If there is time to reflect, slowing down is likely to be a good idea. ~ Daniel Kahneman (Nobel laureate ~ Economics)
Lots of people are interested in purchasing a house over the past few years. Not surprising, because the land and real estate investments have had a phenomenal run over the last decade.
Recency Bias leads most to believe the the same will continue to happen in the future as well. The bias towards investing in property is so high that people are planning for their children’s education and retirement by investing in property. Their argument is that they can easily sell out for “5X” times the cost and live happily ever after. Bummer!!!!! if it were so easy then technically smart businessmen (which are there to make profits) would all in the business of investing in real estate. Why dosen’t the developer, who advertises that the land near the highway will double in 2 years, himself take a loan , pay interest costs and keep the land for himself, is a question worth pondering.
If Recent Gold price & commodity crash is any indication then the probability, of the music stopping sooner rather than late in this ever increasing real estate prices musical chair game, is getting higher by the day. Given the pressure from banks, Already the game of 20/80 has begun. Developers are eager to sell off/offload assets from their books as soon as possible. (20/80 ~ 20% now and rest on possession, Soon this will turn into 10/90 and even lower when the pressure to dispose off the property increases)
So, if you have a house and are interested in investing, it would be prudent idea to wait for some time at least the elections are over to see where the markets are heading. And do not forget to Negotiate hard. You will get discount to the tune of 25% or so.
Real Estate developers are under stress to sell the supply build up which has happened over the past few years. And, it is also payback time for the builders. They will be asked to fund the political parties in the coming election year. Squeezed from all sides, it has already turned into a buyers market today.
Do understand the various costs involved when buying a property (The image is from Time Property article which appeared on Saturday, May 18)
The taxes & costs are a whopping 10% of the purchase price. And on top of this there are the regular maintenance costs, interest costs on the loan, property taxes etc which all add up. Understand that Buying a property is a leveraged transaction. The deal has been sweet over the years due to price appreciation factor. The rentals on residential property are pathetic (2-3%). The 20% which you put down gives you a fabulous return. However if the market stagnates, or even if there is a slight dip of say, 10% – then the implications will be damaging, especially for the working salaried class.
So , focus on asset allocation, Be aware & Happy Investing ~ Get a Financial Plan ~ With clear financial goals defined, investing becomes a lot easier, as you are driven by goals and not asset price movements. (More on this later)
Interested in purchasing a property ~ Understand the Actual cost of buying a house !!!!