Buy land. They aren't making any more of it." It doesn't matter who first said this, but in Delhi of 2006, it seems cruelly true. A square yard of land in south Delhi costs as much as a daily-wage labourer makes in six years!
Look at Panchshila Park, the south Delhi area in which I live. In 1967, members of this cooperative colony paid Rs 27 per sq yard for the land allotted to them. Today, I believe, a well-situated plot commands a price of Rs 200,000 for the same 3 ft by 3 ft. That's a multi-bagger and then some -- a 7,407 bagger to be precise.
Admittedly, that appreciation has taken place over 39 years. To make it more easily comparable with shorter-term investments, I calculated the compound annual growth or CAGR of land bought in this colony. At 25.6 per cent per annum, it ranks up there with Warren Buffett's portfolio.
How do Indian equities stack up? I started by looking at the Sensex, as a broad measure of capital growth for those invested in front-line Indian stocks. From its 1981 base of 100, 25 years later the Sensex is at 11,100 (10 August). This represents an annual growth rate of some 20.7 per cent, way below the Panchshila Park (PP) rate. To put it differently, to compete with PP, the Sensex would today need to be at 29,836.
Clearly, the Sensex doesn't cut it. Looking at individual stocks, you could have been very savvy, or extra lucky, and bought into Infosys in 1993. If you had held the stock these 13 years, you would have multiplied your money some 1,400 times, or a staggering 73 per cent per annum. But 13 years is one-third the tenure of the PP investment, so one needs to look at something more enduring.
In old accounts books, I tracked the return on 50 shares of Hindustan Lever Ltd, bought in 1978 at Rs 18 each. Over the 28-year period, adjusting for rights and bonuses, the return was a healthy 27.5 per cent - well over the PP factor.
Now every company is not an HLL, and as a dear friend reminded me, shares of many of the top industrial houses of the 1970s are worth little today - think Mafatlal or DCM. Or, look at the Dow, or the Fortune 500, where companies drop off with amazing mortality. But equally, every real estate investment is not a Panchshila Park. Delhi's Asaf Ali Road or Nehru Place, both once prime areas, are now down-market, with prices to match.
In investing, whether in real estate or equity, you get rewarded for your ability to spot the winners of the future - preferably before others do. And, equally importantly, you need to be nimble in getting out of those holdings, which look like being edged into the past.
In this respect, my experience is that equity wins hands down. Try selling a piece of property when the speculators have gone out of the market. I have, and the last time I found myself in that position, it took me two years to exit.
Secondly, investments in real estate are lumpy. You need to have a substantial block of money before you buy property. Correspondingly, you cannot encash part of a house or piece of land if you suddenly need some money. But, for me, the real deterrent to looking at real estate is the nature of the markets and the market players - contracts are not enforceable, deals are rarely completed on time, and then one has to deal with 'black money'.
For my part, I am more comfortable dealing with equity, where dealings are pretty transparent, settlement largely orderly, and with electronic trading, even a single share of most companies constitutes a trading lot.
In other words, I am not talking to property agents trying to spot the next Panchshila Park. I believe my time is better spent at my screen researching equity. If not Infosys, I'll settle for the next HLL.
The author is an investment advisor to a select group of clients.
