When we say bull market cycle, prices of all the asset classes goes up. Classic example for a bull market cycle is 2003 to 2008. In this bull market cycle, Real Estate, Gold and the stock markets went roaring. Equity indices like Nifty went from 900 to 6200 plus which is almost 7 times. Gold moved around 2.5 times and Real estate moved around 4 to 5 times.
Is it possibe to find a bull market cycle ?? To some extent its possible. If you look at the start of the bull market cycle in 2003 the interest rates were lower and it was lower for atleast 2-3 years. E.g home loans were cheaper to the extent of 7% to 7.75% for 3 years plus. Demand started picking up and the growth was seen across all sectors.
So what about 2008 to 2020 ?? We may not be able to call this as bull market cycle for stock markets, because let us say nifty moved from 6200 to 12450 before the crash. So in 13 years the indices just doubled, which is a lower returns regime when you compared to a Fixed deposit. But gold moved almost 4 times during this period and it was bull market cycle for gold.
Now how to handle a bull market cycle ?? If you go to any financial advisor, he will say Real Estate is a bad investment, equity is a wealth creator for the long term and in the past market has gone up 7 times in shorter period of time. He will also say have gold has some percentage of your portfolio as a hedge.
Let us look at some real life examples since i was part of this bull market cycle in 2003 to 2008. In 2002 a person like me would have got just 5 years experience and say i had a capital of 6Lakh. I chose to put 2L in Stock indices, 2L in buying a property and 2L buying gold.
Stock indices: The 2L put in stock indices would have become 14 Lakh at the end of the bull market cycle in 2008 and my profit would have been 12L.
Real Estate: With 2L capital, i went ahead and bought a property worth 20 Lakh and at the end of the bull market cycle, a Sq ft of plot which costed Rs 1000 went up to Rs 4500 so for calculation let us say it went up 4 times. So the cose of the property would have become 80L. To identify the real profit you need to calculate the cost of the leveraging i.e the interest paid on the borrowed capital.
Lets not get into capital gains because you need to calculate the purchase price based on indexation and in the actual profit since there were tax benefits on the borrowed capital your cost of leveraging would be lower than actual as well... etc.
Gold : The 2L put in Gold would have become 5Lakh in 2008.
In the above example you could clearly see the real winner is Real Estate and the advantage in Real estate compared to other instruments is, In both Gold and Equity your capital appreciates where as in Real Estate your asset appreciates which is along with the borrowed capital.
People can argue even in Equity, you can leverage 20Lakh worth indices or stocks with a 2 Lakh capital. But the problem is in Real Estate the cost of leveraging is spread over 20 to 25 years and the risk is known. In equity after you purchase if market goes down 10% your capital of 2L is vanished and you are out of the market in no time.
So when you invest in a Market cycle understand the benefits and invest accordingly. In the above example even if Real Estate just doubled the cost of property would have have become 40 Lakhs which is a better return compared to a 7 times returns in equity.
So how to benefit in Real estate ?? understanding Real Estate market cycle, Cities/areas of growth, leveraging and the cost of leverage. BTW why did Real Estate run up in 2003 to 2008 bull market cycle. Its the FDI in Real estate Bill that pulled more foreign investors to Real Estate.
This is why during the bull market cycle of 2003, when some one had 4 Lakhs they purchase two property worth 20Lakh with a capital of 2Lakhs in each and saw the property prices worth 1.6CR in a shorter period of time. But you need to understand the risk and should not fall in the trap.
