Indian real estate investment has made so many people so wealthy in urban and rural India over the years, that any criticism of its rewards are met with disbelief. This post is a follow up to the conversations in the video. The focus is not what this investment has done for you in the past, but what it is likely to do for you in the future. One of the points being made is that real estate is not fungible, like investments in other tradeable financial assets are. Fungible, simply means that you can trade one share of a stock even if you own a hundred, but you cannot sell one room in a house (though you can of course, rent it!). Transparency in transactions is a second factor, the involvement of black money in them continues to be a source of concern to many. Transparency in prices is a third. Everybody will give you an estimate of what a particular house or flat will sell for in a particular neighborhood, but the actual price at which the exchange takes place can be very different. There is very little reliable data in urban India on what prices different parcels of property fetched, so the claims of outsize returns are not easy to verify. Compare that with prices in financial markets which are visible all the time. A fourth concern is that the costs associated with maintaining and renting properties, the opportunity cost of having money locked up in an empty flat (because you cannot rely on a tenant to make a payment or even leave the property) are not factored into the returns you earn. A fifth, and commonly recognized concern is that real estate investment is all about location.
All that said, like gold, there is a comfort to the fact that real estate is a physical asset, you can touch it, feel it, smell it even! And of course, they cannot make anymore than what is already on the planet. As with all investments, there is a timing aspect to it as well. I read somewhere recently that as the British pound tanks due to never-ending Brexit worries, Li-Ka Shing, Hong Kong’s richest man is looking to purchase various properties in England. That looks good to me too. And the last story. In the depths of the financial crisis in 2008-9, there were miles of Mediterranean beach properties, built during the preceding real estate boom) in Spain, France, Greece lying empty and available at fire-sale prices. I approached friends in those areas if they would consider a joint venture. Unanimously, the response was, ‘cheap is good Badri, but what services are you going to get nearby. All the businesses that sell you food, medicines etc have gone bankrupt!” Buy low and sell high is easy to say, but hard to do. Investing is risky and never easy.