You can never lose on real estate- Myth or realty
Home is our most priced and desired asset, one that we strive to acquire. In the recent times, a lot has been speculated regarding the great real estate bubble bursting. Considered as one of the best mode of investment, real estate market has always been busy. From banks to organizations to the common man everyone is directly or indirectly involved in real estate investments. It is said that it is impossible to have an economic loss in the real estate business. But the million dollar question is: is this true or is it an urban fable that we have been told.
In the recent years, builders have been in a positive mood as Delhi or Mumbai have witnessed a decent number of properties sold. But this is no big surprise as builders have tried every trick to sugar coat the offer to ensure that you buy. There have various schemes the 10:80:10 schemes, for instance, and many others have been created by builders to present you with the perfect offer.
Beware of these schemes as they are specially designed to build some amount of liquidity for the builders at your expense. There is also a huge possibility they can delay in delivering the project and moreover, use your money as the working capital. In this scenario, you will be the one who is stuck.
Buyers are always on the look of the right time to invest in real estate, but is there truly a right time? We all have been taught that a flat bought today for lakhs, will years in future be worth crores. But the truth is, we are just overestimating our gains and are unaware about the impact of compounding.
The rise in the property gives you some amount of growth, but not by earth-shattering numbers. For instance, a property bought in the late 1990s for around Rs. 14.5 lakhs would now be estimated at Rs. 1.1 crores. This would mean that the annual growth rate (CAGR) is around 12.66 %. This number is not substantial, in fact, fixed returns of 9% plus with banks or even company fixed deposit could fetch you the same amount.
Furthermore, people think that it is the flat that is being appreciated, but this is not the case. It is the land on which the property is built that is being appreciated. If anything, flat needs to be maintained there is society dues, repairs, painting, municipal taxes and much, much more. Therefore, in hindsight, the value of the flat is deprecated. This is not the case if you invest in fixed deposits or even stocks.
An important point to remember is that when the value of the floor space index is increased by the government the plot is capable of giving you additional square feet property. In other words, if the supply of land goes up it can ensure that the land prices remain down or flat.
Another point is that history might not repeat itself. There is no guarantee that if you lucked out in the past, you will get lucky in the future. By investing in real estate, people are most of the time feeding the land sharks and the builders. Therefore, it is necessary for an investor to realize the difference between reality and myth when it comes to real estate....