Inflation times: buy real estate?

Even as I send e-mails regarding investments in Real Estate , I get a worried response ,” is this the right time to invest ? “. I am a die hard Real Estate Investor and just as Yash Raj Films cannot help churning out movies, I like to keep ” Investing “.

But back to the situation at hand, with all the ” Value” destruction happening around us, should we wait for a correction ?. I would like to digress a little to take us back to the time when our parents took Real Estate decisions. Back then only one thing mattered, you bought if you could afford to and let go if you could not. The word ” Correction” was unknown in the Real Estate context. Believe me when I say this, that things remain the same, only our way of looking at it has changed. The amount of Media noise has only served to confuse all of us.

To take a proper decision, we need to drill down to specifics :

1. Are you buying a flat for self use ? . If yes,then the following factors predominate

a. Location. i.e proximity to School, College etc
b Layout of the flat. Does it serve the immediate and future needs of your family.
c. Proximity to the Extended family viz: In laws etc
d. How many flats remain to be sold/ occupied. In ready Buildings this has a major bearing on the price.

Developers tend to hold on a inflated price if he has only a few flats to sell.

I have brought this up because lots of “users” come back to me with feed back saying that contrary to Media Reports , there are no bargains available. To these people, I say bargains are available, but this information is often known to ” Brokers ” etc. In times like these, a Broker/ Consultant’s service is useful. When a slowdown occurs, developers who in good times cartelise on rates, break ranks and there are huge variations in price in the same locality. Expertise and inside information is required to get the right ” Rates ”

The situation, when it comes to new projects is very different. Lot of people who look at Real Estate as an investment avenue prefer “launch” projects . This is because it offers the following advantages :

1. Easy payment schedules.
2. Lower rates which rise as the project gathers steam, which gives good scope for capital appreciation.
3, Better and wider choice.

To the question, whether one should invest in a new launch now, the answer is a resounding yes. It is a foregone conclusion that we are in for troubled times. Only well equipped ships will sail out in stormy weather. Similarly, only developers with strong fundamentals will venture with a launch in these trying times. Regarding the pricing, it is very certain that it will be reasonable. This is because, even great developers have anxiety pangs. Unlike share prices which plunge after the listing, it is catastrophic for a Project to be launched at high rates only for rates to be corrected later.

If one were to wait for a correction in Real Estate prices, the funding gap will widen . Let us say that you had intended to sell shares worth 50 Lacs to fund a Real Estate purchase of the same value. As you wait for a correction, your share portfolio value dips to 35 Lacs while the Real Estate corrects to 45 Lacs. In my limited experience, Real Estate corrects/ goes up with a lag , that is to say, when share prices start moving up, Real Estate moves up after some time. This is because, investors first need to make money on the Bourses, gain the necessary confidence and resources and then diversify into Real Estate. This process gets mimicked in a downturn. Investors are in denial when the stock market goes down and it is only when they start losing money on the stock exchange for some time, they cut their exposure to Real Estate. Developers and other participants in the Real Estate also hope against hope when things start to go downhill, that the decline is an aberration. This is another reason why Real Estate is slow to correct.

Just as justice delayed is justice denied, investments delayed beyond a point often results in missed opportunities. Each one of us needing or desiring to make a Real Estate Investment need to look out keenly for the ” Golden Hour “.

this has been authored by prakash natarajan who can be contacted at / 9820606187

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One Response to “Inflation times: buy real estate?”

  1. Clarence Scott on July 30th, 2008 at 12:24 am

    Hello there:
    If you are looking for commercial financing, we might be able to help.
    We are private lenders looking to help real estate developers in need of financing.

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