The ‘Real’ Return of Asset Classes, 2007-18

Key Takeaways

• Commercial Real Estate (CRE) has emerged as the top performer over the last five and ten years across all asset classes in India
• We recommend adding CRE to your portfolio to achieve portfolio optimization and diversification. However, “ticket-size” can be an entry barrier.
• Although the residential sector performed poorly in the 5-yr period at less than 5% CAGR, its 10-yr performance at 8.3% was better than all asset classes other than
Equities and CRE

Asset classes returns have varied widely over the past decade. How have India’s most coveted assets performed against each other? We studied the performance of
major asset classes in India over the last ten years wherein we’ve found a hidden gem and busted some myths. The CRE Matrix research team gathered and published
the annual returns data for major eight asset classes for the period 2007 - 2018, a period which witnessed some critical events, both on a global and national scale,
including – the Global Financial Crisis, a global shift towards the right wing of political spectrum, demonetization, introduction of a unified tax regime etc.

Our proprietary tool “CRE Matrix Periodic Table of Asset Returns” compares all eight major asset classes.

Gold Silver Silver Silver Silver CRE Sensex CRE Silver CRE Sensex
38.7% 34.1% 25.4% 52.3% 21.5% 22.5% 36.1% 23.7% 31.4% 17.5% 16.0%

CRE Sensex Gold Gold Gold Residential CRE G-Sec Gold Sensex CRE
30.3% 31.2% 22.0% 35.5% 18.5% 11.0% 11.6% 7.5% 20.0% 13.0% 12.2%

Residential Gold Residential Residential CRE Fixed Dep. Fixed Dep. Fixed Dep. CRE G-Sec G-Sec
9.7% 16.9% 21.5% 25.9% 14.5% 9.0% 8.6% 7.4% 14.9% 6.8% 8.0%

Fixed Dep. G-Sec. CRE CRE Sensex G-Sec G-Sec Residential Residential Fixed Dep. Fixed Dep.
8.4% 7.3% 19.7% 23.5% 14.4% 8.5% 8.5% 4.6% 8.3% 6.6% 6.8%

G-Sec Fixed Dep. Sensex Fixed Dep. Residential Savings Residential Savings Fixed Dep. Savings Residential
7.8% 6.5% 19.3% 9.1% 9.5% 4.0% 5.0% 4.0% 6.9% 3.5% 5.1%

Silver Savings Fixed Dep. G-Sec Fixed Dep. Sensex Savings Sensex G-Sec Residential Gold
7.0% 3.5% 8.6% 8.7% 8.9% 3.7% 4.0% -1.3% 6.9% 1.4% 4.2%

Savings Residential G-Sec Savings G-Sec Gold Gold Gold Sensex Gold Savings
3.5% -5.7% 8.0% 4.0% 8.2% -14.3% -7.0% -2.1% 6.3% -5.5% 3.5%

Sensex CRE Savings Sensex Savings Silver Silver Silver Savings Silver Silver
-24.7% -7.5% 3.5% -19.5% 4.0% -27.2% -19.7% -10.3% 4.0% -13.0% -2.2%

‘07-08 ‘08-09 ‘09-10 ‘10-11 ‘11-12 ’12-13 ‘13-14 ‘14-15 ‘15-16 ‘16-17 ‘17-18
 The ‘Real’ Return of Asset Classes, 2007-18

CRE’s annual performance in 2008-09 sank to the

Asset classes returns have varied 16.0%
bottom of the table, recovering completely by 2012
widely over the past decade. How
have India’s most coveted assets
15.3% to beat all other asset classes. Also, CRE has
performed against each other? 13.4%
considerably decoupled itself from the residential
We studied the performance of sector. CRE sector returns in the last four out of
major asset classes in India over the 10.8%
last ten years wherein we’ve found a five years have been significantly higher than
hidden gem and busted some 7.8% 7.8% 7.5% 7.8% 7.3% 8.3% residential sector returns. Interestingly, CRE has
myths.
The CRE Matrix6.2% research team
also emerged as the most consistent asset class,
gathered and published the annual
3.8%
giving positive double digit returns in ten out of the
3.8% 4.8%
returns data for major eight asset last eleven years.
classes for the period 2007 - 2018, a
1.5%
period which witnessed some
critical events, both on a global and While clearly Silver topped the table five times
national scale, including – the
Global Financial Crisis,
since 2008 and beat the Sensex three times over
Savings Silver a global shift Gold G-Sec. Fixed Residential Sensex CRE
towards the right wing of political
Dep.
the past nine years, it has also been the most
spectrum, demonetization, volatile asset class – featuring five times at the
introduction of a unified tax regime
etc. bottom during the said period. On the other hand,
Our proprietary tool “CRE Matrix CRE has topped the table three times and beat the
Periodic Table of Asset Returns”
compares all eight major asset
Sensex eight times over the same period.
-4.2% 10-Yr CAGR 5-Yr CAGR
classes.

Apart from disproving the critics of real estate, one of the other big takeaways from analyzing the asset class returns is that the popular myth of ‘last year’s loser, next
year’s winner’ has not held good in a consistent manner. Finally, as per the data gathered, on an average, if a portfolio manager allocated equal funds to all asset classes
mentioned above except CRE, the average 5-year and 10-year annual returns would have been 5.3% and 8.3%. On the other hand, if CRE was included in the portfolio
with an equal weight as other asset classes, the average returns would have been 6.6% and 9.2%, respectively.

Time
Oct 07-08 Oct 08-09 Oct 09-10 Oct 10-11 Oct 11-12 Oct 12-13 Oct 13-14 Oct 14-15 Oct 15-16 Oct 16-17 Oct 17-18
Period

Winner Gold Silver Silver Silver Silver CRE Sensex CRE Silver CRE Sensex

Loser Sensex CRE Savings Sensex Savings Silver Silver Silver Savings Silver Silver

Notes
- All data are total returns, before costs or taxation and updated for 2018 to market close on Friday, 18 November.
- CRE and residential returns calculations assume occupancy throughout the investment holding period
- CRE and residential returns do not include the cost of maintenance, stamp duty, property tax, CAM charges, income tax etc.
- CRE returns figures are average of data collated from cities of Mumbai, Gurgaon and Bangalore.
- The figures are published to inform your thinking, not lead it. All information and analysis must be verified elsewhere should you choose to act.

Sources: RBI Website, Goldprice.org, Bullion-rates.com, Bseindia.com, National Housing Bank (NHB) and CRE Matrix Research
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