Investing in property is a mandatory requirement in our society,
irrespective of status. For obvious reasons, owning a house is essential for
any household. It provides social security, a status symbol and sense of
ownership to the entire family. Due to the social insecurities with which our
society is redilled, owning a property becomes all the more important and
remains the top most priority on the ‘must own’ list of a family. Once the
essentials are met, owning a second property becomes an investment proposal. At
least in India property is seen as an essential item in any personal investment
portfolio. Real estate contributes 20% towards the total individual wealth in
India, which is very high for a singular vertical. The main reasons for this
over enthusiasm towards real estate have been social security and very healthy
returns, over a period of time. However, Real
estate in India is infected with its own set of problems and insecurities.
A few of the issues are discussed in the succeeding paragraphs.
Long Investment cycle
Investing in real estate requires a lot of energy, effort and time
from individual investors. It requires one to study the market, do a lot of
research and homework, ground visits etc. before shortlisting a desired
property. After that starts the paper work, which in itself is a long drawn
process, in case one is raising a loan, this gets stretched further. Further,
if it is a primary market investment the wait for possession can be from 1 year
to 9 years. Therefore, the entire process from shortlisting to possession is
energy sapping, unpredictable and time consuming.
High Capital requirements
Depending on the city, location and vertical (residential or
commercial) the requirement of capital is high, as compared to any other
investment portfolio. Therefore, the risk factor for an individual investor is
also high.
Long Liquidity Cycle
Like the investment cycle the liquidity cycle is also a long drawn
process due to the ticket size involved. Therefore, in case of an emergency
real estate turns out be the worst investment as it cannot be encashed at will.
The Real Estate Market is Unpredictable
The real estate market is unpredictable on a number of accounts,
whether it is quality, quantity, delivery, product etc. One as an investor has
to be really careful and check, check and check once again, before, as well as,
after putting his money. In the end you need to believe in God and pray that
all goes well.
One fails to understand that despite all the drawbacks why does
real estate or property in India, remain
a lucrative investment option in India?
There are primarily three reasons, one, we have already discussed
is the social security; second is that real estate is somehow associated with
extraordinary returns, which to quite an extent is true as well; the third and
most important reason is that real estate has been one of the most stable
markets, not that it has not gone through slow-downs or down-trends, but it has
been able to safely recover out of these crisis over a period of time. This
gives an investor the confidence that his investments are safe and would give
desirable returns over a period of time.
