When you grow up in India, it is customary to hear that the house you purchase is the single best investment that you can ever make. Stories generally abound about the fabulous wealth created in Real Estate Investment. Well lets go about debunking a few of these myths.
- Home prices always appreciate :: Look around you, how many successful real estate investment exits have you seen recently. Consider a 1000 BHK Flat in an average(not so posh) location in Kolkata. The total cost would be in the range of Rs 70,00,000 (advertised as an apartment @ Rs 53,00,000) inclusive of costs like brokerages, registration, upkeep, parking etc. Now tell me how many of the people you see around you can afford that outlay . Some borrow to invest in houses, but with average interest rates hovering around 8.3-9 % levels, over the very long terms the average profits attained by investing in real estate, are even lower than the compounded rates for fixed instruments.
- We will earn back the EMI's :: Firstly the average rent for a 1000 sqft flat in an average location at Kolkata would be around the 10,000-15,000 INR per month mark. The average person would take a home loan of at least Rs 55 lakhs for a home, resulting in an EMI of close to Rs 47900 at 8.55% for 20 years. Compare that with a Rental value of Rs 10,000-15,000 per month. Need I say more.
- We can always rent it out :: Now take a drive around New Town in Kolkata. How many of these high rise buildings have apartments with lights on. Guess the reason , the owners are't nocturnal beings, but its because they dont live there and can't find people to rent it out. With so many buyers having bought at the peak of the real estate market, the supply is huge and this will keep the rents subdued for a long time to come. And who's there to guarantee that the rentor to whom you have rented your house or apartment is going to treat it the way you do. In the adverse situation you may just be left with upkeep bills larger than your yearly rent.
- A risk free investment :: This is probably the biggest driver of the real estate as a good investment hypothesis. Do yourself a favour, google Supertech/Amrapali/Jaypee etc. handover/delays/agitations and you would be convinced of how safe your investment would be. Also with the governement turning off the tap on the steady flow of black money into the sector, via. black swan events like demonetisation and stringent anti tax-evasion laws, the going can only get tough from here on.
Having read the facts above, do you still think that real estate is still a superior investment?? Do let us know your thoughts in the Comments section below.
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