Any investment vehicle that has low yield on investment tends to rely on capital appreciation as its source of growth and return. Over time, real estate has become increasingly unattractive as a yield generating investment vehicle, as residential rental yields have dropped to less than 2 per cent in most Indian cities. In fact, rental yields in India are among the lowest in the world.So, what makes investors look at residential real estate as a wealth creation vehicle? The answer lies in the expected capital appreciation on properties. Investors believe that the scarcity of land coupled with India’s burgeoning population will cause demand to be consistently higher than supply, thereby leading to price appreciation, resulting in wealth creation. However, a look at the inventory of unsold residential apartments across the main cities in India will serve as a counterpoint to this widely held notion.The data clearly shows that the belief of excess demand over supply having the potential to create capital appreciation is being challenged, given the juggernaut of supply piling up across the country. So, let alone capital appreciation, it will be difficult to keep prices at current levels. While individual investors may have the holding capacity and might survive this by pocketing the 2-3 per cent rental yield, the supply coming from individual investors has never been a determinant of property prices. It is, in fact, the supply by builders that will determine the fate of returns.Builders have the capacity to hold prices as long as their financial health is good. However, according to a recent study, most builders are facing severe financial crisis. Consider, for instance, DLF, which has lost close to 90 per cent of its net worth over the last seven to eight years alone. Across the board, firms like Unitech Parsvanath , and Hubtown have the same story to tell. Given the market conditions at present, builders do not have adequate holding capacity.As far as demand is concerned, it has been muted for the past two years. This is largely because investors have become overweight in terms of real estate. RBI data about the savings of Indian households shows that he money spent by households on physical assets such as gold and real estate stood at 50-51 per cent in the mid-2000s, but went up to nearly 70 per cent in 2012-13. Given that investors have overbought in the real estate space, purchases have slowed down, with many looking at selling their holdings in order to create some liquidity.According to a recent report by real estate research firm Liases Foras, with supply being at the present level, it will take more than three years to clear the current inventory, given the muted demand. Even RBI Governor Raghuram Rajan is of the view that the real estate market is a bubble. In an address delivered on 20th August 2015, Rajan stated, “Real estate is now a bubble. It has to be burst before many ordinary people get sucked into it”.It would therefore be wise for investors to stay away from real estate as a wealth creation tool, at least for the next four to five years.