Is It The Right Time to Invest in Real Estate?

We all have that one relative who keeps reminding us how so-and-so became a crorepati investing in real estate. And let’s be honest, we all have thought about it at least once. After all, everyone knows that it’s a sure shot bet to multiply your wealth, right?

Here’s the reality. 

There are over 750,000 unsold apartments across major Indian cities. Delhi-NCR alone, our most popular real estate investment destination, could take 5 years or more to sell all of its unsold apartments.

Hold on. There are so many middle-class households who don’t own a house. The demand is there, right? 

Not really. 70% of unsold homes in Mumbai cost Rs 1 crore or more.

When these houses were being made, somehow the investors speculated that there would be a huge demand for them at those prices. It turns out that the prices are so high that people are better off in rented apartments than paying those hefty EMIs.

What makes it all worse is that most of us are no longer confident in purchasing under-construction houses, as there have been so many instances of delayed delivery. And this is a vicious cycle in itself. Not enough buyers imply builders facing cash constraints. Cash constraints lead to a delay in delivery time. Delays in delivery lead to lesser trust in the builders and so fewer buyers put in the money. And on and on it goes. 

Although the world around us is giving us all these hints, we are still lingering to our dream of investing in real estate. The one reason for this is the belief that real estate prices never go down. On the face of it, it does seem to be true. There’s limited space in the world, the population is still growing at a rapid rate and there’s just so much black money swimming around. No way are these real estate prices going down. 

But they do. It has happened in the past and it’s happening now. 

In 1997–2003, when the real estate cycle was on a downturn, Mumbai real estate saw price corrections of about 50%. Yes, it was like having an end-of-season half-rate sale.

In 2015, in several separate transactions, private equity funds have bought apartments from well-known developers at a 40% discount over prevailing ask prices. Not kidding!

Because we don’t have any real estate exchange that tells us about real-time prices, it is very difficult to know how real estate property is trading. Even if the prices fall, it is very difficult for us to know about it and this keeps feeding into our belief that real estate prices never fall.

Of course, there are a few bright patches in commercial real estate like A-grade office space. Occupancy levels are improving as more and more people are opting for better office space, and it is possible to make as much as 8–9% yield.

But the ticket prices are so high, sometimes upwards of 2 crores, that it’s very difficult for the average middle-class citizen to even think about it. Add to that the headache of finding the right property manager, who will find the tenants and maintain the property for you. 

It’s just not worth it right now. 

Please don’t put your hard-earned money into real estate. All it will accomplish is to add an illiquid, highly risky bet to your portfolio and imbalance it.

So, hold your horses and stick to that rented apartment. Paying 35,000 a month for a 1.5 crore house is a much better bet than actually owning it.