Does it make more sense to look at real estate as an investment avenue instead of equity now? Especially when foreign institutional investors (FIIs) are steadily exiting Indian shares while Dalal Street is — once again — talking about elevated stock valuations.

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Experts and industry veterans are banking on the improving demand for the property market, even though the space faces three key challenges:

Surging input costs

Hikes in COVID-era interest rates

The possibility of another deadly wave of the pandemic

Could it be that investors are taking out cash to put in the good old asset class of real estate?

"We have seen a marginal rise in interest from retail investors to take long-term positions in real estate. Volatility in the stock market has reinstated that physical assets such as real estate are much more stable and also do not completely erode capital as may be the case with equity investments," Anuj Puri, Chairman of property consultant ANAROCK Group, told CNBCTV18.com.

Remarks from the industry veteran come as India returns to normalcy two years since its first full lockdown to curb the coronavirus outbreak, though the common man is on the back foot amid resurgent infections in parts of the world.

Yash Gupta, Equity Research Analyst at Angel One, told CNBCTV18.com that record low interest rates, rising affordability and stamp duty reductions by a few states have boosted demand in residential property in the past four quarters given the low base of 2020.

Lenders have started to make home loans costlier since the May 4 hike in the repo rate is likely to trigger price hikes by realty firms in order to maintain margins, Gupta said.

Realty vs equity now

Many experts are hopeful of a halt, if not reversal, in the trend seen in institutional money flow in the Indian equity market over seven full months.

FII inflow was one of the primary factors behind a near one-sided rally in Indian equities that ended in October 2021.

They are not sparing realty stocks either.

Property consultant Knight Frank has identified five top trends to watch out for in 2022:

Residential market on a strong foot

Tailwinds of record IT hiring for office segment

Co-working in flexible occupier workspace strategy

E-commerce boom to benefit warehousing sector

Digital consumption and policy impetus to drive data centre growth

Realty as an investment bet: Where to look

The best way for investors to tap the market now is through quality assets being developed by reputed developers. That is the message from Puri of ANAROCK.

In his view, housing — either apartments across cities or plotted developments primarily in cities such as Bengaluru, Chennai, and parts of the NCR — are the most lucrative segments within real estate.

With the pandemic receding, he expects high demand not just in the housing segment but also in the commercial space over the next few years.

Can Dalal Street-faithful also play the theme?

HDFC Securities remains positively biased on the realty space, and expects Tier 1 developers to gain market share.

The brokerage has DLF, Oberoi Realty, Phoenix Mills, Brigade, Prestige and Mahindra Lifespaces as its top picks.

Gupta of Angel has two 'buy' recommendations: Oberoi Realty and Sobha. "We expect demand momentum to continue but we may see some slow down in pre-sales growth numbers," he said.

He expects top 10 firms to gain market share from the unorganised space, citing low inventory levels for the last seven years.