Real estate investment can result in a windfall or a debt trap. It can build an investor or break him. Some decades ago, man’s ambitions in the world of investment were simple. They were bank fixed deposits, deposits with some good companies, post office savings certificates or government long term bonds. The perspectives and ambitions of the investors have changed much. Everyone is impatient to get rich as quickly as possible. Rat race and competition to beat the other are the accepted traits of the modern materialistic world. The complexity of investments has grown much.
Where does the common man stand vs. the real estate?
Should the common man who just covers up his family expenses, with limited savings, think of real estate investment? No, unless one is extremely talented and carries an element of luck with him. The ground reality is luck first and talent next. Real estate dealers are extremely smart businessmen and have perfected the art of drawing out the money from the prospective buyers through ‘attractive schemes.’ When you reach out a real estate developer’s office, you are told that all flats are sold– only one on the 18th floor and one on the 22nd floor are available; even for that there are many enquiries and you need to take a quick decision, you are told…..on closer scrutiny and with discreet enquiries with construction workers, you come know that more than 50% of the total 300 flats are unsold. They have classified the flats as ‘facing the swimming pool’ ‘facing the garden’ ‘ facing the main road,’ etc The flats about which you inquire are facing something or the other and command a premium. Go any day, they will tell you that the prices will be revised from next Sunday, by Rs.300 per sq. ft.
Thinking of buying a residential flat or commercial space for renting it out? Better give up the idea as there are no safe and rewarding renting prospects in big cities and metropolitan areas. I know a gentleman who rented out an area of about 5000 sq. ft. for which he had invested his life’s savings and borrowed money from the banks, to a multinational company thinking that it is a sound proposition. It took seven years of litigation in the court for him get the premises vacated. The case reached up to the Supreme Court and he had to spend several lakhs of rupees towards lawyer’s fees. Besides, imagine the tension part of it.
How to gain from investment in real estate?
As a mode of investment, real estate is growing rapidly, but it is certainly not yet for the common man in big and metropolitan cities. But investment in co-operative group housing societies has proved to be beneficial for the common man, and perhaps that is the only way through which one can earn some money, eventually when one decides to resell the flat and settles down in semi-urban place or a county.
For a common man, creating a specific portfolio on real estate companies is the better option. India’s real-estate industry is expanding @ 30% every year. The internationally known Vienna-based company Wolfgang Reithofer proposes to open 10 units near major Indian cities to manufacture bricks. But the rate at which the Banks are increasing the interest for home loans the demand for new home loans is expected to fall by about 10 percent. Without availing the bank loan it is virtually impossible for an individual/common man to buy a flat/house. Even with the loans, the middle class and the upper middle class cannot think of owning a house in colonies in the cities. The land prices and the cost of construction have gone up sky-high leaving this field open for the rich, industrial houses and multinational corporations.
In many countries housing is a key driver of economic growth. In India the conditions for housing growth are so adverse, that this sector cannot deliver tangible results to country’s economy.
The common man in the rural areas of India does have some hope. Though unplanned, farm houses are becoming popular, and are being let out on high rents for marriage and other functions. The farmer invests in the necessary infrastructure needed for such functions, like lush green lawns, specific types of small cottages for the overnight stay of the marriage party etc. The owners of farm houses near the cities, are reaping rich dividends for their investments. Tough this is an illegally activity, the landowners have the support of the political leaders. Illegal construction has always been a problem in the cities. Now the same problem exists in rural areas as well.
Mall Culture: Mall culture is fast catching up. The giants of industry like Bharti Walmart, Tatas, Reliance Industries, Pantaloon, Birla Group have already entered the race in a big way. This has provided new opportunities for the common man to think of investment in real estate.
With no cut and dry formula for the common man to form a real estate investment strategy, one has to look out for favorable conditions and avenues and grab the share, when it is feasible.