What’s real in real estate?

 A dream house is a dream that most of the people currently living on Planet Earth carries. We grow up seeing how our parents put together all their life’s earnings or a significant portion of it in making a house. Mankind takes this dream of having their own separate shelters wherever they are. The word settling has been closely associated with having your own house. People feel life is well settled once a house is acquired. Remember our forefathers would have started from sharing a cave together with others, a tree shed with others, a large abode with extended and joint families, a house boat with others wherever they were thousands of years ago. As we disintegrated and got more nuclear our shelter needs continued to grow and reach an ever granular need of one house for each family to multiple houses per family. The society had tagged respect to the amount of property one holds and often believe that is the show of wealth that determines one’s value among the peers.

In 2024, we need to really think more than the society, more than the want, more than the norm and definitely more than just peer pressure. An in-depth analysis of ourselves and our life needs to be done before getting into a long term commitment of owning a house. Owning a house is not just about having a property document on your name but a responsibility to be performed in the society. We all feel we need to own our land or our house or our flat in the world we are living in. This is quite natural considering the fact that often families are build with the fundamental thought that having a house is an asset which gives financial stability to the family. This is true when you outright own the property but not when you owe a bank more than twice the money for the property in next twenty years. 

Having said that buying a house is not completely a mistake. It works for many for whom it works. But for others, it stalls the growth potential of their wealth. I don’t want to write another blog explaining or comparing a stock or equity investment to real estate and prove you how much more wealthy you can be by doing better investments but not buying a property. However that is not the sole reason we all want a house. We want a house to make it home. We want a house to not be thrown out by the landlord. We want a house to prove to the society that we are doing well. We need a house to fare well in the marriage market. We need a house to provide security to our family in case of untimely death. We need a place to connect to the society and life around. This all fits in perfectly when we don’t put all our savings and future earnings into only house that we own. 

Most of the property buyers are in the age group of 30-40 based on various researches and definitely many of them are pushed by their parents and/or older generation. We need to realise that the property prices in proportion to what the salaries were in 1990-2000s is not the current scenario. We need to understand that the retirement needs of parents were different and current 30-40s folks have a different understanding of this world. The life expectancy is increasing due to the advancement of healthcare but at the same time the medical expenses had skyrocketed. The probability of someone having high medical maintenance cost from their 40s is much more than someone who was of same age 20 years back. Take huge debts but do it in a calculated manner. Remember to take insurance that covers the liability in case unfortunate death of the loan holder. Confirm that there is a good prepayment option available to you when you get into loans. Also remember unless it’s a landed property, or you get lucky to be in main business areas, the property cost is going to depreciate in resale market which is also due to high loan availability leading to new launch purchases by newer buyers. 

I would repeat not to break all your investments and buy one house to live and restart your investment journey after losing the advantage of starting early. Coming to the sustainable aspect of this world, do we really need to own a property which is not affordable for us just for the sake of society? Will society pay our bills? Should we overlook the compromises we end up doing in our daily life just to afford own home after 20-30 years of loan payment? A rented home gives you the flexibility to shift based on your job, child’s education, need or want or desire, latest fads and fancies, zero maintenance, move based on water and air availability, ability to always live where it is happening and of course at a cost. But what if the cost of renting plus the investment of remaining amount gives you more sum than what your property would be worth when you finally wish to retire and relax? Don’t you think it gives you food for thought to invest more and rent affordable places while you focus on building corpus for a grand future? Yes, we don’t know about the future and we might not even be alive but at the same time we don’t want to leave our dear ones in debt via housing loan versus profitable assets which can be liquidated quickly? Real estate in many ways is a buyers market and when in need for money you will end up selling cheap for sure. And above all you can never convince yourself to sell the house you and your family reside which kind of puts the question mark on an asset to generate cash when in need saying. The interesting outlier is the discussion of land as a property versus a flat or house, always rate land higher than other property as it’s a scarce commodity.

A second home where the rental yield is higher than the EMI could be a good proposition but you seldom find such an opportunity. Often people think this is the case and enter into the real estate renting, this was a shortcut to wealth if you had constructed in 1990-2000s but definitely to break even with current construction or acquisition cost is a distant dream. The effort and expense required to maintain a house, legally pay taxes from its earnings, and at the same time pay EMIs is a different equation in reality versus what we see on paper. There are lot of instruments available with higher returns in current markets and it’s up to our risk appetite to identify the right one for us. 

We cannot change an entire society but owning a house is not just an emotional decision but also a financial one. It has its own challenges and positives too. However whether we need it should be based on which side of our brain is driving us. Above all wealth creation is a number crunching game and it doesn’t matter if you invest in real estate, gold, stocks or mutual funds or bonds. Do your maths before throwing your money on any of it. Remember the best property we can live for our future generations is not a house as they also will want to have their own as you might remember how mankind is, but the wisdom we acquire from the world and worldly life experiences. And mine says already that focus on wealth creation and diversify sensibly but not just by falling for inflated property prices with a dream of unimaginable rises in future. It’s a fair assumption that for developing countries once developed will have the property cost to earnings ratio similar to the current developed countries. This do tell us that having own house is a sign of prosperity only when quality of your life is not compromised due to the cost of ownership of a property.