Arvindc
April 15th, 2013, 10:29 PM
Here are the usual reasons we trot out to ourselves while buying a home:
#1: Property prices in the city are unaffordable – so let me buy something somewhere, even if I never intend to live there. When the price appreciates, maybe I can sell it and buy something more livable. This is why Bangalore’s techies buy property near the airport 33 km away – as a form of investment.
#2:I already have a home. So let me invest in something that looks cheap today, even if it is 50 km away from my workplace. I may keep it vacant, but surely I will make a neat profit when the price appreciates. This is why Mumbai’s propertied classes buy second homes in hill areas of the state, or even in deep suburbs. This is why Delhi’s middle classes invest in property along the Yamuna Expressway though they know it is an extraordinarily long commute if they even went to live there.
#3: I already own a small home in the city. If I flip it and buy a larger home half way to Mahabalipuram from Chennai, I can stay there when I retire some time in the distant future, grow potted plants, play golf and live the good life. This logic entices many people, even though they know there is no water supply, or good infrastructure in the place where they are buying cheap property. “Cheap” property is not cheap without a reason.
#4: When interest rates fall, my EMIs will become more affordable. So let me grit my teeth and buy something I simply cannot afford right now. This is a super-flawed argument: interest rates are not your main cost; the price of the property is. When I bought my flat, interest rates were a high 14-15 percent. But low prices were what enabled me to buy.
#5: Living in a rented property is never a viable proposition. I have to buy a house at any cost. When rentals are 1-2 percent of property costs, it makes better sense to rent than buy. Your EMIs will usually be at least two to three times the rent.
Assuming you are not rolling in money or are an expert realtor who knows when to buy or sell property, I would like to suggest that many of the above arguments just don’t wash.
The only good reasons to buy property are these: you want to live in it, and have the necessary income to pay the loan bills every month. If you buy for any other reason, you are indirectly supporting the politician-builder nexus.
If you are still not convinced, let me bust the implicit assumption that property prices can never fall. The truth is property prices have both risen and fallen in all countries which run a free market. Even in India they have fallen, but we don’t want to believe the evidence.
Take Mumbai’s southern tip of Nariman Point. At one stage a decade or two ago, prices for commercial space were upwards of Rs 40,000 per square foot. Today’s average is Rs 25,000 per sq ft – though the actual price may vary from building to building, from Rs 20,000 to Rs 35,000 per sq ft.
This is not only a steep 37 percent fall, but adjusted for inflation, the fall would be more than 70 percent from the peak.
But, you may point out, residential prices are not following the same trend. Possibly true. The reason why this trend is more apparent in commercial property than residential is simple: commercial property is bought and sold without emotion by beady-eyed finance professionals who weigh the opportunity cost of the money they invest; residential properties are often bought for emotional reasons (“I need somewhere to stay”) and pure greed (“Let’s buy a second home and make money from the appreciation.”)
To be sure, even residential prices do fall, but we tend not to notice it. I remember I had bought a home in Thane (a satellite city of Mumbai) in 1997, and for the next few years not only did the price not rise, it actually fell 20 percent. It was only after six to eight years that the price stabilised and started rising consistently. Now, despite what builders tell us, prices are again levelling off.
Read more at: Why property is the biggest con-job on investors (http://www.firstpost.com/investing/why-property-is-the-biggest-con-job-on-investors-696373.html)
Another realty firm defaults: Home buyers should cheer (http://www.firstpost.com/business/another-realty-firm-defaults-home-buyers-should-cheer-605583.html)
#1: Property prices in the city are unaffordable – so let me buy something somewhere, even if I never intend to live there. When the price appreciates, maybe I can sell it and buy something more livable. This is why Bangalore’s techies buy property near the airport 33 km away – as a form of investment.
#2:I already have a home. So let me invest in something that looks cheap today, even if it is 50 km away from my workplace. I may keep it vacant, but surely I will make a neat profit when the price appreciates. This is why Mumbai’s propertied classes buy second homes in hill areas of the state, or even in deep suburbs. This is why Delhi’s middle classes invest in property along the Yamuna Expressway though they know it is an extraordinarily long commute if they even went to live there.
#3: I already own a small home in the city. If I flip it and buy a larger home half way to Mahabalipuram from Chennai, I can stay there when I retire some time in the distant future, grow potted plants, play golf and live the good life. This logic entices many people, even though they know there is no water supply, or good infrastructure in the place where they are buying cheap property. “Cheap” property is not cheap without a reason.
#4: When interest rates fall, my EMIs will become more affordable. So let me grit my teeth and buy something I simply cannot afford right now. This is a super-flawed argument: interest rates are not your main cost; the price of the property is. When I bought my flat, interest rates were a high 14-15 percent. But low prices were what enabled me to buy.
#5: Living in a rented property is never a viable proposition. I have to buy a house at any cost. When rentals are 1-2 percent of property costs, it makes better sense to rent than buy. Your EMIs will usually be at least two to three times the rent.
Assuming you are not rolling in money or are an expert realtor who knows when to buy or sell property, I would like to suggest that many of the above arguments just don’t wash.
The only good reasons to buy property are these: you want to live in it, and have the necessary income to pay the loan bills every month. If you buy for any other reason, you are indirectly supporting the politician-builder nexus.
If you are still not convinced, let me bust the implicit assumption that property prices can never fall. The truth is property prices have both risen and fallen in all countries which run a free market. Even in India they have fallen, but we don’t want to believe the evidence.
Take Mumbai’s southern tip of Nariman Point. At one stage a decade or two ago, prices for commercial space were upwards of Rs 40,000 per square foot. Today’s average is Rs 25,000 per sq ft – though the actual price may vary from building to building, from Rs 20,000 to Rs 35,000 per sq ft.
This is not only a steep 37 percent fall, but adjusted for inflation, the fall would be more than 70 percent from the peak.
But, you may point out, residential prices are not following the same trend. Possibly true. The reason why this trend is more apparent in commercial property than residential is simple: commercial property is bought and sold without emotion by beady-eyed finance professionals who weigh the opportunity cost of the money they invest; residential properties are often bought for emotional reasons (“I need somewhere to stay”) and pure greed (“Let’s buy a second home and make money from the appreciation.”)
To be sure, even residential prices do fall, but we tend not to notice it. I remember I had bought a home in Thane (a satellite city of Mumbai) in 1997, and for the next few years not only did the price not rise, it actually fell 20 percent. It was only after six to eight years that the price stabilised and started rising consistently. Now, despite what builders tell us, prices are again levelling off.
Read more at: Why property is the biggest con-job on investors (http://www.firstpost.com/investing/why-property-is-the-biggest-con-job-on-investors-696373.html)
Another realty firm defaults: Home buyers should cheer (http://www.firstpost.com/business/another-realty-firm-defaults-home-buyers-should-cheer-605583.html)