Why I am Interested for Real Estate, Read the article if you are going for any real estate investment.
Let us discuss myths about real estate.
Myths no: 1
First of all it is an asset class which will give me superficial return in the years to come at the rate 20% compounded annual growth rate(CAGR) or more.
It is absolutely wrong to assume and it won’t give you any superficial return in the long run in comparison to other asset class.
Example: One of my client invested around 100000/- with the land in 1983-84 and finished his house around 1990-91 with a cost of Rs 800000/- lakhs and now the house with land cost around Rs 1.5cr i.e scheduled price (which is again fixed by the state govt.) because the client is staying with family for last 3 decades he is never going to sell it in anyway using its rent(Rs 15000/pm) as a part of retirement income plus his pension).
In the above example, if we calculate the CAGR of investment of around Rs 900000/- (land+Building) for last 25 years and today’s cost is Rs 1.5cr the rate is around 11.90% without considering his stay and rental income from the house as both are regarded as his consumption.
Let’s say with a investment of around Rs 1.5cr in any duplex (where land is in your name) can you get the following benefits including his consumption.
Rent: Rs 15000/Pm or Rs 180000/-Annum
Your Rent: Rs 15000/- Per month (you stay threre) or Rs 180000/-Annum
Total : Rs 30000/-pm or Rs 360000/-
Investment : More than Rs 1.5cr as the builder is never going to sell you with the schedule price fixed by govt.
With an investment of Rs 1.5cr with other asset class, you can generate a income of Rs 6L per year (tax free approx) but you miss the feelings/compliments from the family members & friends “You have a very beautiful House”
Myths no: 2
We have purchased a particular house with a good bargain in comparison with others. Or the house is available at a discount or loaded with freebies like AC, Geyser, car as prize money etc.
Nobody sell you a house without considering his profit. Even if he/she sell a house in distress to you,
May that the particular house has some deficiencies like legal, Society, Vaastu or mortgage, manufacturing defect etc.
Always try to see how I am going to be benefitted? Whether I am able to sell the house in future? Is my return on Investment was up to the industry standard will it add to my benefit in future.
Myth no 3:
Real estate cycle is down now and it will come up once again at the end of 2017/2018/2019/2020. They might tell you the facts about the real estate are little bit exaggerated or simply out of proportion.
As a matter of fact or according to economics any asset class behavior is cyclic in when the particular asset has to come down to its lowest level (Elasticity) in order to go up. But the real estate asset prices are not coming down to its previous low level to go to the top. Next the argument will be it is not market linked or bench marked. But according to the theory if it cannot come down then it cannot beat its previous high or not go to the top.
As an asset class or in comparison it is not exhibiting any of the properties shown by any standard. So it is wrong to say that the real estate cycle is down and it will go up again with passage of time.Then there might be another explanation it goes side ways it will stay there till investment cycle comes.Do not overburden your net worth with real estate investment which might give you pain rather than relief.
Bikash Mohanty CFPCM
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