In India, when you seek advice on what the best avenue for investment is, you can rest assured that the common answer will be real estate. This nugget of knowledge has been passed down from generation to generation without revisiting the facts. However, the current generation is becoming a little sceptical about considering real estate solely from an investment perspective and rightly so.
Along with a healthy dose of presumptions, the masses at large also suffer from misinformation when it comes to investing in Indian real estate. Here are a few realities to consider about real estate investment.
Fact 1: There’s no one-size-fits-all advice when it comes to real estate.
The right approach for you is entirely dependent on your appetite for risk, your expectations of returns and your personal circumstances. What worked for someone you knew need not work for you. The more customized and specific the approach, the safer it will be.
Fact 2: Real estate should not be your only form of investment.
If your investment portfolio is restricted, real estate may not be the best option. Real estate should form 30-40% of your total investment portfolio.
Fact 3: Under construction properties are not investments.
In reality, purchasing under-construction apartments should be considered as providing quick liquidity to builders in expectation of a property in return after a stipulated period of time (during which plenty could go wrong).
Fact 4: Property is not an appreciating asset.
While land is an appreciating asset, the property built on it has depreciating value. The plots of land that are likely to provide phenomenal returns are not only scarce these days, they are not really affordable by most people.
Fact 5: Using the past as a guide to the future is risky.
Assuming that you will enjoy the same kind of growth in value of property as your parents or grandparents did with their property is illogical. Similar returns cannot be guaranteed. Getting carried away by the fact that they invested in thousands and are now valued at crores is a very limited view of things. Reality is that the value of the thousands was much higher decades ago than it is today.
Fact 6: Real estate is not as liquid as other forms of investment.
Most people completely ignore liquidity when considering which investment option to choose. While options such as stocks and mutual funds are considered more liquid in nature, real estate is considered an illiquid asset. So people who invest in real estate have to be sure of putting aside a large sum of money for a considerably long time.
Fact 7: Real estate is not ideal for short-term gains.
If you’re looking to get significant returns in a short period of time, real estate is definitely not the right option for you. Property value generally increases over medium to long-term periods and there’s no way to certain about the rate of growth since it is influenced by multiple factors.
The point of this post is not to disillusion those considering real estate investment. But committing to it without being aware of the realities is dangerous and ultimately disappointing. Carefully consider your individual requirements and available options before deciding on an investment option.