The myth of Real Estate - you deserve to know the truth!

Part- 1

It seems to me that we all fall prey to the myth of the "pot of Gold" with respect to property investments. This is largely fueled by selfish greed of individuals - Buyers, Sellers and the intermediaries. The triangular forces exert forces against each other as and when they can. The Seller wants the maximum returns for his investment, the seller wants to capitalize on his being a “genuine buyer” –as we call them in broking parlance, and of course the ubiquitous broker who tries desperately to make “the deal”.

Consider this, if you have bought a property in the last decade, most of you would have made some money. Some of you would have made a lot of money, and some of you would have made some money and some of you would have just about broken even if not lost some money.

So, to the bright guys who made money, let me ask you a question. Who would you give the credit for making that money for you? Let me guess – You?  After all, you made the call; you took the right decision at the right time for the right property, right location, right builder and right market conditions – Right?

Wrong! If you made money then it was largely due to “Lady Luck” smiling on you, and, to the economy which provided the investment cycle for entry and exit. It was also in part, due to laggards who delayed buying their piece of earth and then got “sucked” into buying from you.

Real Estate, as an asset class is highly unpredictable due to layers of misinformation and malpractices generated and transmitted by the machinery of vested interests. Let’s look at some of them,

Media: The newspapers and portals do a roaring business out of real estate – ever wondered why your newspaper looked more like a property classified or advertorial (paid advertising with the write-up being done by or on behalf of the advertiser for a fee)? They make significant money from this. Some of the established newspapers actually acquire a stake in Builder companies in return for selling ad space, Paid write-ups, interviews and focused articles on real estate and the developers (who of course are asked to pay for all this).  

Politicians – Bureaucracy- Land Aggregators nexus: Need land and willing to pay for it. Well as long as you can afford to pay for the same, land is available for any land use. If the Town planning official is honest and not obliging, then changes are made and then, “Voila! – you can get the land”.  Or else, approvals are delayed. In which case the projects get delayed and your estimates of profits (Pot of Gold) vaporize.

Lenders : Lenders often practice entrapment to get business. They introduce teaser rates (even our nationalized banks are guilty of this) and the floating rates then keep floating upwards.

Brokers: Brokers sell what they have. If you have not identified a professional broking firm, you have taken the risk of being a victim of mis-selling. So some of you would have lost money or not made enough since you took bad advice.

Friends & relatives: In my view, an ill-informed friend should be best avoided for determining the feasibility or evaluation of these big investment decisions - buying a property. This is really one category that you should consult only after seeking professional advice from people who work in the real estate for a living and someone you trust.

In the last decade, a lot of us were lucky that the math worked for us. For some it didn’t. They got trapped in projects that were delayed, had lenders who kept raising the interest rates and kept them high even when the economic cycles reversed and charged huge pre-payments when you sold your property and pocketed enough money or walled in to the frustration - to quit the property.

 

-To be continued…