Real estate investments

 In India, our old people have only two options for investment. These are Real State (house or Plot) and Gold. We will talk about gold some other day. Lets talk about the investment in REAL ESTATE.

We as an Indian have great love with Real Estate. We can do anything for this. Real Estate has often been confused as an investment because it demands financial commitment. This first problem with real state is the minimum amount to invest in. Suppose if you have that amount, still you must pay stamp duty and registration at the time of purchase. It can be 5% to 6% depending about the location. So, we have the pay more than the market value. If you have taken help form any broker, then you have to pay his brokerage on top it. And If you have taken a home loan then it will cost you more, double in some cases. Somebody may argue the additional tax benefit comes with interest payment on Home Loan. The recurring costs are the maintenance and property tax which eats form profit month on month and year on year.

Now the final problem with real estate investment is liquidity. It can take months to find a buyer; and in a rush to sell the house as soon as possible, we often fail to sell the house at a fair price. Moreover, even if the money we need is smaller than the price of the house, we will have to sell the entire property to get the money. Suppose you have 80L worth of single 3BHK and you need 5L for an emergency. You can sell it in a part you have to sell whole asset. And condition will be worse if prospective buyer came to know about your emergency. He will quote well below the market rate.

Someone might think the rental income as a return. But If you calculate the rental income will be come around 2-3% per year before all then tax and maintenance. We can easily get more in any Bank’s FD with less tension and no cost and better liquidity. 

Real estate investments can be risky during economic slowdown like 2008 and COVID-19. The risk is so much so, the property price might depreciate instead of appreciating. One more thing I like to mention here that there was time when cities were expanding horizontally and all of us need our house at center location for better access to market and all. It you go extremely far then it will take time to come to that location. That is the time where it was appreciating. But now a days we have multi stories building. We can accommodate 10 times more family in same piece of land. So, supply form the builder side is also extremely high. Now with better infra people do not mind going 10 to 20 km inside. Due to this also supply is more than enough to restrict the appreciation. 

Here I would like to mention that I am not against the buying the house or plot. But it should not be the only investment in our life. We should have with the alignment of our financial goal.