Alternative Investments 2.0

Risk, Return and Alternative Investments for Retail Real Estate Investors of
Baroda
Abstract
This thesis has the intention to investigate the risk situation for small
investors in the domesticresidential property market in Baroda, and
discuss some alternatives for reducingthat risk. Focus will be on risk
reduction by diversification.Residential property is considered to be a
rather safe investment for the long term investor.
The return is determined by the change of value for the property

(capital growth). When investments in residential property
arecompared with other types of investments, they have slightly lower
returns with higher risk compared to their standarddeviation.
Diversification gains are described in the frame of the Capital Assets
PricingModel (CAPM).
The CAPM shows that portfolios based on residential property can

reduce their risk andmaintain the same level of returns through
diversification. To get the best effect out of thisdiversification this
should be done with assets that are least correlated with
residentialproperty. This thesis has tested with equities and selected
commodities. Of which equities/bonds gave the best results in terms of
returns received and risk associated with them.
An optimal portfolio based onhistorical data from 2007 – 2011

suggests a portfolio with 10 -20 % Real Estate Baroda, 40 – 60 %
Equity and 30 – 40 % commodities.Thedebt ratio for this portfolio is
determined by the investor’s risk-aversity and utility function.
The positive effects from diversification have to be compared to the

increased scale effectfrom investing in more residential property when
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chosing new investment items. Investorscan get a good diversification

performance even with a few stakes and lower risk associated. The
main point in thisthesis is that investors with residential property can
get positive effects from diversificationand the effects from
diversification increase the more different the investments
are.
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Contents
Abstract...............................................................................................................................1
Contents...............................................................................................................................3
Formulation of Problem Statement: -..................................................................................5
Rational of the Study...........................................................................................................7
Objective: -..........................................................................................................................8
Approach: -......................................................................................................................8
Benefits: -........................................................................................................................9
Research Methodology:-.....................................................................................................9
Related Literature: -..........................................................................................................10
Investment Assets Class....................................................................................................15
Real Estate.....................................................................................................................21
Equity............................................................................................................................25
Commodities.................................................................................................................27
Real Estate versus other Investment Asset classes.......................................................28
Portfolios&Diversification:-.........................................................................................30
7 Data Analysis.................................................................................................................34
7.1 Sample Data and its Analysis..................................................................................34

Retail Real Estate Investors Sample Insights............................................................37
7.2 CAPM (Capital Asset Pricing Model)....................................................................47
7.3 Portfolio effects and implications for investor........................................................52
Bibliography......................................................................................................................55
Annexure...........................................................................................................................58
Sample Data..................................................................................................................58
Charts and Tabels (with Page No.)

Table -1, Descriptive Analysis of different assets class year wise 35
Table2:- Descriptive statistics of Asset Classes 36
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Table3: - Descriptive statistics of Samples Area wise 36
Chart 1:- Family Income v/s % saving of total Income 37
Chart 2:- No. of Prospective and Retail Investor 38
Chart 3: - Family Income & % Total saving v/s Type of Investors 39
Chart 4:- Property v/s its intention 39
Chart 5:- Type of Asset v/s Area 39
Chart 6:- Type of Asset v/s Area 40
Chart 7: - Combine % of Type of Asset and its intention

40
Chart 8:- Source of Finance v/s Type Real Estate Assets

41
Chart 9:- Area Wise Expected Return

42
Chart 10:- Return Received more than Expected? Area Wise

42
Chart 11:- Areawise Risk Details 43
Chart 12:- Risk Return Matrix Areawise 44
Table 4: - Risk Return Matrix of Commodities 44
Table 5: - Risk Return Matrix of Equities 45
Figure 1:- CAPM Chart 47
Table 6: - Risk Return Matrix of Asset Classes 47
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Chart 12:- Risk Return Matrix Assetwise 48
Chart 13:- Risk Return Matrix Assetwise 48
Table 7: - Correlation between Asset Classes 49
Table 8: - Risk Return Matrix 50
Chart 14:- Risk – Return relationship with different Portfolio Mix

51
Chart 15:- Portfolio Mix - Risk – Return

52
Formulation of Problem Statement: -
Investment in real estate has the potential of earning high returns.

However, like any other investment, trading in real estate is not
without risks. Property dealings can become a handful, especially if
you are an amateur in this field.
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Here are a few mistakes that people often make:
• Not to plan their purchase (running out of money)
• Money matters
• Market research
• Flexibility
This study would address the problem of flexibility as this is due to

ignorance of investors in searching alternatives of real estate with low
risk with same or more rate of return in comparison with real estate
investments. We would also mention the ideal % of investment in
alternatives for small investors to reduce a dependency on single
asset class i.e. Real Estate.
Thus, Investment in Real Estate can be very profitable, but every

investor should definitely compare his/her investments with other
investments, even of different type.
This thesis will point out possibilities of comparing this investment with
alternative investments such as stocks, commodities (gold) and
savings accounts and will consider their corresponding Risk- Return
pattern within and across stated asset classes.
When investments in residential property are compared with other

types of investments, they have high returns compared to their
standard deviation.
Large institutional investors can use the toolbox to its full extent, and
in addition to that have a well diversified portfolio both within each
class of asset, and diversified in combining different types of assets.
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Small investors do not always have those opportunities

depending on which type of assets they are into.
Rational of the Study
Residential property is considered to be a rather safe investment for

the long term investor.
The return is determined by the change of value for the property

(capital growth), and thedirect return through net rental income.
Most investors prefer a lower return for sure, than a higher return with
ahigher uncertainty. This can be in order to cover living expenses or
buffersavings for retirement.
In past 5 years India is the hot/preferred destination for Domestic as

well as foreign investors as far as real estate investments are
concerned, due to which property prices are shifting towards north at
a much faster pace than expected mainly due India’s maintaining its
growth pace through internal consumption and slowdown/muted
growth in Western Countries Real Estate market.
But since US and other Western Countries economies are slowly

coming back on track, we are expecting that the pace of growth in real
estate market prices may not continued to be as high as it was in
recent years. Furthermore there are many studies which have stated
that Real Estate is one of the most risky assets classes which cannot
be considered for higher weight age in investor’s portfolio.
But there are many studies which have happened and which prove
that there are other assets classes which give more return than real
estate and that too with less risk in comparison with real estate.
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This situation has interested us to firstly study their risk and return mix
in real estate and other preferred assetsclasses like Equity,
Commodities, etc and then listing down the options available with real
estate investors assuming the same or more return with less or equal
risk taken by investors while investing
Therefore, i have intended to investigate the risk and returns

associated with all preferred assetsclasses and compare those with
real estate and suggest the available alternatives
Objective: -
This thesis has the intention to investigate the risk situation for small
investors in the domestic residential property market in India, and
discuss some alternatives for reducing that risk.
Focus will be on risk reduction by diversification. In past there are

many thesis which were conducted by labeling Real estate as
investments alternatives for Equity and Bond Investors but in this we
are conducting the analysis to find out the alternative investments
options for existing/prospective Real Estate investors, which can
provide at least equal or more return with less risk in comparison with
Real Estate Investments/Products.
Approach: -
Investors should diversify its portfolio to increase/maintain the rate of

return with reduced degree of risk. Diversification gains are described
in the frame of the Capital Assets Pricing Model (CAPM).
The model was introduced by Jack Treynor (1961, 1962), William

Sharpe (1964), John Lintner (1965) and Jan Mossin (1966)
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independently,building on the earlier work of Harry

Markowitz on diversificationand modern portfolio theory.

reduce their risk and maintain the same level of returns through
diversification. To get the best effect out of this diversification this
should be done with assets that are least (negative correlation)
correlated with residential property.
Benefits: -
The positive effects from diversification have to be compared to the

increased scale effect from investing in more residential property
when choosing new investment items. Investors can get a good
diversification performance even with a few stakes.
The main point in this thesis is that investors with residential property
can get positive effects from diversification and the effects from
diversification increase the overall return and decreases the
dependability of return on single asset segment.
Research Methodology:-
This paper intended to use Primary as well as Secondary data. Primary

data will be collected by conducting interview with
prospective/existing retail investor, covering all the aspects which can
help in calculating the riskand return associated with the stated real
estate options and secondary data, which will be collected from
indices maintained by exchanges for Equity (BSE/NSE), Residential
property (RESIDEX owned by NHB), Mutual Funds and other
investment assets (MCX for commodities) to see the rate of return
provided.
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Related Literature: -
Similar study was intended to explore the alternative investments

options available for real estate investors by assessing the risk
situation for small investors in the domestic residential property
market in Sweden, and discuss some alternatives for reducingthat risk.
Focus was on risk reduction by diversification.
They also documented the tax differences for Small and Large
investors by considering their countries tax structure and suggested
different alternative assets classes for different type of investors
However, they also concluded that the investors should have a certain
% of investment in its overall portfolio allocation and suggested the
ideal portfolio mix for both the type of investor’si.e. short term and
long term investors by considering the risk and return associated with
the targeted real estate asset and its alternative assets class.1
Furthermore, there was a study which was conducted to find out the
optimal % share of alternative investments by considering its risk,
return and correlation between targeted assets class and its
alternatives.
They concluded that alternative investments are important for the

strategic asset allocation ofinstitutional investors such as
endowments, family offices, pension funds, and high net
worthindividuals who have sufficient time horizons and investment
capital.
However, not allalternative investment classes are of equal

importance. Alternative investments are notappropriate as substitutes
1
“Risk Management for Residential Property.Hedging Alternatives for Small Investors.
By Geir Inge Folkestad from Sweden, July 2005
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for traditional asset classes, and may be better as complements for

achieving the desired risk-return profiles.2
There has been one study which states the differences in terms of risk
and return associated with Traditional v/s Alternative investments
options. This study basically focuses on what would be the future
of investments in India? Whether Indian investors will still be investing
into traditional investments like plain vanilla avenues like stocks,
bonds and cash or they will change their mindset like their western
counterparts for Financial Engineering products. This Paper also gives
insight about what exactly Alternative Investments are and how a
sophisticated individual investor can make more out from the highly
volatile market condition and many other factors.3
Furthermore, there is one study which was conducted to simulate the

performance of real estate portfolio by using cash flows from
commercial/residential properties over the period 1977 Q4 through
2004 Q2.
Their methodology differs from analyses that rely upon historical time-
weighted rates of return on property and used the distribution of
internal rates of return to analyze the performance distribution ofreal
estate investments.4
2
“Portfolio Optimization with Alternative Investments” by Denis Schweizer presented
at International Business Research Conference 8th Annual Meeting, Dubai, UAE,
February 2008.
3
“Traditional Investments vs. Alternative Investments” Vinay Vijaykumar Deshmukh
2008
4
“The Performance of Real Estate Portfolios” by Jeffrey D. Fisher &William N.
Goetzmann , April 2005.
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This study mainly intends to develop a general equilibrium business

cycle model linking financial and real estate markets to the macro
economy.
The ability of a production economy to account simultaneously for

asset pricing, business cycle and real estate market facts is then
evaluated by comparing the model predictions to the empirical facts.
The observed high volatility of house prices, the equity premium and
the difference between equity and real estate excess returns can be
explained without giving rise to excessive risk-free rate variation.5
The paper surveys and generalizes the main valuation formulas used
in real estate appraisal and presents unified proofs. The results are
otherwise scattered in obscure journals and books while the proofs are
rarely available to researchers in the field. The few benefits and many
pitfalls of using internal rates of return are also summarized and
illustrated. The material was originally developed so that it could be
used by mathematically-trained appraisers and researchers in the
former Soviet Union and in other transition economies that were
starting their real estate appraisal profession6
During the housing boom, financially constrained home buyers

artificially inflated transaction prices in order to draw larger
mortgages. Using transaction data from Illinois that includes sellers'
offers to inflate prices, author estimated that in 2005-2008, up to 16%
of highly-leveraged transactions had inflated prices of up to 9%.
Inflated transactions were common in low-income neighborhoods and
when intermediaries had a greater stake or an informational
5
“House Prices, Real Estate Returns, and the Business Cycle” by Ivan
JaccardEuropean Central Bank (ECB) - Directorate General Research, April 2007
6
The Mathematics of Real Estate Appraisal, David Ellerman, May 2004
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advantage. Borrowers who inflated prices were more likely to default,

but their mortgage rates were not materially higher. Property prices in
areas with a high rate of past price inflation exhibited momentum and
high volatility7.
The study took stock of this diagnostic, we conclude that many of the
interventions to address the so-called liquidity crisis and to encourage
more consumption are ill-advised and even dangerous, given that
precautionary reserves were not accumulated in the good times but
that huge liabilities were. The most interesting present times
constitute unique opportunities but also great challenges, for which we
offer a few recommendations8.
We examine the extent to which uncertainty delays investment and

the effect of competition on this relationship using a sample of 1,214
condominium developments in Vancouver, Canada built from 1979-
1998. We find that increases in both idiosyncratic and systematic risk
lead developers to delay new real estate investments. Empirically, a
one-standard deviation increase in the return volatility reduces the
probability of investment by 13 percent, equivalent to a 9 percent
decline in real prices. Increases in the number of potential competitors
located near a project negate the negative relationship between
idiosyncratic risk and development. These results support models in
which competition erodes option values and provide clear evidence for
the real options framework over alternatives such as simple risk
aversion9
7
Financial Constraints and Inflated Home Prices During the Real-Estate Boom, Itzhak Ben David, Jan-
2009
8
Financial Bubbles, Real Estate Bubbles, Derivative Bubbles, and the Financial and
9
Irreversible Investment, Real Options, and Competition: Evidence
from Real Estate Development
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This papers offers a new approach to answering the question, "how

much of a REIT's return is driven by real estate market influences, and
how much by stock and bond factors?" Specifically, we develop a
method that allows for the decomposition of the volatility of REIT
returns into stock market, bond market, real estate market and
idiosyncratic effects. Our results show that from 1978 to 1998, the
REIT market has gone from being driven mostly by large cap stocks to
being driven by both a small cap stock factor and a real estate factor.
There is also a steady increase over time in the proportion of volatility
not accounted for by any stock, bond or real estate factors. The
analysis indicates that some of this this unaccounted for volatility is
due to a REIT sector factor that is common to most REITs but
independent of the stock, bond and real estate markets. Attempts to
explain cross-sectional differences in the volatility determinants for
different REITs meet with only limited success, although it seems that
REITs with larger market capitalization are more like stocks10
Real estate is regarded as an inflation hedge, however the

autocorrelation of property return indices and the autocorrelation of
changes in the CPI pose serious problems of inference. In this paper
we address these problems in two ways. First, we use robust methods
to test of changes in the relationship between property returns and
inflation. Second, we perform simulations of sample investment
portfolios using vector autoregressions to study the ability of
commercial and residential housing to hedge inflation. Despite the
relatively short sample period available, we find that property is likely
to hedge inflation well11
10
The Relative Importance of Stock, Bond and Real Estate Factors in Explaining REIT Returns
11
Simulating Real Estate in the Investment Portfolio: Model Uncertainty and Inflation Hedging, William
Goetzman, march 2006
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Finally the above mentioned studies were conducted by considering

Real Estate assets classes. However, some of them were intended to
find it as alternative investments some were calculating the risk –
return mix of it and others were with the % share of it in ideal portfolio
mix.
But they all were not conducted for India other than
“Traditional Investments vs. Alternative Investments”12which was only
intended to list down the basics of Alternative Investments.
So, I have decided to create a working paper intending to calculate the

risk and return mix of real Estate market of Baroda and its available
alternative investments giving same or more % of return with Low or
equal risk in comparison with Real Estate Investments.
Investment Assets Class.
Have you ever wondered how the rich got their wealth and then kept it
growing? Do you dream of retiring early (or of being able to retire at
all)? Do you know that you should invest, but don't know where to
start?
We should emphasize, however, that investing isn't a get-rich-quick

scheme. Taking control of your personal finances will take work, and,
yes, there will be a learning curve. But the rewards will far outweigh
the required effort. Contrary to popular belief, you don't have to allow
banks, bosses or investment professionals to push your money in
directions that you don't understand. After all, no one is in a better
position than you are to know what is best for you and your money.
12
(Vinay Vijaykumar Deshmukh 2008)
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It's actually pretty simple: investing means putting your money to

work for you. Essentially, it's a different way to think about how to
make money. Growing up, most of us were taught that you can earn
an income only by getting a job and working. And that's exactly what
most of us do.
There's one big problem with this: if you want more money, you have
to work more hours. However, there is a limit to how many hours a day
we can work, not to mention the fact that having a bunch of money is
no fun if we don't have the leisure time to enjoy it.
You can't create a duplicate of yourself to increase your working time,

so instead, you need to send an extension of yourself - your money -
to work. That way, while you are putting in hours for your employer, or
even mowing your lawn, sleeping, reading the paper or socializing with
friends, you can also be earning money elsewhere.
Quite simply, making your money work for you maximizes your
earning potential whether or not you receive a raise, decide to work
overtime or look for a higher-paying job.
There are many different ways you can go about making an

investment. This includes putting money into stocks,bonds, mutual
funds, or real estate (among many other things), or starting your own
business. Sometimes people refer to these options as "investment
vehicles," which is just another way of saying "a way to invest." Each
of these vehicles has positives and negatives.
The point is that it doesn't matter which method you choose for
investing your money, the goal is always to put your money to work so
it earns you an additional profit. Even though this is a simple idea, it's
the most important concept for you to understand.
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What Investing Is Not Investing is not gambling? Gambling is

putting money at risk by betting on an uncertain outcome with the
hope that you might win money. Part of the confusion between
investing and gambling, however, may come from the way some
people use investment vehicles. For example, it could be argued that
buying a stock based on a "hot tip" you heard at the water cooler is
essentially the same as placing a bet at casino.
True investing doesn't happen without some action on your part. A
"real" investor does not simply throw his or her money at any random
investment; he or she performs thorough analysis and
commits capital only when there is a reasonable expectation of profit.
Yes, there still is risk, and there are no guarantees, but investing is
more than simply hoping Lady Luck is on your side.
Why Bother Investing? Obviously, everybody wants more money.

It's pretty easy to understand that people invest because they want to
increase their personal freedom, sense of security and ability to afford
the things they want in life
However, investing is becoming more of a necessity. The days when

everyone worked the same job for 30 years and then retired to a nice
fat pension are gone. For average people, investing is not so much a
helpful tool as the only way they can retire and maintain their present
lifestyle.
Whether you live in the U.S., Canada, or pretty much any other
country in the industrialized Western world, governments are
tightening their belts. Almost without exception, the responsibility of
planning for retirement is shifting away from the state and towards the
individual. There is much debate over how safe our old-
age pension programs will be over the next 20, 30 and 50 years. But
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why leave it to chance? By planning ahead you can ensure financial

stability during your retirement.
Albert Einstein called compound interest "the greatest mathematical

discovery of all time". We think this is true partly because, unlike the
trigonometry or calculus you studied back in high school,
compounding can be applied to everyday life.
The wonder of compounding (sometimes called "compound interest")

transforms your working money into a state-of-the-art, highly powerful
income-generating tool. Compounding is the process of generating
earnings on an asset's reinvested earnings. To work, it requires two
things: the re-investment of earnings and time. The more time you
give your investments, the more you are able to accelerate the income
potential of your original investment, which takes the pressure off of
you.
Investment Objectives Generally speaking, investors have a

few factors to consider when looking for the right place to park their
money. Safety of capital, current income and capital appreciation are
factors that should influence an investment decision and will depend
on a person's age, stage/position in life and personal circumstances. A
75-year-old widow living off of her retirement portfolio is far more
interested in preserving the value of investments than a 30-year-old
business executive would be. Because the widow needs income from
her investments to survive, she cannot risk losing her investment. The
young executive, on the other hand, has time on his or her side.
As investment income isn't currently paying the bills, the executive

can afford to be more aggressive in his or her investing strategies.
An investor's financial position will also affect his or her objectives. A
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multi-millionaire is obviously going to have much different goals than a

newly married couple just starting out. For example, the millionaire, in
an effort to increase his profit for the year, might have no problem
putting down Rs.1,00,000 in a speculative real estate investment. To
him, a hundred grand is a small percentage of his overall worth.
Meanwhile, the couple is concentrating on saving up for a down
payment on a house and can't afford to risk losing their money in a
speculative venture.
Regardless of the potential returns of a risky

investment, speculation is just not appropriate for the young
couple. As a general rule, the shorter your time horizon, the more
conservative you should be. For instance, if you are investing primarily
for retirement and you are still in your 20s, you still have plenty of
time to make up for any losses you might incur along the way.
At the same time, if you start when you are young, you don't have to
put huge chunks of your paycheck away every month because you
have the power of compounding on your side. On the other hand, if
you are about to retire, it is very important that you either safeguard
or increase the money you have accumulated.
Because you will soon be accessing your investments, you don't want
to expose all of your money to volatility - you don't want to risk losing
your investment money in a market slump right before you need to
start accessing your assets.
Personality
What's your style? Do you love fast cars, extreme sports and the thrill
of a risk? Or do you prefer reading in your hammock while enjoying the
calmness, stability and safety of your backyard?
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Peter Lynch, one of the greatest investors of all time, has said that the
"key organ for investing is the stomach, not the brain". In other words,
you need to know how much volatility you can stand to see in your
investments. Figuring this out for yourself is far from an exact science;
but there is some truth to an old investing maxim: you've taken on too
much risk when you can't sleep at night because you are worrying
about your investments.
Another personality trait that will determine your investing path is

your desire to research investments. Some people love nothing more
than digging into financial statements and crunching numbers. To
others, the terms balance sheet, income statement and stock analysis
sound as exciting as watching paint dry. Others just might not have
the time to plow through prospectuses and financial statements
Putting It All Together: Your Risk Tolerance By now it is probably

clear to you that the main thing determining what works best for an
investor is his or her capacity to take on risk. We've mentioned some
core factors that determine risk tolerance, but remember that every
individual's situation is different and that what we've mentioned is far
from a comprehensive list of the ways in which investors differ from
one another.
The important point of this section is that an investment is not the

same to all people. Keep this in the back of your mind for upcoming
sections of this tutorial.If you are not sure about how you would react
to market movements, we can suggest one good starting point: try
starting up a mock portfolio in this free investing simulator, which
gives you $100,000 of virtual money in an account that tracks the real
stock market.
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The simulated experience of investing can really help you know your
head, your habits and your stomach before you invest even one real
dollar
Types of Investments: - We've already mentioned that there are many

ways to invest your money. Of course, to decide which investment
vehicles are suitable for you, you need to know their characteristics
and why they may be suitable for a particular investing objective. The
most popular Investments options are: -
o Real Estate
o Equity
o Commodities
Real Estate
Residential property is considered to be a rather safe investment for

the long term investor and this sector is considered as one of the most
important sector in India.
According to the report of the Technical Group on Estimation of

Housing Shortage, an estimated shortage of 26.53 million houses
during the Eleventh Five Year Plan (2007-12) provides a big
investment opportunity. Real estate plays a crucial role in the Indian
economy.
The housing sector alone contributes to 5-6% of the country’s GDP.

Retail, hospitality and commercial real estate are also growing
significantly, providing the much-needed infrastructure for India’s
growing needs.
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Factors Favoring India Real Estate Investment:
1. Increasing growth in residential properties due to lower interest

rates, easy availability of housing finance, rising income, better
job prospects and increase of nuclear families.
2. Growth of retail market in India due to increasing demand from

retailers, higher disposable incomes and opening up of FDI in
Retail.
3. Growing IT and ITES industry.
4. Growing commercial property market.
5. Emerging hospitality or hotel industry due to the exceptional

boom in inbound tourism and the IT sector.
6. Development of the special economic zone.
According to a report ‘Emerging trends in Real Estate in Asia Pacific

2011', released by PricewaterhouseCoopers (PwC) and Urban Land
Institute (ULI), states that India is the most viable investment
destination in real estate and points out that India, in particular
Western India is a good real estate investment options for 2011.
Residential properties maintain their growth momentum and hence
are viewed as more promising than other sectors.
In Western India, Gujarat is booming as one of the promising

destination for real estate. Itis known as the most industrialized state
in India; Gujarat is known for its rich culture and has a population mix
of a professional and business.
It is a home to known cities including Ahmedabad, Vadodara, Surat,

Rajkot, Bhavangar, Champaner, Mandvi, Jamnagar, Surat,
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Gandhinagar, etc.Gujarat has made rapid progress in real estate and

financial services.
The state has high affluence and its potential is now recognized by
several brands and organizations as being a large market to
address.The transformation of Gujarat has been slow and steady but
today anyone visiting the state can see large, glitzy buildings and
malls in place of the age old back housing and office infrastructure.
Gujarat has excellent development prospects and growing by leaps

and bounds in property market but will need to demonstrate over
several years that it can maintain pace. With reference to recent
summit of Vibrant Gujarat it has boosted a housing supply in the state,
especially in the smaller cities and towns.
With reference to recent summit of Vibrant Gujarat it has boosted a

housing supply in the state, especially in the smaller cities and towns.
Around 50 members of Confederation of Real Estate Developers’
Association of India (CREDAI), an apex body of builders, have sign
investment agreements worth Rs 15,000 crore, mostly housing
projects, at the summit. This show how important and booming is the
real estate sector for state like Gujarat.
According to data available at NHB for Ahmedabad city it says that on

an average a property at ahmedabad has given a return of 17.5%(YoY)
in a period of 4 years.
Vadodara is the third most populated town in the Indian state

ofGujaratafter Ahmedabad and Surat. It has a populace of over 1
million. As compared to the metros which are already saturated in
terms of real estate development and prices, smaller cities are doing
better business. And, Vadodara is among the same.
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Known as the cultural capital of Gujarat, Vadodara enjoys great

advantages mainly because of its strategic location. Also, this is a
reason for a boom in Vadodara real estate.
Few years back, no one could imagine such a bright future for
Vadodara Properties. The city will soon be a home to India’s biggest IT
parks and would be counted among the cosmopolitan cities.
The Vadodara Urban Development Authority has signed MoUs worth

Rs. 3.425 crore with different construction companies for real estate
projects including establishment of residential segments, IT parks, and
office spaces around the city
This demand for Vadodara real estate projects have carved a new
niche in the way of real estate investment in Baroda properties which
was once considered as the least preferred option.
This demand for property in Vadodara is unlikely to exhaust in this city

up to a very long time as the city continues to emerge as a major
commercial and industrial hub. This instauration demand for property
in Baroda has attracted the real estate investors from all over the
country who are now focusing on Vadodara as the primary hub for
most of their real estate projects.
The real estate value of the city is thus building up as more and more
real estate developers are finding their way to the city. Vadodara is
burgeoning as a major real investment hub providing ample
investment opportunities for foreign investors also.
This foreign investment in the real estate of the city will undoubtedly
generate numerous real estate ventures. According to one of the
leading newspaper vadodara real estate prices are almost doubled in
past five years due to tremendous increase in industrialization and
24
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urbanization with quality infrastructure. The bungalows have for years

been home to elite class of the city and are now wooing the Non
Resident Gujaratis (NRGs).
Some locations in the city such as Mandvi area has independent

residential bungalows with all basic facilities and are available for Rs.
15,00,000 – Rs. 25,00,000.A two room bedroom apartment in
Vadodara with a carpet area unit of 850 sq. ft. will cost around Rs 7,
00,000 to Rs 8, 00,000.
The return in Real Estate investment is determined by the change of

value for the property (capital growth), and the direct return through
net rental income.Most investors prefer a lower return for sure (with
zero or lowest risk), than a higher return with a higher uncertainty.
This can be in order to cover living expenses or buffer savings for

retirement. There are different methods to reduce volatility in returns
for investors.
In the toolbox for investors with residential property we have cost

regulating elements like a fixed interest rate, fixed electricity price and
long term rent contracts on the income side. But volatility in returns
and valuation can also be reduced by investing in different types of
assets like other types of real estate or in equities, bonds and
commodities.Volatility in returns and valuation can also be reduced by
investing in different types of assets like other types of real estate or
in equities, bonds and commodities.
Equity
Stocks or Equities are also called shares in common parlance. In other

words, when you invest in a company's stock or buy its shares, you
own part of a company.
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As a stockholder, you share a portion of the profit or loss that a

company may make. While on the subject on stocks, it is good to know
about dividends.
A dividend is a sum of money paid to the shareholders of a corporation

out of its earnings. This is usually determined by a company's director
Paper share certificates gave way to the electronic form

(dematerialized) and a screen-based trading system was
introduced.Thanks to these developments, now there is no risk of
losing share certificates.
Similarly, there is no need for brokers to assemble at a place to trade.

An investor can call a broker and place his order. The broker would
punch orders into his terminals, which are fed into a centralized
system at the stock exchange. The transaction gets executed as soon
as the order matches an existing order in the system. Otherwise, it
waits for new orders before it can affect a match.
A Stock Exchange provides a platform to trade company stocks and

other securities. A stock may be bought or sold only if it is listed on an
exchange.
Thus it is the meeting place of the stock buyers and sellers. The major
stock exchanges in India are the Bombay Stock Exchange and the
National Stock Exchange and are regulated by SEBI
Owning a stock gives you ownership of a company. When you buy a

stock of a company, you become a stake holder and if the company
does well, you earn money in the process by participating in its
growth.
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Owning stocks of fundamentally strong companies lets your money

work harder for you since they appreciate in value over a period of
time while also offering rich dividends on a periodic basis
Commodities
The terms “commodities” and “futures” are often used to describe

commodity trading or futures trading. You can think of them as
generic terms to describe the markets. It is similar to the way “stocks”
and “equities” are used when investors talk about the stock market.
To be more specific, this is what they really mean: Commodities are

the actual physical goods like corn, soybeans, gold, crude oil, etc.
Futures are contracts of commodities that are traded at a futures
exchange like the Multi Commodity Exchange (MCX).
Futures contracts have expanded beyond just commodities; now there

are futures contracts on financial markets like the Currencies,Interest
and many others
Futures are standardized contracts among buyers and sellers of

commodities that specify the amount of a commodity, grade / quality
and delivery location.
Commodity trading with futures contracts takes place at a futures

exchange and, like the stock market, is entirely anonymous.
For example: the buyer might be an end-user like Kellogg’s13. They

need to buy corn to make cereal. The seller would most likely be a
farmer, who needs to sell his corn crop.
13
Kellogg Company is leading producer of cereal and a leading producer of
convenience foods, including cookies, crackers, toaster pastries, cereal bars, fruit-
flavored snacks, frozen waffles, and vegetarian foods.
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Real Estate versus other Investment Asset classes
The relationship between these would be enabled through the money

flow from one to the other after the initial allocation has been
established as per the objectives of the investment exercise.
The dollar (currency futures) is going through a phase of weakness;

while oil (commodity), gold (commodity) and the Indian Equities have
been at a stage of strength. Of course, the situation would reverse
(over a period of time or quickly) depending on which of the four are at
undervalued levels and which are at overvalued levels. The flow would
be towards the undervalued asset class (es); and the momentum
would build up, as soon as more investors discover this mismatch as
per their investment system and parameters thereof.
It would be in the form of a suggestion that, an investor should engage

in more than one market at a time as this would enable investor to
diversify its portfolio thus mitigating the risk of a owning a single asset
and would also ensure that the expected return is being realized by
one or the other asset classes.
Thus, if youare planning to invest in the Indian Equity Market, then

your focus should be on it on the other markets as well (which are
forex and commodities).
In investigating the diversification benefits of real estate early

research frequently found segmentation between real estate and
equities.
However, such findings typically rely on valuation or appraisal based

returns series. By contrast, when public real estate stocks are
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considered, there appear to be close links between these asset

classes(Ling & Naranjo 1999)14.
While some have argued that the return distributions of real estate
stocks are not representative of the underlying market and the
reported direct.
Market returns are representative, the balance of research argues that

the low volatility, high serial correlation and low or negative
covariance with other asset classes in appraisal indices are largely a
measurement issue.
Lai and Wang argue that smoothing at individual property level could
increase volatility. This may be true but at least at the aggregate level
the balance of evidence suggests a reduction.
Clayton(2001)15 provide empirical evidence of appraisal smoothing

while Brown & Matysiak(2000)16 set out a alternative explanation of
smoothing based on sticky valuations, cross serial correlation and
aggregation effects.
Further reason for casting doubt on the validity of appraisal based

indices as a measure of market performance comes from the problem
facing an individual investor holding real estate directly. Not only there
is a large lot size problem, there are significant issues associated with
liquidity.
14
Author or famous book “The Integration of Commercial Real Estate Markets and Stock Markets”
15
Real Estate Economics, Volume 29, Issue 3, pages 337–360, Fall 2001
16
Real Estate Investment: A Capital Market approach Financial Times – Prentice Hall, London
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The length of time taken to sell an asset and the additional pricing
uncertainty this induces means that the valuation based indices
understate the risk faced by investor.
Given the difficulties presented by investing in real estate in private

markets, it might be thought that equities, commodities or any other
asset classes can be an appropriate substitute provided those do give
same or more returns with low or equal risk and further those should
be relatively more liquid in comparison with Real Estate Investments.
Portfolios&Diversification:-
It's good to clarify how securities are different from each other, but it's
even more important to understand how their different characteristics
can work together to accomplish an objective.
The PortfolioA portfolio is a combination of different investment

assets mixed and matched for the purpose of achieving an investor's
goal(s). Items that are considered a part of your portfolio can include
any asset you own - from real items such as art and real estate, to
equities, fixed-income instruments and their cash and equivalents.
For the purpose of this section, we will focus on the most liquid asset
types: equities, fixed-income securities and cash and equivalents.
An easy way to think of a portfolio is to imagine a pie chart, whose

portions each represent a type of vehicle to which you have allocated
a certain portion of your whole investment.
The asset mix you choose according to your aims and strategy will
determine the risk and expected return of your portfolio.
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Basic Types of PortfoliosIn general, aggressive investment

strategies - those that shoot for the highest possible return - are most
appropriate for investors who, for the sake of this potential high
return, have a high risk tolerance (can stomach wide fluctuations in
value) and a longer time horizon. Aggressive portfolios generally have
a higher investment in equities.
The conservative investment strategies, which put safety at a high

priority, are most appropriate for investors who are risk
averse and have a shorter time horizon. Conservative portfolios will
generally consist mainly of cash and cash equivalents, or high-quality
fixed-income instruments.
To demonstrate the types of allocations that are suitable for these

strategies, we'll look at samples of both a conservative and a
moderately aggressive portfolio.
The main goal of a conservative portfolio strategy is to maintain the

real value of the portfolio, or to protect the value of the portfolio
against inflation. The portfolio you see here would yield a high amount
of current income from the bonds and would also yield long-term
capital growth potential from the investment in high quality equities.
17
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A moderately aggressive portfolio is meant for individuals with a

longer time horizon and an average risk tolerance. Investors who find
these types of portfolios attractive are seeking to balance the amount
of risk and return contained within the fund.
The portfolio would consist of approximately 50-55% equities, 35-40%

bonds, 5-10% cash and equivalents.
18
You can further break down the above asset classes into subclasses,
which also have different risks and potential returns. For example, an
investor might divide the equity portion between large
companies, small companies and international firms. The bond portion
17
http://www.investopedia.com/university/beginner/beginner6.asp
18
http://www.investopedia.com/university/beginner/beginner6.asp
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might be allocated between those that are short-term and long-term,

government versus corporate debt, and so forth. More advanced
investors might also have some of the alternative assets such
asoptions and futures in the mix. As you can see, the number of
possible asset allocations is practically unlimited.
Why Portfolios? It all centers on diversification. Different securities

perform differently at any point in time, so with a mix of asset types,
your entire portfolio does not suffer the impact of a decline of any one
security. When your stocks go down, you may still have the stability of
the bonds in your portfolio.There have been all sorts of academic
studies and formulas that demonstrate why diversification is
important, but it's really just the simple practice of "not putting all
your eggs in one basket." If you spread your investments across
various types of assets and markets, you'll reduce the risk of
catastrophic financial losses.
This section will explain the relationship between risk, return and
correlation for investments in a portfolio. The theoretical base is the
Capital Asset Pricing Model (CAPM), and general investment
diversification theory. The section is based on the assumption that
investors are risk-averse and are aiming towards stability
Risk can be divided into systematic and non-systematic. Non-

systematic risk is the risk eachinvestment item has. Single items have
often large volatility, but the effect of this singleitem volatility can be
reduced by putting different items into a portfolio. Each item has
itsown volatility, and differences in volatility are measured by
estimating the correlation coefficient.The less correlated these
volatilities are, the more reduction of the portfolio volatility.Typically
equities from the same industry are much correlated, while equities
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from totallydifferent industries are less correlated. The portfolio

volatility is also a function of thenumber of different items in the
portfolio (assuming that they are not perfectly correlated).The larger
the number of different items in the portfolio the less portfolio
volatility. Portfoliovolatility is a measure of the systematic risk for a
given portfolio. The normal use ofthe expression systematic risk is the
risk for a market portfolio like at the Stockholm stockexchange.
7 Data Analysis
7.1 Sample Data and its Analysis
In this study Sample data is collected from Prospective &Existing retail

real estate investors of Baroda. This sample collection contains the
data of Prospective and Existing real estate investors of Baroda
market. Study contains the 80 samples and its responses related to
Family Income, Expected Return, Area of Investment, Source of
Finance, Age, Gender, type of investor (i.e. Existing or Prospective),
Type of Real Estate, etc and other aspectsrelated to their Real Estate
Investment.
Moreover, study also contains the price index of Real Estate, Equity
and Commodities, for Real Estate, it contains the all major areas of
Baroda and major cities of India from 2007 to 2011, for commodities it
contains the price index of Crude Oil, Gold and Silver and lastly for
Equity it contains the price index of 39 stocks from Nifty Index.
Further notable part is that, the final list of commodities and stock
were selected on basis of their return and risk they contain for the
given period for this sample.
Table -1, Descriptive Analysis of different assets class year wise
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Risk/ Return Mix Actual Return (%)

of Different Asset
Classes Risk 2007 2008 2009 2010 2011
Real Estate 4.829 16.61 28.92 18.51 25.97 17.69
Stock/Equity 1.587 50.19 67.89 -46.8 124.77 17.07
Commodity 0.958 8.51 -9.32 60.56 26.58 35.98
The above table shows the further details on the returns and risk
associated with intended asset classes.
It shows that Real Estate is the most risky followed by Stock/Equity

and commodity to be least risky among the given asset classes.
Table2:- Descriptive statistics of Asset Classes
Standa
Descriptiv
Media rd Rang Minimu Maximu Cou
e Mean Sum
n Deviati e m m nt
Statistics
on
Real 21.5 12.3 107.
18.51 5.53 16.61 28.92 5
Estate 4 1 7
Stock/Equ 42.6 171. 213.
50.19 63.43 -46.8 124.77 5
ity 24 57 12
Commodi 24.4 69.8 122.
26.58 26.63 -9.32 60.56 5
ty 62 8 31
The above table shows the descriptive statistics of each and every
asset class where in Real Estate data contains the average of Beta of
major areas of Baroda, stock/Equity data contains the average of beta
of selected 38 stocks of NIFTY and Commodity data contains the
average of beta of three selected commodity i.e. Gold, Silver and
Crude Oil.
35
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Table3: - Descriptive statistics of Samples Area wise
Investm Actual
Expected Return % ent Return %
Area of No. Minim Mea Maxim
Vadodara Sample Risk um n um Mean Mean
4.66 16.2
AKOTA 4 10 10 5 20 1250000 44.12
2.10
ATLADRA 2 30 15 27.5 40 1250000 35.58
ELLORA
PARK,
SUBHANPU 5.90
RA 5 99 15 23 40 1550000 44.44
3.56 29.1
GORWA 6 77 20 7 40 950000 41.25
4.81 19.8
GOTRI 13 94 10 1 40 1288461 44.44
KARELIBUA 5.23 25.4
G 6 92 15 2 40 1916666 51.79
MAKARPUR 2.30
A 5 93 10 26 40 1550000 35.87
MANJALPU 5.35
R 2 78 15 27.5 40 1250000 45.2
OLD
PADRA 4.32 26.3
ROAD 11 56 10 6 40 2068181 36.76
SAMA,
NIZAMPUR 5.20 23.2
A 10 03 10 5 40 1300000 23.25
3.51
TARSALI 4 05 10 12.5 15 1125000 33.7
VASNA 6.01
ROAD 1 53 20 25 30 1250000 41.67
WAGHODIA 9.51 20.2
ROAD 11 04 15 3 30 1704545 45.83
80
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The above table shows the Descriptive Statistics of major areas of

Baroda containing Mean, Max and Mini of Investments made, Risk of
Area and its actual return received.
Retail Real Estate Investors Sample Insights
Chart 1:- Family Income v/s % saving of total Income
The above chart states that relationship between family income and %
of total saving is dependent on family income as the greater part of
15% - 20% saving is contributed by family income under 500000.
Chart 2:- No. of Prospective and Retail Investor
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This chart gives the no. of respondents captured and its bufurcation on
type of Retail Real Estate Investors (i.e. Existing or Prospective)
Chart 3: - Family Income & % Total saving v/s Type of Investors
This chart gives a glimpse of family Income, % total Savings, Type of

Real Estate v/s Type of Investor. It mainly concludes that sample is
evenly distrubuted among the given aspects.
Chart 4:- Property v/s its intention
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As per sample data it concluded that Apartment and Duplex investors

are equally distributed in terms of their intention however it also
concludes that Tenament is purchased only with an intention of
Residing but Land/ Plot is mainly purchased for investments.
Chart 5:- Type of Asset v/s Area
39
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The above chart shows that investors are mostly investing their money
into land plot in Waghodia Road followed by Sama, Nizampura area of
Baroda market.
Chart 6:- Type of Asset v/s Area
The above chart shows that investors are investing more in Waghodia
Road, OP Road and Gorti followed by Sama/Nizampura, Karliebaug and
makarpura.
Chart 7: - Combine % of Type of Asset and its intention
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This chart states that Land Plot as asset class and investment as
intention contributes the most followed by Duplex with Residing
intention, Duplex Investment and Apartment Residing among the
collected sample of retail investors
Chart 8:- Source of Finance v/s Type Real Estate Assets
This chart concludes that source used to finance the real estate
investments is depended on type of real estate asset as it states that
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Cash is the funding source which is used to finance the Land/Plot type
and investors buying Apartment asset type only finances through
Housing loan.
Chart 9:- Area Wise Expected Return
This chart shows that investors do expect 30% and above returns for
areas like OP Road, Sama/Nizampura, Karliebaug and Gorwa
Chart 10:- Return Received more than Expected? Area Wise
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This chart shows that all the investors covered in the stated sample
have received the return of their investment more than expected
other than 6 and their investment is done in Old Padra Road,
Makarpura and Atladara as they have given the return as 36% (round
off) v/s expected return of 37.5% average.
Chart 11:- Areawise Risk Details
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Chart 12:- Risk Return Matrix Areawise
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This chart shows that as far as major areas of Baroda are concerned
Waghodia Road properties are the most risky and atladara ones being
least risky. As far as return goes Karliebaug has given the best return
among given areas with risk as 5.24.
Table 4: - Risk ReturnMatrix of Commodities
Commodities Return Per Annum Risk

MCX 28.38% 1
Gold 40.21% 0.26
Silver 58.52% 1.29
Crude Oil 31.18% 1.32
The above table states that MCX has given an average return of 29%
from period 2007 to 2011(till April 2011), Silver has given the top
return amongst the given list with medium risk/beta
Table 5: - Risk Return Matrix of Equities
Nifty & its stocks Risk Return(from 2003 to April

Risk
Evaluation 2011)
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Nifty 62.19% 1.0000

ACC 97.35% 1.0604
Ambuja Cements Ltd. 78.28% 0.7970
Axis Bank Ltd. 285.78% 1.3586
Bajaj Auto Ltd. 170.00% 2.7464
Bharat Heavy Electricals Ltd. 245.93% 1.5063
Bharat Petroleum Corporation Ltd. 31.21% 0.8029
Bharti Airtel Ltd. 393.33% 1.5764
Cipla Ltd. 56.44% 0.6025
Dr. Reddy's Laboratories Ltd. 42.68% 1.1194
GAIL (India) Ltd. 121.75% 1.8408
Grasim Industries Ltd. 89.77% 1.7598
HCL Technologies Ltd. 83.33% 1.7052
HDFC Bank Ltd. 121.71% 0.8655
Hero Honda Motors Ltd. 99.35% 0.6097
Hindalco Industries Ltd. 57.21% 1.9471
I T C Ltd. 100.53% 0.4432
Infosys Technologies Ltd. 104.76% 0.9370
Larsen & Toubro Ltd. 408.51% 1.8039
Mahindra & Mahindra Ltd. 356.48% 2.6648
Maruti Suzuki India Ltd. 71.77% 1.2750
NTPC Ltd. 35.36% 0.6382
Oil & Natural Gas Corporation Ltd. 58.89% 1.3226
Punjab National Bank 176.74% 1.0664
Ranbaxy Laboratories Ltd. 22.56% 0.9876
Reliance Capital Ltd. 131.31% 2.0970
Reliance Communications Ltd. 8.19% 0.7372
Reliance Industries Ltd. 160.92% 1.9735
Reliance Infrastructure Ltd. 40.91% 1.8729
Sesa Goa Ltd. 3888.89% 4.7553
Siemens Ltd. 242.69% 1.6065
State Bank of India 116.09% 1.0550
Steel Authority of India Ltd. 205.56% 3.2641
Sterlite Industries (India) Ltd. 536.11% 4.7844
Sun Pharmaceutical Industries Ltd. 175.63% 0.4655
Tata Consultancy Services Ltd. 61.50% 1.6105
Tata Motors Ltd. 93.75% 2.4612
Tata Power Co. Ltd. 136.36% 1.6900
Tata Steel Ltd. 85.75% 1.9197
Wipro Ltd. 370.37% 0.1676
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The above table contains the selected Nifty Stocks with their returns
received and its risk.
7.2 CAPM (Capital Asset Pricing Model)
The CAPM is one of the most used and widely known models in
financial theory, and even though the CAPM is a pricing model it can
be used to illustrate how investors can use diversifications a tool to
reduce risk in their portfolio, without reducing expected returns.Its
appropriateness will be explained further in this sub-section.
One of the most important foundations behind the CAPM is that there
is a tradeoff betweenrisk and return, which are the axis in figure
Figure 1:- CAPM Chart19
On the horizontal axis we have standard deviation, and on the vertical

axis we have expectedreturn. Both terms are expressed in percent.
The curve connecting the assets with the highest and the lowest
return are the combinationsof the available assets which give the
19
http://en.wikipedia.org/wiki/File:Markowitz_frontier.jpg
47
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lowest standard deviation, given the return. Allpoints inside this curve
are possible to achieve by combining the assets available, but it isnot
possible to get outside the curve.
The below table contains the data related to Risk Return of available
Investment assets classes. The Actual return is taken as mean of
returns given by asset classes from 2007 to 2011
Table 6: - Risk Return Matrix of Asset Classes
Risk/ Return Mix of Different Asset Classes(from 2007 Actual Return

to 2011) Risk (%)
4.82
Real Estate - Baroda 9 21.54
1.58
Stock/Equity 7 42.62
0.95
Commodity 8 24.46
Chart 12:- Risk Return Matrix Assetwise
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The below chart contains Risk at X axis and Return (in %) at Y axis. It
states that Real Estate Asset Class is most risky with least return and
Stock/Equity Assets class is with medium risk but highest return.
Chart 13:- Risk Return Matrix Assetwise
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Hedging of Risk with other Alternative Asset ClassesData for

estimating hedging performance with Indian Equities and Commodities
is in table
Table 7: - Correlation between Asset Classes
Risk/ Return Mix of Different Correlation(Real Estate Correlation(Stock

Asset Classes Base) Equtiy Base)
Real Estate- Baroda 1
Stock/Equity 0.264952166 1
Commodity -0.041739513 -0.639849214
Correlation of Coefficient is estimated with Real Estate Baroda market

as benchmark
The forumula for calculating Correlation of Coefficient is: -
Correlation Co-efficient:
Correlation(r) = [NΣXY - (ΣX) (ΣY) / Sqrt ([NΣX2 - (ΣX) 2] [NΣY2 - (ΣY)
2
])] (Learn Correlation Co efficient)(Learn Correlation Co efficient)20
where
N = Number of values or elements
X = First Score
Y = Second Score
ΣXY = Sum of the product of first and Second Scores
ΣX = Sum of First Scores
ΣY = Sum of Second Scores
ΣX2 = Sum of square First Scores
ΣY2 = Sum of square Second Scores
Table states that Stock and Real Estate are positively correlated as if
real estate sees an appreciation of 10% in its property prices than
20
http://www.easycalculation.com/statistics/learn-correlation.php
50
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Stock market is going to see the appreciation of at least 2.6% and

commodities will see the reduction of 0.40% in its market
As anexercise of finding ideal portfolio mix author has created 5

options with different allocation % of each and every asset class
• 60% Real Estate, 20% Equity, 20% Commodity
The below table will show the Risk and Return derived for the
mentioned options
Table 8: - Risk Return Matrix
60% Real 40% Real 20% Real 60% Real 10% Real
Estate, Estate, Estate, Estate, Estate,
Ideal 20% 40% 40% 25% 60%
Portfolio Equity, Equity, Equity, Equity, Equity,
Mix 20% 20% 40% 15% 30%
Commodi Commodit Commodi Commodi Commodit
ty y ty ty y
Risk 3.4064 2.758 1.9838 3.43785 1.7225
Return 26.34 30.556 31.14 27.248 35.064
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Chart 14:- Risk – Return relationship with different Portfolio Mix
Chart 15:- Portfolio Mix - Risk – Return
As per analysis it states that an investor should opt for 5th option i.e.
10% Real Estate, 60% Equity, 30% Commodity as this option reduces a
real estate investors risk to 1.72 and increases its return from 21.54%
to 35.06%
7.3 Portfolio effects and implications for investor
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The analysis in this section is based on historical data. By using

historical data we can make predictions about the future, but historical
data is not always a good proxy for future events. The longer the time
horizon gets, the larger is the uncertainty in estimates about the
future. According to the CAPM the price for each asset is decided by
the expected return,the correlation with the market portfolio and Rf.
The expected return is Rfplus the riskpremium for each asset. The risk
free rate has dropped substantially in last decade. Thisimplies that if
we use the estimated returns they will probably overshoot the real
returns inthe near future, but the relationship between the different
classes of assets is expected toremain similar to the estimated results,
and it is this relationship which is important in diversification
8 Conclusions:-
The purpose of this thesis was to discuss the overall risk situation for
small investors whohave invested in residential property and its
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alternative invesments available. There are both advantages and

disadvantages by beinga small investor in residential property. The
main disadvantage is that they are oftenpoorly diversified.
This makes their income and wealth fluctuate more than investors
thatare properly diversified. On the other hand small and large
investors are often competingin different segments, which make
comparison rather irrelevant. Local marketknowledge is also important
as a method to reduce risk.
This study concludes that Retail Real Estate Investors do have options
available within their preferred asset class, giving more return with
less risk in comparison with Real Estate.

reduce their risk andmaintain the same level of returns through
diversification. To get the best effect out of thisdiversification this
should be done with assets that are least correlated with
residentialproperty.
This thesis has tested with the correlation with selected equities and
commodities. Of which equities gave the best results. An optimal
portfolio based onhistorical data from 2007 – 2011 suggests a portfolio
with 10 -20 % Real Estate Baroda, 40 – 60 % Equity and 30 – 40 %
commodities.
54
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Annexure
Sample Data
Re tu rn
% Sav ing
Existin g/ P ro
u rch ase d Ran ge o f A v g. P ro p eA rtv g.
y P rop e rtAyvg. B eta o f In ve sto rs
Fu n d in g In ve stm e n t % R etu rnP re fe rre d A lte rn ative re ce ive d
Sr.N o N am e Birth DateG e n d e rFam i ly In como fe to tal sp e ctivepro p e rty P ro p e rty A re a P ro p e rty De tails in vestm e n t in R e al P rice s(2011 P rice s(2003 Re tu rn (b ase d o n are a o f
th ro u gh? e xp e cte d A sse t Classe s m o re
in co m eI n ve sto rs fo r? e state Se cto r P rice In d ePx)ri ce I nd e x)p .a. i nve stm e n t)
th an
1 A sh o k b h ai ch an d u b h4-aiMpar-
ate1965
l M ale 500000-1000000 30% -40%Exi st in g Re sid in g K A RELIBU A G Te n am e n t Ho u sin g Lo an500000-1000000 15% - 20% Eq u ity 2900 700 5 1.7 9 % Ye s 5.239171375
2 Dr. M u ke sh Harib h ai25-A p atep r-l 1972
M ale 1000000- 150000030% -40%Exi st in g Re sid in g SA M A , N I ZA M P U RA Dup le x Cash 1000000- 1500000
30% and A b o veEq u ity 2450 775 3 9.5 2 % Ye s 5.200308166
3 sanj ay am b alal p ate 1-Jl ul -1976M ale 1000000- 1500000 40% -50%Exi st in gIn ve stm e n t O LD P A D RA RO A D Land / p lo t Cash 1500000 - 2000000
30% and A b o veEq u ity 2500 850 3 6.7 6 % No 4.325564972
4 Go rdh an bh ai bh u lab hai 6-J ulp at
-1952M
el ale 1000000- 1500000 40% -50%Exi st in gIn ve stm e n t GO RW A Land / p lo t Cash 2000000 an d30% ab ove 1 6 5I)0
and ABob on dves (Co rp o rate / GO 500 4 1.2 5 % Ye s 3.567691986
5 Sn e h a Dab gar 22-M ay-1984 F e m ale500000-100000020% -30%Exi st in g Re sid in g SA M A , N I ZA M P U RA Dup le x Ho u sin g Lo an2000000 an d ab 20%ove- 30% Eq u ity 2450 775 3 9.5 2 % Ye s 5.200308166
6 A l p esh p at e l 19-M ay-1981 M ale u n de r 500000 20% -30%Exi st in g Re sid in g K A RELIBU A G A p artm e n t Ho u sin g Lo an1500000 - 2000000 30% and A b o veEq u ity 2900 700 5 1.7 9 % Ye s 5.239171375
7 J ite n P ate l 26-J u n- 1982 M ale 1500000 - 2000000
20% -30%P ro sp ective
In ve stm e n t W A GHO DIA RO A D Land / p lo t Ho u sin g Lo an2000000 an d ab 15%ove- 20%
B o n d s (Co rp o rate / GO1 6 5I)0 450 4 5.8 3 % Ye s 9.510357815
8 Kam e n Gaj jar 10-De c- 1984 M ale 500000-1000000 20% -30%P ro sp ective
Re sid in gE LLO RA P A RK, SU BHA NA pP UartmRA e n t Ho u sin g Lo an1000000- 1500000 20% - 30% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 5.909901873
9 A sh ish P ate l 7- Se p - 1982M ale u n de r 500000 20% -30%P ro sp ective
Re sid in gE LLO RA P A RK, SU BHA NA pP UartmRA e n t Ho u sin g Lo an1000000- 1500000 30% and A b o veEq u ity 2400 675 4 4.4 4 % Ye s 5.909901873
10 A sm a P at el 24-F e b - 1984 F e m ale u n de r 500000
Re sid in g GO T RI A p artm e n t Ho u sin g Lo an1000000- 1500000 20% - 30% Co m m o d itie s 2 4 0 0 675 4 4.4 4 % Ye s 4.819380243
11 P re rit A njaria 16-O ct- 1982 M ale u n de r 500000 15% -20%P ro sp ective
Re sid in g A KO TA A p artm e n t Ho u sin g Lo an1000000- 1500000 15% - 20% B o n d s (Co rp o rate / GO3 0 0I)0 850 4 4.1 2 % Ye s 4.661016949
12 P ayal P arikh 30-N o v-1983 F e m ale500000-100000030% -40%P ro sp ective
In ve stm e n t GO T RI A p artm e n t Ho u sin g Lo an1500000 - 2000000 20% - 30% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 4.819380243
13 M e h u l p ate l 19-M ar-1974 M ale u n de r 500000 20% -30%P ro sp ective
Re sid in g GO T RI Dup le x Ho u sin g Lo an500000-1000000 20% - 30% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 4.819380243
14 M an th an Th akkar1 3-M ay-1981 M ale 500000-1000000 30% -40%Exi st in g Re sid in g V A SN A RO A D A p artm e n t Ho u sin g Lo an1000000- 1500000 20% - 30% B o n d s (Co rp o rate / GO2 2 5I)0 675 4 1.6 7 % Ye s 6.015287471
15 V ishal B 31-A u g-1984 M ale u n de r 500000 20% -30%Exi st in g Re sid in g M A K A RP U RA Land / p lo t Ho u sin g Lo an1000000- 1500000 20% - 30% Eq u ity 1650 575 3 5.8 7 % Ye s 2.309322034
16 K u n al D 31-M ay-1986 M ale 1000000- 150000040% -50%P ro sp ective
Re sid in g SA M A , N I ZA M P U RA Dup le x Ho u sin g Lo an500000-1000000 30% and A b o veEq u ity 2450 775 3 9.5 2 % Ye s 5.200308166
17 San jay Sh ah 7- J u n - 1986M ale u n de r 500000 15% -20%Exi st in g Re sid in g K A RELIBU A G A p artm e n t Ho u sin g Lo an1500000 - 2000000 15% - 20% Co m m o d itie s 2 9 0 0 700 5 1.7 9 % Ye s 5.239171375
18 He m an t K 31-M ar-1981 M ale 500000-1000000 15% -20%Exi st in g Re sid in gE LLO RA P A RK, SU BHA NA pP Uartm RA e n t Ho u sin g Lo an500000-1000000 15% - 20% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 5.909901873
19 A m it a K 16- J u l- 1983F e m ale u n de r 500000
Re sid in g GO T RI Land / p lo t Ho u sin g Lo an500000-1000000 10% - 15% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 4.819380243
20 P an ch al m afatb h ai 31-De c- 1969 M ale u n de r 500000 15% -20%Exi st in g Re sid in g M A K A RP U RA Land / p lo t Cash 500000-1000000 10% - 15% Eq u ity 1650 575 3 5.8 7 % Ye s 2.309322034
21 Ge e ta p an ch al 19-J an- 1971 F e m ale u n de r 500000
Re sid in g GO T RI Land / p lo t Ho u sin g Lo an500000-1000000 10% - 15% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 4.819380243
22 M an j ul ab e n V al and17- J u l- 1984F e m ale u n de r 500000
Re sid in g TA RSA LI Land / p lo t Cash 500000-1000000 10% - 15% B o n d s (Co rp o rate / GO1 5 5I)0 575 3 3.7 0 % Ye s 3.510475518
23 jw ait b aro t 13-O ct- 1982 F e m ale u n de r 500000
Re sid in g O LD P A D RA RO A D Dup le x Ho u sin g Lo an1000000- 1500000 15% - 20% B o n d s (Co rp o rate / GO2 5 0I)0 850 3 6.7 6 % Ye s 4.325564972
24 Dh aval V yas 3- Se p - 1987M ale u n de r 500000 15% -20%P ro sp ective
Re sid in g GO T RI A p artm e n t Ho u sin g Lo an500000-1000000 15% - 20% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 4.819380243
25 Go p ald as valan d12-Se p - 1956 M ale u n de r 500000 15% -20%Exi st in g Re sid in g GO T RI Land / p lo t Ho u sin g Lo an500000-1000000 10% - 15% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 4.819380243
26 M r, Baro t 5- J u n - 1982M ale u n de r 500000 20% -30%Exi st in g Re sid in g GO T RI Dup le x Cash 500000-1000000 15% - 20% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 4.819380243
27 A kash kan tilal 19-Se p - 1965 M ale 1000000- 150000030% -40%Exi st in gIn ve stm e n t M A K A RP U RA Dup le x Cash 1500000 - 2000000
30% and A b o veEq u ity 1650 575 3 5.8 7 % No 2.309322034
28 Kant il al p ate l 1- M ay- 1940 M ale u n de r 500000 20% -30%P ro sp ective
In ve stm e n t W A GHO DIA RO A D Land / p lo t Cash 2000000 an d ab 20%ove- 30%
29 A m ru tlal p ate l 1- J u n - 1956M ale 500000-1000000 20% -30%Exi st in g Re sid in g K A RELIBU A G Dup le x Cash 2000000 an d30% ab ove
and A b o veEq u ity 2900 700 5 1.7 9 % Ye s 5.239171375
30 N irave p ate l 26-Se p - 1979 M ale 500000-1000000 20% -30%P ro sp ective
In ve stm e n t O LD P A D RA RO A D Dup le x Ho u sin g Lo an2000000 an d30% ab ove
and A b o veEq u ity 2500 850 3 6.7 6 % No 4.325564972
31 A rvin d P ate l 21-J u n- 1968 M ale 1500000 - 2000000
40% -50%Exi st in g Re sid in g M A K A RP U RA Land / p lo t Cash 2000000 an d30% ab ove
32 Bh u lab hai p at e l 12-F e b - 1957 M ale 500000-1000000 30% -40%P ro sp ective
In ve stm e n t O LD P A D RA RO A D Land / p lo t Cash 2000000 an d30% ab ove
33 A m b ab e n Bh u lab h1-aiJ u n - 1958 F e m ale500000-100000030% -40%Exi st in g Re sid in g GO RW A Te n am e n t Ho u sin g Lo an1500000 - 2000000 30% and A b o veEq u ity 1650 500 4 1.2 5 % Ye s 3.567691986
34 Bip in P ate l 15-M ar-1957 M ale u n de r 500000 20% -30%P ro sp ective
Re sid in g M A N J A LP U R Dup le x Ho u sin g Lo an1000000- 1500000
30% and A b o veEq u ity 2350 650 4 5.1 9 % Ye s 5.357815443
35 A m b alal p ate l 1- J u n-57 M ale u n de r 500000 20% -30%Exi st in g Re sid in g W A GHO DIA RO A D Te n am e n t Ho u sin g Lo an500000-1000000 15% - 20% B o n d s (Co rp o rate / GO1 6 5I)0 450 4 5.8 3 % Ye s 9.510357815
36 R ekh a am it p ate l 20-J u n - 80F e m ale500000-1000000 15% -20%P ro sp ective
In ve stm e n t W A GHO DIA RO A D Land / p lo t Cash 1000000- 150000015% - 20% Co m m o d itie s 1 6 5 0 450 4 5.8 3 % Ye s 9.510357815
37 Di n esh Kum ar P ate4-l J an -63 M ale 500000-1000000 20% -30%Exi st in g Re sid in g SA M A , N I ZA M P U RA Dup le x Ho u sin g Lo an500000-1000000 15% - 20% Eq u ity 2450 775 3 9.5 2 % Ye s 5.200308166
38 P in ab e n p ate l 15- M ay- 89 F e m ale u n de r 500000
In ve stm e n t M A K A RP U RA A p artm e n t Ho u sin g Lo an1000000- 1500000 15% - 20% Co m m o d itie s 1 6 5 0 575 3 5.8 7 % Ye s 2.309322034
39 De e pak P ate l 29-O ct- 75M ale 500000-1000000 30% -40%Exi st in g Re sid in g W A GHO DIA RO A DA p artm e n t Cash 500000-1000000 15% - 20% Eq u ity 1650 450 4 5.8 3 % Ye s 9.510357815
40 Su re kh a P ate l 1- A p r-73F e m ale500000-1000000 20% -30%P ro sp ective
In ve stm e n tSA M A , N I ZA M P U RAA p artm e n t Ho u sin g Lo an1000000- 1500000 15% - 20% Co m m o d itie s 2 4 5 0 775 3 9.5 2 % Ye s 5.200308166
41 Girish Bh ai P ate l 15- M ay- 68M ale 500000-1000000 15% -20%Exi st in g Re sid in g W A GHO DIA RO A D Te n am e n t Ho u sin g Lo an500000-1000000 15% - 20% Eq u ity 1650 450 4 5.8 3 % Ye s 9.510357815
42 P re m ab e n P ate l 25- A p r- 69F e m ale500000-1000000 20% -30%P ro sp ective
In ve stm e n t K A RELIBU A G Dup le x Ho u sin g Lo an1500000 - 2000000 20% - 30% B o n d s (Co rp o rate / GO2 9 0I)0 700 5 1.7 9 % Ye s 5.239171375
43 Dr. Hi m an sh u P ate5- l J u n-82 M ale 500000-1000000 30% -40%Exi st in gIn ve stm e n t W A GHO DIA RO A D Dup le x Ho u sin g Lo an2000000 an d ab 15%ove- 20% Eq u ity 1650 450 4 5.8 3 % Ye s 9.510357815
44 De e p ika Be n P ate l2 - M ar-76F e m ale500000-1000000 30% -40%P ro sp ective
In ve stm e n t O LD P A D RA RO A D A p artm e n t Ho u sin g Lo an2000000 an d ab 15%ove- 20% Eq u ity 2500 850 3 6.7 6 % Ye s 4.325564972
45 M ah e sh P ate l 1- Se p -81 M ale 1000000- 1500000 30% -40%Exi st in gIn ve stm e n tSA M A , N I ZA M P U RALand / p lo t Ho u sin g Lo an1000000- 1500000 15% - 20% Co m m o d itie s 2 4 5 0 775 3 9.5 2 % Ye s 5.200308166
46 Ku m ar P ate l 15-J u n - 79M ale u n de r 500000 20% -30%P ro sp ective
In ve stm e n t GO T RI A p artm e n t Ho u sin g Lo an500000-1000000 10% - 15% B o n d s (Co rp o rate / GO2 4 0I)0 675 4 4.4 4 % Ye s 4.819380243
47 U m e sh Bh ai P ate l23- A ug- 81M ale u n de r 500000 30% -40%Exi st in g Re sid in g A KO TA Land / p lo t Cash 1000000- 150000015% - 20% Eq u ity 3000 850 4 4.1 2 % Ye s 4.661016949
48 Girish Ku m ar P ate19- l De c- 74M ale 500000-1000000 20% -30%P ro sp ective
In ve stm e n t K A RELIBU A G A p artm e n t Ho u sin g Lo an2000000 an d ab 15%ove- 20% Eq u ity 2900 700 5 1.7 9 % Ye s 5.239171375
49 Dh araBh ai P ate l 10- M ar- 68M ale u n de r 500000 15% -20%Exi st in g Re sid in g GO RW A Te n am e n t Ho u sin g Lo an500000-1000000 10% - 15% Eq u ity 1650 500 4 1.2 5 % Ye s 3.567691986
50 Dh an u Bh ai P ate l31- De c- 50M ale 1000000- 1500000 20% -30%P ro sp ective
In ve stm e n t O LD P A D RA RO A D Land / p lo t Ho u sin g Lo an1000000- 1500000 20% - 30% Eq u ity 2500 850 3 6.7 6 % Ye s 4.325564972
51 U m a Be n P ate l 15-J u n - 75F e m ale500000-1000000 20% -30%P ro sp ective
In ve stm e n t O LD P A D RA RO A D A p artm e n t Ho u sin g Lo an2000000 an d ab 15%ove- 20% Eq u ity 2500 850 3 6.7 6 % Ye s 4.325564972
52 J o yo tsn a b e n 2- M ar-65F e m ale500000-1000000 20% -30%P ro sp ective
In ve stm e n tSA M A , N I ZA M P U RALand / p lo t Cash 1000000- 150000020% - 30% Co m m o d itie s 2 4 5 0 775 3 9.5 2 % Ye s 5.200308166
53 D e e p ak 19- N o v- 80M ale 500000-1000000 30% -40%P ro sp ective
In ve stm e n t W A GHO DIA RO A D Dup le x Ho u sin g Lo an2000000 an d ab 20%ove- 30%
54 Ban u be n 15- A p r- 74F e m ale500000-1000000 30% -40%P ro sp ective
In ve stm e n t A T LA DR A Land / p lo t Cash 1500000 - 2000000
30% and ABob on dves (Co rp o rate / GO 1 8 5I)0 650 3 5.5 8 % No 2.102950408
55 M an ju lab e n 13- M ay- 59 F e m ale u n de r 500000
In ve stm e n t W A GHO DIA RO A D Land / p lo t Ho u sin g Lo an1000000- 1500000 15% - 20% Eq u ity 1650 450 4 5.8 3 % Ye s 9.510357815
56 P re m ila b e n 25- A p r- 61F e m ale500000-1000000 20% -30%P ro sp ective
In ve stm e n t O LD P A D RA RO A D A p artm e n t Ho u sin g Lo an1000000- 1500000 10% - 15% Co m m o d itie s 2 5 0 0 850 3 6.7 6 % Ye s 4.325564972
57 N an i Be n 1- J u n-59F e m ale500000-1000000 20% -30%P ro sp ective
In ve stm e n t A KO TA Land / p lo t Ho u sin g Lo an1000000- 1500000 10% - 15% B o n d s (Co rp o rate / GO3 0 0I)0 850 4 4.1 2 % Ye s 4.661016949
58 J o sh e la b e n 26- M ay- 59 F e m ale1000000- 1500000
In ve stm e n t W A GHO DIA RO A D Land / p lo t Ho u sin g Lo an1500000 - 2000000 20% - 30% Co m m o d itie s 1 6 5 0 450 4 5.8 3 % Ye s 9.510357815
59 Kantabe n 10-J u n - 63F e m ale500000-1000000 15% -20%P ro sp ective
In ve stm eELLO
n t RA P A RK, SU BHA NA pP Uartm RA e n t Ho u sin g Lo an1500000 - 2000000 15% - 20% Co m m o d itie s 2 4 0 0 675 4 4.4 4 % Ye s 5.909901873
60 Ge e ta B e n 01/ 07/ 1971 F e m ale500000-100000015% -20%P ro sp ective
In ve stm e n tSA M A , N I ZA M P U RALand / p lo t Ho u sin g Lo an1000000- 1500000 15% - 20% Eq u ity 2450 775 3 9.5 2 % Ye s 5.200308166
61 Savi ta b e n 12-J an - 49F e m ale u n de r 500000 15% -20%P ro sp ective
In ve stm e n t TA RSA LI Dup le x Ho u sin g Lo an500000-1000000 10% - 15% Eq u ity 1550 575 3 3.7 0 % Ye s 3.510475518
62 N aran Das 9-N o v-52 M ale 1000000- 1500000 20% -30%Exi st in gIn ve stm e n t O LD P A D RA RO A D A p artm e n t Ho u sin g Lo an2000000 an d ab 10%ove- 15% Co m m o d itie s 2500 850 3 6.7 6 % Ye s 4.325564972
63 Hari krish an 5- Fe b -66 M ale 500000-1000000 20% -30%Exi st in g Re sid in g GO RW A Te n am e n t Ho u sin g Lo an1000000- 1500000 15% - 20% Eq u ity 1650 500 4 1.2 5 % Ye s 3.567691986
64 Harish B h ai 10-J u n - 69M ale u n de r 500000 15% -20%Exi st in g Re sid in g A T LA DR A Te n am e n t Ho u sin g Lo an500000-1000000 15% - 20% Co m m o d itie s 1850 650 3 5.5 8 % Ye s 2.102950408
65 Hasm it Bh ai 30- De c- 66M ale 500000-1000000 20% -30%Exi st in gIn ve stm e n tSA M A , N I ZA M P U RALand / p lo t Cash 1000000- 150000010% - 15% B o n d s (Co rp o rate / GO2450 I) 775 3 9.5 2 % Ye s 5.200308166
66 H asm u kh Bh ai 1- J u n-70 M ale 500000-1000000 20% -30%Exi st in gIn ve stm e n t GO T RI Dup le x Ho u sin g Lo an2000000 an d ab 15%ove- 20% Eq u ity 2400 675 4 4.4 4 % Ye s 4.819380243
67 Dr. Hirab h ai 5- A u g-45 M ale 500000-1000000 20% -30%Exi st in gIn ve stm e n t GO RW A Dup le x Ho u sin g Lo an1500000 - 2000000 15% - 20% Eq u ity 1650 500 4 1.2 5 % Ye s 3.567691986
68 Hira b h ai P ate l 23- M ar- 60M ale 500000-1000000 20% -30%Exi st in g Re sid in g GO RW A A p artm e n t Ho u sin g Lo an1000000- 1500000 10% - 15% Eq u ity 1650 500 4 1.2 5 % Ye s 3.567691986
69 H irab h ai P ate l 1- Fe b -64 M ale 1000000- 1500000 30% -40%Exi st in gIn ve stm e n t TA RSA LI Land / p lo t Cash 1500000 - 2000000
10% - 15% Eq u ity 1550 575 3 3.7 0 % Ye s 3.510475518
70 M ah en d ra b h ai 21- M ar- 70M ale 500000-1000000 20% -30%Exi st in g Re sid in g GO T RI Dup le x Ho u sin g Lo an1000000- 1500000 15% - 20% Eq u ity 2400 675 4 4 . 4 4 % Ye s 4.819380243
71 M an gal Bh ai 30- M ay- 54M ale u n de r 500000 15% -20%Exi st in g Re sid in g TA RSA LI Te n am e n t Ho u sin g Lo an1000000- 1500000 10% - 15% Co m m o d itie s 1550 575 3 3 . 7 0 % Ye s 3.510475518
72 M an i b h ai 1- J u l- 55 M ale 500000-1000000 20% -30%Exi st in gIn ve stm e n t GO T RI Dup le x Ho u sin g Lo an1500000 - 2000000 20% - 30% Eq u ity 2400 675 4 4 . 4 4 % Ye s 4.819380243
73 M an ish Bh ai 14- Se p- 85M ale 500000-1000000 30% -40%Exi st in gIn ve stm e n t O LD P A D RA RO A D Dup le x Ho u sin g Lo an1500000 - 2000000
30% and A b o veEq u ity 2500 850 3 6 . 7 6 % Ye s 4.325564972
74 M an ilal Bh ai 22- N o v- 44M ale 500000-1000000 20% -30%Exi st in gIn ve stm e n tSA M A , N I ZA M P U RALand / p lo t Cash 1000000- 150000020% - 30% Co m m o d itie s 2450 775 3 9 . 5 2 % Ye s 5.200308166
75 M an ish Ku m ar P ate9-l M ar-90 M ale 1000000- 1500000 30% -40%Exi st in gIn ve stm eELLO
n t RA P A RK, SU BHA NLand P U RA/ p lo t Cash 2000000 an d ab 15%ove- 20% Eq u ity 2400 675 4 4 . 4 4 % Ye s 5.909901873
76 M u ke sh bh ai 12- De c- 75M ale 500000-1000000 20% -30%Exi st in g Re sid in g GO T RI Dup le x Ho u sin g Lo an2000000 an d30% ab ove
and A b o veEq u ity 2400 675 4 4 . 4 4 % Ye s 4.819380243
77 N ain a Be n 23-O ct- 79F e m ale500000-1000000 20% -30%P ro sp ective
In ve stm e n t W A GHO DIA RO A D Land / p lo t Cash 1000000- 150000020% - 30% Eq u ity 1650 450 4 5 . 8 3 % Ye s 9.510357815
78 N arayan Bh ai 15- A p r- 59M ale 500000-1000000 30% -40%Exi st in gIn ve stm e n t A KO TA Land / p lo t Ho u sin g Lo an1000000- 1500000 15% - 20% Eq u ity 3000 850 4 4 . 1 2 % Ye s 4.661016949
79 N are sh Ku m ar 1- J u n-69 M ale u n de r 500000 15% -20%Exi st in g Re sid in g M A N J A LP U R Te n am e n t Ho u sin g Lo an1000000- 1500000 15% - 20% Co m m o d itie s 2 3 5 0 650 4 5 . 1 9 % Ye s 5.357815443
80 N ash a Bh ai 28- De c- 52M ale u n de r 500000 15% -20%Exi st in g Re sid in g O LD P A D RA RO A D Dup le x Ho u sin g Lo an1500000 - 2000000
30% and A b oCo vem m o d itie s 2500 850 3 6 . 7 6 % Ye s 4.325564972
58
Baroda
Property Prices of Baroda Area wise21
A P P R O X IM A T E R A T E F O R S A L E *
N EW RESIDEN TIA L AP A RTM EN T IN R PER SFT
N EWO FRESIDEN RiskSFT
SUP ER TIAL A P A RTM EN T IN R PER Le ve
OFl in compariso n w ith
LO CA TIO N BUILT UP A REA 2011 IN DEX SUP ER BUILT UP AREA 2003 IN DEX India prope rty Index
P rice Range P rice Range
A L KA PU R I 3000 - 4000 850-1000 5.0926
M A N JA L PU R 2000 - 2700 600-700 5.3578
M A KA R PURA 1500 - 1800 500-650 2.3093

TARSALI 1400 - 1700 500-650 3.5105
ATLADR A 1700 - 2000 750-800 2.1030
A KO T A 2500 - 3500 800-900 4.6610
VA S NA R O A D 2 00 0 -2 5 0 0 600-750 6.0153
O L D PA D R A R O A D 2000 - 3000 800-900 4.3256
R AC ECO URS E
2700 - 3500 750-900 5.9228
C IR C L E
GOTRI 2000 - 2800 600-750 4.8194
ELL O R A PA R K,
2000 - 2800 650-750 5.9099
S UBH A N PUR A
GORW A 1500 - 1800 450-550 3.5677

KA R E L IBU A G 2800 - 3000 650-750 5.2392
F A T EH G UNJ 2500 - 3000 750-900 3.7345
SAM A,
2200 - 2700 700-850 5.2003
N IZ A M P U R A
W A G H O D IA R O A D 1500 - 1800 150-200 9.5104
Commodity Returns and Risk22
Com modities ReturnPerAnnum Risk

MCX 28.38% 1
Gold 40.21% 0.26
Silver 58.52% 1.29
CrudeOil 31.18% 1.32
21
Source:- BarodaRealty.com for 2011 price index and Times of India for 2003 price index
22
Source: - MCX Commodity Price index
59
Baroda
Nifty and its Stocks Risk and Return23
N ifty & its sto cks RiskSeEvcto alur atio2003 n 2004 2005 2006 2007 2008 2009 2010 2011 Re tu rnRisk
N if ty In d e x 11 00 .119 5 12 .2211
5 5.002 83 5.95
4 00 7.40
61 44 .330
5 33 .45235 2.20 6 15 7.606 2.19% 1 .0 0
A CC Cem e nt 1 26 .0 02 49 .0 03 40.0053 5.001 08 9.0010 17 .0 04 77 .0 090 7.001 10 4.009 7.35% 1 .0 6
A m b u ja C e m e n t s Lt d .C e m e n t 22 .0 0 41 .0 0 54.00 8 0.00 14 1.00145 .0 0 72 .0 0 10 3.0015 5.007 8.28% 0 .8 0
A x i s B a n k Lt d . B an k in g 50 .0 0 1 32 .0 01 82.0028 2.0045 6.00967 .1 05 60 .0 099 3.001 28 6.00 28 5.78% 1 .3 6
B a j a j A u t o Lt d . A u to 215 .0 01 95 .0 085 2.001 46 2.00 17 0.00% 2 .7 5
B h a ra t H e a v y E le ct r icaC laspLti t da l. G o o d s9 0 .0 0 2 50 .0 03 73.0070 0.001 16 3.0025 84 .013
0 68 .02400 6.00 1 99 2.00
24 5.93% 1 .5 1
B h a ra t P e t ro le u m C o rp O iol /rGa taiso n Lt d2. 25 .0 04 48 .0 04 44.0043 7.0031 7.00472 .0 03 84 .0 063 2.0063 2.003 1.21% 0 .8 0
B h a rt i A i r t e l Lt d . T e l e co m 10 .0 0 50 .0 0 1 14.0017 2.0031 3.00485 .0 03 54 .0 032 0.0035 4.0039 3.33% 1 .5 8
C i p la Lt d . P h arm a 63 .0 0 1 05 .0 01 27.0017 8.0025 2.00212 .0 01 86 .0 033 5.0032 0.005 6.44% 0 .6 0
D r. R e d d y 's La b o ra t o riP eh sa rLtmda. 4 35 .0 07 10 .0 04 20.0047 4.0080 0.00715 .0 04 45 .0 01 13 5.00 1 67 1.004 2.68% 1 .1 2
G A I L ( In d i a ) Lt d . O il/ G as 47 .0 0 1 73 .0 01 53.0017 6.0018 3.00360 .0 02 06 .0 041 3.0051 5.0012 1.75% 1 .8 4
G ra s i m I n d u s t ri e s Lt d T. e x t i l e 3 15 .0 01 0 12 .0127
0 5.001 35 0.00
2 75 5.00
35 50 .011
0 85 .02410 5.00 2 54 5.008 9.77% 1 .7 6
H C L T e ch n o l o gi e s Lt d T. e ch n o l o g y 70 .0 0 1 60 .0 01 75.0027 0.0031 5.00330 .0 01 15 .0 037 0.0052 5.008 3.33% 1 .7 1
H D F C B a n k Lt d . B an k in g 2 17 .0 03 66 .0 05 04.0070 5.001 05 5.0017 15 .010
0 18 .01760 0.00 2 37 7.00
12 1.71% 0 .8 7
H e ro H o n d a M o t o r s LtAdu. t o 2 22 .0 04 50 .0 05 60.0086 0.0075 1.00700 .0 07 95 .0 01 69 5.00 1 98 5.009 9.35% 0 .6 1
H i n d a l co I n d u s t r i e s LtMd e. t a l 47 .0 0 1 20 .0 01 25.0012 6.0015 8.00182 .0 0 50 .0 0 17 0.0024 2.005 7.21% 1 .9 5
I T C Lt d . C o n s u m e r G o21 o d.0s 0 33 .0 0 44.00 7 0.00 8 9.00 102 .7 5 86 .0 0 12 7.0019 0.0010 0.53% 0 .4 4
In f o s y s T e ch n o lo g i e s TLte dch. n o l o g y 3 50 .0 06 95 .0 01 02 5.00 1 50 7.00
2 32 4.00
17 75 .011
0 65 .02580 0.00 3 30 0.00
10 4.76% 0 .9 4
La rs e n & T o u b r o Lt d . C a p i t a l G o o d s4 7 .0 0 1 32 .0 02 41.0044 5.0073 5.002 0 58 .0 07 75 .0 01 69 3.00 1 72 8.00
40 8.51% 1 .8 0
M a h i n d ra & M a h i n d r aA Lt u tdo. 24 .0 0 95 .0 0 1 33.0023 7.0046 2.00402 .0 01 26 .0 052 5.0077 0.0035 6.48% 2 .6 6
M a ru t i Su zu k i I n d i a LtAdu. t o 2 20 .0 03 79 .0 04 56.0066 6.0092 2.00990 .0 05 50 .0 01 56 0.00 1 42 1.007 1.77% 1 .2 7
N T P C Lt d . Pow er 80.00 11 0.0013 9.00241 .0 01 81 .0 023 3.0019 8.003 5.36% 0 .6 4
O i l & N a t u ra l G a s C o r Op oi lr/ aGt ai os n Lt d . 60 .0 0 1 54 .0 01 34.0020 0.0021 8.00312 .0 01 68 .0 030 5.0031 8.005 8.89% 1 .3 2
P u n j a b N a t i o n a l B a n kB a n k i n g 75 .0 0 2 29 .0 04 14.0045 6.0048 4.00664 .0 05 26 .0 091 5.001 19 3.00 17 6.74% 1 .0 7
R a n b a x y La b o r a t o r ie sP Lth adr.m a 2 96 .0 05 40 .0 06 25.0036 5.0039 0.00422 .0 02 42 .0 052 0.0060 1.002 2.56% 0 .9 9
R e l ia n ce C a p i t a l Lt d . B a n k i n g 55 .0 0 1 36 .0 01 32.0044 0.0060 2.002 5 00 .0 05 10 .0 088 0.0065 0.0013 1.31% 2 .1 0
R e l ia n ce C o m m u n i ca Tt io e lne scoLtmd . 28 5.0048 5.00750 .0 02 45 .0 018 1.0014 0.008. 19% 0 .7 4
R e l ia n ce In d u s t r ie s LtOd i.l / G a s 1 45 .0 02 90 .0 02 62.0044 0.0063 5.001 4 32 .0 06 20 .0 02 15 0.002 10 0.00
16 0.92% 1 .9 7
R e l ia n ce In f ra s t r u ct u reC a pLti dt a. l G o o d2s20 .0 05 00 .0 05 30.0061 5.0052 0.002 1 20 .0 06 30 .0 01 15 0.0081 0.004 0.91% 1 .8 7
Se s a G o a Lt d . M e tal 1 .0 0 9 .0 0 15.00 3 0.00 4 5.00 110 .0 0 53 .0 0 24 0.0035 0.00 3 88 8.89%4 .7 6
Si e m e n s Lt d . C a p i t a l G o o d s3 8 .0 0 1 05 .0 01 30.0036 2.0057 0.00939 .0 02 95 .0 058 0.0083 0.0024 2.69% 1 .6 1
St a t e B a n k o f I n d i a B a n k i n g 2 68 .0 04 80 .0 05 90.0084 1.001 17 0.0022 70 .012
0 38 .02230 0.00 2 80 0.00
11 6.09% 1 .0 5
St e e l A u t h o r it y o f In dMiae Lt t adl . 10 .0 0 52 .0 0 63.00 5 4.00 9 0.00 270 .0 0 79 .0 0 25 0.0018 5.0020 5.56% 3 .2 6
St e rl i t e I n d u s t ri e s ( InMd ieat)aLtl d . 4 .0 0 38 .0 0 30.00 5 4.00 14 0.00250 .0 0 70 .0 0 22 0.0019 3.0053 6.11% 4 .7 8
Su n P h a rm a ce u t ica l I nP dh ua rsmt r iae s Lt d .31 .0 0 61 .0 0 1 08.0013 7.0020 0.00241 .0 02 15 .0 031 0.0049 0.0017 5.63% 0 .4 7
T a t a C o n su l t a n cy S e r vTiecechs nLto dl o. g y 2 50 .0 03 30.0043 0.001 23 0.00
11 10 .0 05 60 .0 01 60 0.00
1 23 0.006 1.50% 1 .6 1
T a t a M o t o rs Lt d . A u to 1 60 .0 04 22 .0 04 80.0061 0.0083 0.00690 .0 01 60 .0 079 0.001 35 0.009 3.75% 2 .4 6
T a t a P o w e r C o . Lt d . P o w e r 1 10 .0 03 40 .0 03 80.0043 0.0055 5.001 4 10 .0 07 50 .0 01 34 0.001 35 0.00
13 6.36% 1 .6 9
T a t a S t e e l Lt d . M e tal 92 .0 0 2 60 .0 03 40.0033 0.0042 0.00870 .0 02 50 .0 065 0.0071 0.008 5.75% 1 .9 2
W i p r o Lt d . T e ch n o l o g y 90 .0 0 1 80 .0 04 50.001 12 0.00 1 48 0.00
25 00 .022
0 00 .01600 0.00 3 00 0.00
37 0.37% 0 .1 7
23
Source: - historical data of mentioned stocks downloaded from www.nseindia.com
60

Alternative Investments 2.0

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Alternative Investments 2.0

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Risk, Return and Alternative Investments for Retail Real Estate Investors of

The return is determined by the change of value for the property

The CAPM shows that portfolios based on residential property can

An optimal portfolio based onhistorical data from 2007 – 2011

The positive effects from diversification have to be compared to the

chosing new investment items. Investorscan get a good diversification

Formulation of Problem Statement: -..................................................................................5

Rational of the Study...........................................................................................................7

Related Literature: -..........................................................................................................10

Investment Assets Class....................................................................................................15

7.1 Sample Data and its Analysis..................................................................................34

Charts and Tabels (with Page No.)

Table2:- Descriptive statistics of Asset Classes 36

Table3: - Descriptive statistics of Samples Area wise 36

Chart 1:- Family Income v/s % saving of total Income 37

Chart 2:- No. of Prospective and Retail Investor 38

Chart 3: - Family Income & % Total saving v/s Type of Investors 39

Chart 4:- Property v/s its intention 39

Chart 5:- Type of Asset v/s Area 39

Chart 6:- Type of Asset v/s Area 40

Chart 7: - Combine % of Type of Asset and its intention

Chart 8:- Source of Finance v/s Type Real Estate Assets

Chart 9:- Area Wise Expected Return

Chart 10:- Return Received more than Expected? Area Wise

Chart 11:- Areawise Risk Details 43

Chart 12:- Risk Return Matrix Areawise 44

Table 4: - Risk Return Matrix of Commodities 44

Table 5: - Risk Return Matrix of Equities 45

Figure 1:- CAPM Chart 47

Table 6: - Risk Return Matrix of Asset Classes 47

Chart 12:- Risk Return Matrix Assetwise 48

Chart 13:- Risk Return Matrix Assetwise 48

Table 7: - Correlation between Asset Classes 49

Table 8: - Risk Return Matrix 50

Chart 14:- Risk – Return relationship with different Portfolio Mix

Chart 15:- Portfolio Mix - Risk – Return

Formulation of Problem Statement: -

Investment in real estate has the potential of earning high returns.

Here are a few mistakes that people often make:

• Not to plan their purchase (running out of money)

This study would address the problem of flexibility as this is due to

Thus, Investment in Real Estate can be very profitable, but every

When investments in residential property are compared with other

Small investors do not always have those opportunities

Rational of the Study

Residential property is considered to be a rather safe investment for

The return is determined by the change of value for the property

In past 5 years India is the hot/preferred destination for Domestic as

But since US and other Western Countries economies are slowly

Therefore, i have intended to investigate the risk and returns

Focus will be on risk reduction by diversification. In past there are

Investors should diversify its portfolio to increase/maintain the rate of

The model was introduced by Jack Treynor (1961, 1962), William

independently,building on the earlier work of Harry

The CAPM shows that portfolios based on residential property can

The positive effects from diversification have to be compared to the

This paper intended to use Primary as well as Secondary data. Primary

Similar study was intended to explore the alternative investments

They concluded that alternative investments are important for the

However, not allalternative investment classes are of equal

for traditional asset classes, and may be better as complements for

Furthermore, there is one study which was conducted to simulate the

This study mainly intends to develop a general equilibrium business