Real Estate vs Stocks
While I could have written with subject like "Do not invest in property" and could easily get a hot topic to debate upon but this post is just my view on investment in Property. It is true that till date I have not invested a penny in property e.g. no flats, no land and no property to boast of!!! The reason why I do not like investing in property :
[1] I do not understand the JARGON.
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There are so many hidden costs involved in this investment that I more than often find self lost with the technicalities of it. A property which is marked 20 laks does not mean that you will get that in the said amount. The registration fees is extra. If there is a broker involved then he too charges his commission. This commission can vary from person to person, and how well informed you are. No need to mention again that I do not understand and presently keeping aloof of Property Investment.
[2] lack of LIQUIDITY.
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This is probably the main reason for my dislike to investing in Property. By this I simply mean that this kind of investment lacks the availability of money. Let me elaborate - lets say you have bought a property and are really happy. The broker keeps coming to you and tell you that the 20 lakhs of property is now worth 23 lakhs in an year and you are really contended with your investment. Suddenly, out of the blues, you suddenly require a lot of money, lets say someone needs immediate medical attention and you run short of money. Now call that broker, well believe me 99.9% brokers will see the urgency and will get your property sold in a not so profitable state (if not loss). But what I am talking is not of this loss but the need to get your property into liquid (read cash) form again. Believe me you will be really lucky if you can sell your property in profit within 1 month. Of course you can sell it the very next day at loss if you are ready to but waiting for a month ??? If you say that I am exaggerating, well my Merchant Navy friend tried to sell his home and shift to some other state, Obviously he needed money for shifting and buying home in another state. He planned to get the 70% of the expenses by selling his previous home.He was unable to sell at the desired profitable price for 5-6 months. In between he finally went for sailing and when he returned he built his new home from this sailing wages. He tried selling by himself first but you can take my words that you need to be well informed of the region where you are and we merchant navy officers are seldom that informed. Finally he was able to sell his property after 6 months and that to at a loss no need to mention through a broker. I can even site my own father's example but I think you got the picture.
[3] CASH CRUNCH.
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Do I really need to explain this. Can you buy a property of 1000 Rs today. Of course not, but you can always invest that amount in other forms of investment. An investment in property today demands more than 12 lakhs. I am talking about a place like Dhanbad, Jharkhand. For any metropolitan City estimate it at 40 Lakhs. Unless you are born with a silver spoon in your mouth or have sailed for more than an year in a stretch, still you will exhaust all your savings and have a Cash crunch in buying such a property. I know the smartest thing to do today is EMI which I have never supported. My friend, we are talking of Investment that is money generating money not taking money. Whenever you take any form of loan you simply increase the cost of investment. A 20 lakh flat at EMI means its cost is already more than 22 lakhs. Here again longer EMI might seem easier to handle but in reality it means longer Liability and no doubt more cost of property.
[4] Is it really Good RETURN ON INVESTMENT (ROI)
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So many times I have heard people telling that "Hey you see I bought this flat 5 years ago in 20 Lakhs and today it is more than 30 lakhs". To me it seems only marginally better than a returns of FD (8%). You can check yourself. If you say that I am undermining the Price, and it will double then are you really sure? Of course it has in some places but I believe We merchant Navy guys have some kind of fascination in buying the property where the prices have already appreciated. My point here too is not that it cannot, of course it can, I mean hey when a share like "SESAGOA" can give returns of 5 times in an year than why cannot your property double in 5 years, but What I mean here is that neither am I sure nor are you about the ROI . You need to calculate the returns and compare your ROI wisely with the basic Investments like FD. I mean you need to beat that as I told you in this forum.
[5] TOO MANY PEOPLE INTERESTED
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Of course it is a good news to have too many people interested in your property, but only if they are ready to pay!! While movies like "Khosla ka Ghosla" may be just a comedy film for you , the place where we live these things always happen just that the climax is a lot different. Not only that, there are the remote chances that Government themselves might plan out some development and you are really very happy expecting your land price to soar, only to find that they have planned a Road over your land. Tell me the truth did anyone ever considers that? Flats rented to some have also ended in court cases. I have met a Merchant Navy Chief Engineer whose crores of property were rented and the tenants have sued him. His experience was so bad with this, that he made his son a lawyer and has been fighting his case for years.
[6] It is also RISKY
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When I find people telling that property Investments are less risky then I feel like telling them all the above examples but it is of no use. It is a usual saying that Land and gold are the only two things whose value appreciate. It all depends on the time frame which you have in mind. While I can easily trade in Shares and gold, the same is very difficult with the Land. Note here that we are talking of Land and not of flats. To me it seems as risky as shares with difficult exit routes.
Nevertheless this does not mean that I will not Invest in Property. I have said many times and I will repeat again that there shall always be a cash reserve with you for any emergency (a typical Indian Mentality) and always do your own research patiently prior any investment. I will wait for the right time and property and certainly Property ke liye paisa bhi toh hona chahiye na !!! :-)
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