As individuals approach retirement, structuring an investment portfolio becomes a critical task. Ensuring a steady income stream, safeguarding against inflation, and creating long-term value are primary concerns for retirees. In this context, real estate stands out as a powerful asset that provides not only consistent returns but also long-term appreciation, making it an essential addition to any post-retirement portfolio.
In India, traditional savings instruments such as Fixed Deposits (FDs) have been a popular choice for decades. However, given the current FD interest rates of around 5-6% and inflation averaging between 6-7%, FDs barely keep up with rising costs, leading to a loss of real purchasing power over time. Real estate, on the other hand, offers dual benefits—capital appreciation and rental income—that outpace inflation and provide stable returns over the long term. Here’s why real estate outperforms traditional instruments:
Inflation Hedge: Real estate has consistently proven to be one of the best hedges against inflation. According to recent data, property prices in the Mumbai Metropolitan Region (MMR) have appreciated by an average of 7-10% annually, especially in developing areas like Thane, Navi Mumbai, and the extended suburbs. This price appreciation significantly outpaces the inflation rate, safeguarding the purchasing power of senior citizens.
Tangible Asset with Appreciation: Unlike FDs or bonds, real estate is a tangible asset that not only provides capital appreciation but can also generate rental income. The demand for rental housing in MMR remains robust, with yields in areas like Navi Mumbai and Thane hovering between 3-4%. For retirees, this rental income can supplement their monthly expenses, providing a steady cash flow while the property itself continues to appreciate in value.
Reverse Mortgage Options: Real estate offers flexibility to seniors through products like reverse mortgages. This allows retirees to unlock the value of their homes without selling them, enabling them to receive a regular income while retaining ownership of the property. It’s a particularly attractive option for those who prefer not to liquidate their assets but still require liquidity in their later years.
Diversification and Security: For senior citizens, diversification is key to protecting their portfolios from volatility. Real estate provides a safety net that balances out riskier investments such as equities. While stock markets can fluctuate, real estate prices tend to appreciate steadily, making it a relatively low-risk investment with stable long-term returns. For instance, even during economic downturns, property values in MMR’s established localities like Bandra and Powai have shown resilience, offering retirees the security they need.
(The writer is Partner, Palladian Partners Advisory Pvt Ltd. Look for the second part of this article in the next REJ page)
