Why your real estate investment will eventually die a natural death! Here is an argument.

Hey! Is that a paddy field beating out my home price? Yeah. 

Are you here, wondering how we could make a statement like that? Indian real estate is on a growth path. Prices are increasing everyday. In so many cities, including the one you come from, real estate investments are giving you 20% returns annually.

We know. However, what you read here might make sense to you, even if it makes just a wee bit of that s word.

We will restrict the vision of this story to residential property investments only and place our arguement, without wasting any more time.

The natural death argument:

One of our colleagues, while still in his short school pants moved into one of the upcoming localities of Kolkata which happened to be near the airport. His dad, bought this new apartment, fitted and finished to the norm of that day back in 1988. Modest, no club or swimming pool attached, no manicured gardens. No one who bought a place to live there ever imagined that he would own a car, so there was no demand for car parking space. Your mother will tell you that producing something that no one wants is being stupid. The builder kew that and he built no car parks. Elevators (Lifts) too were left out of the scheme as these Ground plus four buildings were not really needing a lift those days. People were buying up the apartments nevertheless. There was no need for a lift.

Right beside this apartment complex where our friend stays till date were vast paddy fields. They had no value in those years. Nobody thought anything would ever happen there. While the paddy fields were zero value right through 1989 to 1995, upcoming projects slowly lifted the price of those land parcels and apartments built on those paddy fields started selling at about a 1000 bucks a Sq ft from 1995. In 2008, apartments in the remaining paddy fields were announced at launch prices of Rs. 2700 per Sq ft, when, our colleagues apartment could have fetched the same price. Owing to nothing else but the prices in the vicinity. 

Today, in 2013, while the price of his house is stagnated at around 3000 bucks a Sq ft, the last of the paddy fields are fetching prices of Rs. 5000 per Sq ft!

Moreover, during some conversations, our office buddy also tells us that even at about 2800 bucks a Sq ft, it is very hard to find a buyer for apartments in the complex, considering there is very little parking and no contemporary amenities. A few more years down the line, there could be no buyers left for those apartments! No one with money to buy a new home would invest in that decaying, old real estate cluster of 150 homes, despite the fact that it is one of the most sought after locations in Kolkata today. And yes, our friend still lives there and he has a great feeling calling it his address. This will tell you that there is still nothing fundamentally wrong with these old houses. Except that no one wants to buy one anymore. You know the Hindustan Motors Ambassador? Cool car huh? Want one for 6 lacs? Excuse me? Get the drift buddy?

Real estate, like all things die natural deaths. Your real estate investment could look contemporary and nice today but if your latest gadget can get outdated in 6 months or less, someday, your property will as well. Think about it. Will you buy a large, high ceiling princely home in the old and beat parts of your city? On the same streets your father always dreamt of living and knew he would never live that dream. Will you buy that old and thoroughly used apartment in the heart of the city just because it was affordable and you you were getting it 30% cheaper. (Why you are getting it cheap should drive home our argument harder) You see, the real estate on offer is aged. It does not make sense to you/ anyone anymore. Your children feel depressed about the design, the materials and the neighbours. It is dying.

Okay, you are thinking, but the land value is appreciating, isn’t it? Yes, it is. But if you were sharing a piece of land with 149 other apartment owners, we cannot fathom out how that land value appreciation could help you in any way. On paper, technically, you have a solid asset that is growing each year. On paper, you are now, at par with those paddy fields and their new age projects. In reality, you know your real estate is dead.

We reckon, that your home loan company in India knows something pretty cool. It knows that after you have finished the 20 year tenure of your home loan repayment, your real estate will start growing really old. A few more years and the prices will completely stagnate. Add a few more to that and your home is dead, naturally.

You have the new towns, the new sectors and the new colonies everyday. New is happening. New is where the world is. Old things wither away and die. Legendary cars, cutting edge gadgets, search engines, mega corporations and social networks have all been known to die natural deaths. Simply because us humans do not want to be around old and ‘outdated’ things for too long.

Your real estate investment is not an exception. Enjoy it, while it lasts!

P:S: We are not even talking construction quality here. Most of the new homes being built would look like crap 20 years down the line. And no, you cannot sleep in that manicured garden every night, can you?