The other day I was chatting with my friend Arnab . He moved to Mumbai about 20 years back . With one suitcase , a few thousand rupees and mind full of dreams he landed up in Mumbai !
Today he owns a few million dollars worth of properties in Mumbai !
He smiles and said the single piece of best investment advice Rana da gave him , when he came to Mumbai was ‘ Buy your own property at the earliest ‘
As per him it's stupid to stay in a rented apartment . When you buy your own property at least you are paying EMI which goes towards creating some asset . He went on to tell me how be purchases properties for 10 lakhs which a few crores at today's market valuation. I had to admit this was the best he could have done with his money . That to considering the fact that out of the 10 lahs he invested only 3 and the balance was from the bank loan !
So is real estate investment in India a no brainer as my friend Arnab pointed out .
Arnab is no exception . There are thousands like him , who was ‘ lucky ‘ enough to get into it at the right time and make it big . Oh ! But being Lucky and getting the time right is not an easy job .
But alas those who made their investments in the last five years have a different story to narrate ! Forget about 1000 % returns , the rental yields does not even cover the maintenance cost in some places ! So you have ghost houses , unlit , unoccupied standing in darkness .
There are too few who can afford these houses . The owners will prefer to have them empty rather than rent it out for a pittance !
So what are the basic rules for real estate investment . Does it have anything in common with investment in equity !
8 Things that everyone should know ( and remember ) about real estate investment
Coming to real estate many of the big cities in the emerging markets have a ‘strange’ trend . We have large inventory of unsold houses and also a large number of middle class families living in the suburbs and not able / willing to upgrade .
Real estate prices are falling and are expected to fall further due to the following reasons :
However we have to realize real estate in not a homogeneous commodity .The best analogy I can think of is like the equity market . Like in equity market even when the overall market goes down we see some company share doing well . We have to separate the HLL and Colgate's from the Kingfisher Airlines of the market . ( HUL and Colgate stock have done extremely well whereas Kingfisher Airlines has gone bankrupt )
The same applies to real estate . We have to understand the following before making real estate investments :
In conclusion the real estate market in India is maturing . It won't be like it used to be in the past !
My friends use to tell “ Investment in real estate is a no brainer . India has such a huge population so demand and price will keep going up. Gurgaon has gone up by 100 % i three years ! Also you get bank loans to leverage . Thus the post leverage returns are much higher . Buy pre launch and sell post launch . Its that easy !!!” It sounds more like the Harshad Mehta days of equity trading !!
One thing is certain for now , making money in real estate will not remain that easy any more.