Millennials enter property market late and only after proper risk analysis

Ram came to visit us with his father three years ago for financial planning. Both father and son thought their goals were met and the father was ready to step into retirement with a comfortable “notional” property value of ₹ 6 crore. On the source of income the father would use to maintain his living expenses for the next 30 years, they mentioned a few savings.

A month ago, Ram visited us for his regular goal review and told me his father is looking at selling a property to fund his retirement as he is in need of regular income and the earlier savings created for retirement were exhausted. Ram enquired about the various guaranteed income options available to help fund his father’s regular income needs. There are three distinct mistakes seen here. One, investing in real estate thinking it’s the best bet for sunset years and hence having a skewed asset allocation to immovable assets and not having any liquidity. Two, not building a corpus for retirement during the retirement accumulation phase with inflation-adjusted investment options. Three, believing that, in a declining interest rate scenario, guaranteed interest saving options like fixed deposits would sustain living expenses in the retirement distribution phase.

Perhaps, the Zamindari System of land ownership in parts of India in the 1700 and 1800 created the false pride of ownership of land among the descendants of baby boomers.

Mind set and beliefs of Millennials

Today’s millennials are different. Their investment decisions are based on socially responsible investing patterns and environmental factors. According to a study, more than 60% of millennials would rather save their money for travelling than to start a family. Experiences are said to outweigh material possessions or the need to portray an outwardly sense of pride of ownership.

Millennials who invest in property: Millennials are late to enter the real estate market and are ready to take on more “calculated” risks after an educated and informed analysis of the property. Unlike traditional site visits that people do, 65% of millennials’ decisions are based on a 3D image view seen on their mobile phones before they actually visit a site.

Millennials have a more “investor” mindset when it comes to purchasing a property. They look for amenities, value add and benefits that would improve the overall experience of their home. Millennials are ready to spend more provided they get quality for what they invest in. 43% of millennials will make their homes smart homes, and want the latest in gadgets and technology to aid comfort. Location, amenities, hospitals, schools, commuting play a vital role in the decision making of millennials. The average period of stay in a home for millennials is six years compared to 10 years for generation X. Millennials will take the plunge only when they have carefully evaluated all options and have a sense of financial security before taking the plunge. They want the best advice and are willing to pay a premium for a trustworthy advisor.

Millennials who live away from parents: Millennials “live entirely different lifestyles from their parents, often holding different sets of beliefs”. Millennials who live overseas due to work requirements and have family back in India prefer not to take the burden of managing properties that parents have bequeathed to them. Many of them may not want to return to India and realise the challenges of liquidity, legal issues, red tapism and corruption in selling their parents’ estate in India. They rather have the parents sell the immovable asset and hand over cash to them.

Investment beliefs: Financial assets give them more stability, flexibility and power to manoeuvre their goals over time. Their goals are short-term, well-articulated and they don’t believe in saving beyond 5-7 years.

In conclusion, millennials are more inclined to invest in financial assets over physical assets for ease of management of investment, control and easy accessibility. Millennials who grew up during the financial crisis periods of 1987, 2001 and 2008 are risk averse and don’t invest in risky assets. They believe in the need for a trusted investment advisor and are willing to pay a premium provided there is no breach of trust. 

Dilshad Billimoria is director, Dilzer Consultants, a Sebi-registered advisor