Around a year and a half ago, I had started warning everybody not to buy into real estate as a correction is likely. I feel it is once again time to share something from my latest book - Invest The Happionaire® Way to help people take informed decisions before blindly following brokers and builders.
Isn't real estate evergreen?
Real estate investments offer you the opportunity of regular cash flows, in the form of rent, and also offer you capital appreciation. So, in case your property price goes up, you can always sell. Several people feel that real estate investments are much safer than stocks. This, however, is not always true.
Due to this universal love for real estate, prices of prime real estate all across the country have risen extremely fast over the past few years.
Cultures influence investing style. A few cultures prefer investing in gold and real estate. We Indians surely love gold, and if we have larger sums of money, we promptly invest into real estate.
Real estate price rises of over 300 per cent in some areas, however, are fuelled largely by investment money, and not by demand from end users. This means that more and more investors are pumping money in real estate in hopes of prices going even higher. Nonetheless, since most of us have been psychologically programmed to think that real estate is safe and excess land is not being created, we very readily invest.
People who are able to invest in real estate form a very small minority, as compared to the millions of salaried professional who are increasingly finding it impossible to even buy a decent apartment to live in. Professionals with respectable salaries are thus being forced to live in rented accommodation.
Is real estate really a safe bet?
The concept that real estate is a safe investment since new land is not being created is not entirely true. Land is being created vertically. So, with new high rises coming up, there is creation of additional supply. People can move to less expensive areas away from the city centres, as land prices tend to be lower on the outskirts.
Even though Indian population is growing and incomes are rising, the growth in real estate prices has been much more ruthless. As a result, at such high prices, the demand from actual users is very low and even non-existent. Investors might buy, but for how long can real estate prices be driven, based only on investors? Lately even investors aren't buying due to the global financial crisis.
Look at the US today. Home prices are at a 10-year low. Houses are available for as low as $2000 [Rs 90,000 approx.]. Can this happen in India too in the short term? Of course it can, and I wouldn't be surprised if it does. In 1996-97, real estate prices in certain areas of the country had corrected by as much as 70 per cent, after shooting up insanely.
The best way to invest in real estate is to compare the rent with the EMI [Equated Monthly Instalment] you would have to pay. Today, monthly rents are much cheaper than buying a place on loan. Most end users would thus prefer investing their money elsewhere and living on rent. Alternatively, millions of others simply choose to continue living with their families, since there is no social obligation in our culture to move out, unlike the West. We are happy living with our families.
Do not get carried away by what builders or real estate brokers tell you. Most of the prices are artificially inflated. Ask end users about the real estate situation, not the builders or brokers, and most people will tell you how they are unable to purchase a house today. My insider friends in the real estate industry tell me, that there is no sale happening at these prices and a major correction is bound to happen later this year.
A mistake several people make is that they ask builders and real estate brokers if it is the right time to invest in property. Imagine asking a barber if you need a haircut. I have not yet encountered a single barber who has told me that I don't need a haircut. Similarly, I have not yet met any builder or real estate broker who has told me that it isn't a good time to invest in property. If builders and brokers told such things, we would never have property bubbles and busts.
For that matter, don't even ask your stockbroker if it is the right time to buy or sell. Trust yourself. Instead of asking them, ask yourself and listen to your heart.
Keep smiling and investing in knowledge!
The Happionaire® Way/HAPPIONAIRE® is a trademark owned by Yogesh Chabria. All Rights Reserved.
Location, location, location
It is said that the three things that matter most in retail are: location, location, and location. Similarly for your investment, make sure the location of the property you invest in meets the purpose. Whether for staying in, or purely for investment, location plays an important role. Research and facts from ground zero are critical to choosing the location. How banks react to providing loans for property in the location can be good barometer to the suitability of the place. Meeting people around the area should provide valuable and practical clues to the positive aspects and negative aspects of the location.
- Team CW
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