Looking to buy real estate?

There has been negative return in real estate in the last five years. The current prices are still relatively very high and I do not expect a positive return in the next 10 years. In the last two decades, the prices of real estate have increased manyfold and in few areas the prices have increased even more than 10x.

In 2005 to 2008, when the price of the real estate was increasing almost every month, there was herd mentality. Few people made good money in real estate during that period and many people who missed the train bought the properties at a higher price in the hope that the prices will rise further. Some of those investors suffered huge losses as the project they invested in never completed.

The main reason that real estate assets prices soared manyfold in the last two decades was the easy availability of home loans at very attractive interest rates and financial institutions like banks were funding up to 100% of the costs. People have bought multiple assets using mortgage loan just for investment pondering that it will generate better returns. Initially, assets prices rose as there was excess demand compared to supply. Now people have multiple properties and they want to sell their real estate assets. As there is no return or negative returns in the last five years, very few people want to purchase real estate assets. Currently, there is oversupply from the builders as well as re-seller investors, and no lack of demand by buyers.

Most of the deals which are happening nowadays are by the end users. People are buying property for their self-use rather than for investment. Investors are not interested in real estate any more as there are other better avenues available for them. Rentals yields have also come down as the supply is more than demand.

There is currently no rationale to buy real estate property. Huge upfront costs (registry charges, brokerage, GST etc), very low rental yield, high-interest costs and low liquidity make real estate a bad investment in the current scenario. I think prices should correct at least by 30% to make real estate investment attractive again.

My Suggestion: Ignore investment in the real estate, and if you are already invested in some real estate assets other than your house property, liquidate (sell) it and invest the money in some better financial products.

Thanks/Vipul

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