TO MAKE MONEY it is necessary that there be a gap between perception and reality. If everybody thinks that a particular event will happen and that event does not happen – the minority makes money. Similarly if everybody thinks (knows!!) that real estate and gold are the best assets, AND if this turns out to be wrong, then the people who bet on the contrary make money. Here is a long COMMENT by one of the readers…my comments are in BLOCK letters…read on:

The author has erred on many counts. History has shown that only one company (GE) exists today that was there in the when original S&P started survived in US.

AWESOME. IF YOU DO NOT KNOW TO PICK STOCKS PICK THE INDEX.

Stock market returns are based on various factors including the price at which you buy and the kind of stock that you buy. Many companies which were darling of market in yester years have been wiped out.

MORAL: STAY AWAY FROM THE MARKET, I PRESUME?

Buying a house make sense for following reasons
a) You have an asset (unlike paper assets like enron/satyam/nortel shares )

EXACTLY HOW HITLER ARGUED.

b) You will definately get more than what you invest . Tell me one person who has sold below the price what he has bought in the real estate (apart from speculators) Or in US where the population has degrown.

THIS IS TRUE FOR A SAVINGS BANK ACCOUNT ALSO. LEAVE IT THERE FOR A  100 YEARS, SB AC CAN NEVER, EVER GIVE A NEGATIVE RETURN.

c) India’s popualtion is increasing and ROTI , KAPDA and MAKAN are three things in everyone’s mind hence the demand will go up. There is scarcity of land too.

BRILLIANT. THIS MEANS REAL ESTATE ALL OVER THE WORLD WILL INCREASE AT THE SAME RATE, OR AT LEAST IN INDIA. HMMMM ….THAT ITSELF WILL REDUCE THE GROWTH RATE 🙂

d) You have lot of tax benfits if you buy home even third or fourth home . Get in touch with CA and he will tell you

THIS IS SUCH A FALLACIOUS STATEMENT, IT CANNOT BE EXPLAINED IN BLOGS.

e) Ask any rich person he will be owning lots of propeties whose value will be more than the investment in stocks .

RATAN TATA, VELLIYAN, AZIM PREMJI, NARAYANA MOOTHY, RAKESH JHUNJHUNWALA, VALLABH BHANSALI, RAHUL BAJAJ….is the list biased?
f) Stocks are good if you are very judicious investor and do a due deligence throughly , but with lots of paper stocks going around its difficult to choose one.

IMPLICATION: REAL ESTATE INVESTING IS EASY. ROFL.
g) In case of emergency , you can mortage your house and get money.

IMPLICATION: YOU CAN SELL ONE ROOM, I PRESUME?

Suggestion is that buy property better if you can buy land even if it is in far of places as you will see returns much better than any investment else your child will again say (Oh, only if my father had bought one more flat…” It was available for Rs. 2 lakhs, now it is Rs. 80 lakhs) at least its worth 80 lakhs .. if you invest in some bad stocks then 2 lakh will be 1 lakh)

AWESOME LOGIC SIR, i rest my case….

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  1. It turns out Mr.Subbarao and others in RBI are not that clever as we think.

    Yesterday they sent a circular to banks not to lend to gold and the reason given was is that it seems that gold is used for speculative purposes. One could not control laughing hearing this comedy statement.

    If RBI is really interested in controlling speculative money, it should bark elsewhere. Yes. you got it right. Real estate is the speculation which causes our economy to nosedive. RBI did not have the courage to take on the mighty.

    RBI is probably worrying about the effect it would have on state run banks and others. But the truth is truth. We have to stand by that.

    Mr.Subbarao , the open norm in any real estate investment is 30% of black money and further due to our ‘so called monetary loose tightening; already real interest rates are in negative. Instead of globally controlled gold rates why not you try to control the speculation in real estate? My mango mind says that is easy and that is really needed.

  2. People fail to take into account CAGR…when people look at real estate , they look at only absolute returns and not compounded. If they had taken into account compounding returns, equities would not look too bad at all.

  3. For investing in Real Estate (even for ones own use), one needs to be very careful when land mafias are on the prowl in almost all places. Absentee landlordism(Land/House) will cost us dear. But by investing in Good Bluechip stocks, we can sleep peacefully.

    http://www.dnaindia.com/bangalore/report_gangs-of-bangalore-with-land-sharks-you-lose-the-plot_1712994

    http://www.technoparktoday.com/it-professionals-in-kerala-land-mafias-primary-prey-a-shocking-report/

    http://trivandrum-realestate-news.blogspot.in/2012/09/over-10-lakh-flats-remain-unoccupied-in.html

  4. Encroachments, goons? And a few property related murders thrown in.Good luck.

    Today morning only I made my peace and sold off RE duds at huge losses, given this man’s logic they should all have been soaring.

  5. Mira D,
    the real estate duds you bought reflect the condition of the builders themselves and not of their buildings which appreciate in value only because the rupee is being constantly devalued.
    in a sound money world,both the price of gold and real estate should keep falling in a healthy economy -like the prices of cellphones or TVs -sectors which dont face govt manipulation.

    real estate and gold are ‘unproductive’ as value investors like to say.but they miss the fact that the world is being massively manipulated by central banks to an extent never seen in the history of the world.stocks and indices rise and fall on the words of the minister of finance/ben bernanke -all these dont reflect entrepreneurial talents/great management or commodity cycles.
    an interesting study by david stockman points out that if you take out the gains made by the stock market in the US (since greenspan joined the fed)for the days previous to announcements by the Fed,then the avg growth of the index is barely 1.8% per year.ie all gains come in a few days of the year .insiders who are connected to the fed (read big banks,hedgies) make money while others are stuck with 1.8% .

  6. Index, yes maybe, but what about select stocks, they also grew 1.8%?

    All the retail inv who had invested in ITC IPO or Godrej Consumer IPO were surely not insiders.Or Hedge Funds.

    And yes, my second home in another town has already been burgled twice, so one more negative. The point I’m trying to make here is RE is not hassle free. Plus if it is locked, there is notional rent and tax thereon.

    Anyway, to each his own.

  7. In the long run Each asset class will trump all other asset classes at some point of time,yes even cash will trump every other asset (2008 crash), but the problem is you will have to know when is that time & that is very very very difficult. that is why you need studied diversification of assets

  8. i will have an definite answer in twenty years time. My brother investment is heavyly RE based and mine Equity. in the end i hope that we dont have to bail the other one out.

  9. For every 100 equity participants, only one makes money and 99 lose the game

    For every 100 gold buyers, 90 get the returns beating inflation. 10% lose on theft and frauds.

    For every 100 debt investors, 50 get the returns below the inflation and 50 might marginally beat the inflation if invested in tax saving havens like PPF.

    For every 100 RE investors, 90 get the above inflation returns and 10 might lose/stuck. While we might refuse to accept, few lost the money in RE in the history of our country but many lost the money in stock market.

    Also lot of people confuse with business investment Vs equity investment. Comparing TATAs, Birlas, Ambanis etc., with Rakesh JJwala is misleading.

  10. I know the comment is about RE but since some comments taled about Gold —
    For last 3,4 years I am evaluating buying Gold as investment. If I buy Jewellary, I have to pay atleast 1.2 times the cost of gold and while selling will get around 0.95 times the cost of gold. I dont even know how liquid it will be as most jewellers refuse to buy (they are happy to exchange and even if they buy it will be on their terms). If my gold investment is huge, I am not sure avenues for selling it without losses. Coins may have better yield but liquidity issue is still there and ‘entry loads’ for gold are huge. I want diversification but dont know how to justify Gold as investment. Anyway I suspect 2-3% of our worth to be in gold anyway with my wife of which I have no idea.

  11. On Gold –

    I was born in 1974, an 8 grm gold coin (ginni, we call it) was for just about Rs700 and you bought the same from your local jeweller. Fortunately, Rs 700/- was also a sufficent amount of money as your monthly house hold expense for a normal middle class family in 1974.

    Today the same costs in excess of Rs 27000/-, fortunately, it is also sufficient amount of money as your monthly house hold expense for a normal middle class house hold.

    Bottomline – Gold Has Preserved it buying power for almost 40 year now, see not many reasons for anything different for the next 40.

    On Real Estate –

    Need one to live in – period. It seems better to own rather than rent as rent comes with its own set of issues ( namely landlord & every year adjustment to inflation etc ).

    Second/Third house as an investment is debateable, as mira said – to each his own, however better to have asset diversification then concentration, if your asset allocation allows, if you have fund, then why not.

  12. I don’t support the author or the comments posted by the reader. But the author does not seem to be mature enough to put his view objectively. He is trying to justify himself rather than giving the valid points.

  13. To sell a room – there is definitely scope for managing that via listed REITs and real estate based vehicles. Gold ETFs have provided lot of flexibility in physical versus demat units. Similarly RE will also see better handling in days ahead!

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