December 10, 2015

Is the real estate investment dream over?

Despite a housing shortage of approximately 19 million units, there were around 11 million houses are vacant in urban areas.

While the collapse in house sales is now well under way, there is the separate puzzle of a vast proportion of house owners preferring to keep their property vacant rather than rent it out. The impediments are many, but underlying it all is the low rental yield. As against, 5-7 per cent across the world, rent in India generally adds up to no more than 1-1.5 per cent per year of the value of a property.

What this indicates is that those who have bought second or third houses (or more) for investments, should finally give up the fantasy of it being anything but a disastrous investment. Don't stay attached to discredited notions of how real estate always comes around; and don't stay mentally anchored to the buying price or some other notional price that your property is worth. Your money is losing value at 6-8 per cent per year, and if you're still paying EMIs, it's much worse. The real estate investment dream is over and the sooner investors accept it, the better it will be for them.

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