’ driving real estate prices.

Kamath started off by characterising what the real estate market in India is like.

He pointed out that Equated Monthly Instalments (EMI) are much higher now due to the colossal rise in home loan interest rates. The entrepreneur further noted that India has an ageing population, with fertility rates lagging replenishment rates. The Zerodha co-founder said that the average population age is going up with time and claimed that older people need lesser space. Kamath seems to be making these statements in order to highlight how acquiring a house is costlier and how their demand is likely to fall in the future.

In another tweet in the thread, Kamath said that the residential yield in Mumbai is hovering around 3%. He said that this rate is “nowhere near beating inflation”. Currently, India is seeing an inflation rate of 7%. The rental yield that Kamath is talking about refers to the per annum rental value received from an income-generating asset, year-on-year, as a percentage of the value of the property. Rental yield is essential in determining the rate of Returns on Investment (ROI) for commercial and residential properties.

Kamath painted a picture of a scenario where the ‘black money problem’ in the country is resolved. He said that when that happens, the real estate market will be the one most affected due to ‘obvious reasons.’

Nikhil Kamath also drew attention to how real estate assets quickly turn illiquid if the number of sellers increases just by a bit. Illiquidity means that the rate at which the asset can be bought or sold in the market for its current value is low. Residential and commercial properties are notorious for being illiquid investments, meaning they are considered hard to turn into cash via selling or buying.

Given these factors, Kamath expressed his puzzlement, asking, “why then does a 1000 sqft. apartment still cost so much in Mumbai. And why would you buy, if you can rent at 3 per cent.”

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