I was getting frustrated with my poverty, but then I read this news which says that a Car Parking Space in Manhattan is currently selling for US$2,25000 . Hmm we are far far better than some people in world.
Though real-estate has been a lucrative business always, but prices in India (as per my knowledge) have never rose so steep. Let us analyze a few reasons why prices are increasing so crazy:
(1) Open Economy: There was a big gap between India and USA (and europe) in terms of salaries and real-estate prices before we opened up our economy. This big gap was the major factor behind real estate boom over last few years. The foreign investors found the increasing prices still affordable (if they compared it with the prices in their own country). The salaries also rose considerably and there were more and more potential buyers who could afford increasing prices.
(2) Low interest rates and easy availability of home loans: Interest rates on home loans have decreased considerably over last few years (though there was a little increase again a few months back but that was not substantial). Also the home loans are very easy available. Most of the banks just ask for last few months salary slips. This means that any person with a high current salary can buy an expensive house.
(3) Rise of Upper Middle Class: The upper middle class in India has come up as a potential consumer in last few years (because of open economy) . High income for professionals (combined with the easy home loans) has created a big pool of consumers who can afford high prices products. The “Real Estate Companies” realize this fact and they conspire together to keep the costs high.(4) Organized Industry: Real Estate was never such an organized industry in India. Now we have dozen of professionally managed real estate firms across India. Dealing with these real estate firms have many advantages: (a) They help you on each step. They even facilitate bank loans. (b) They are more reliable: you can trust that your money will not be eaten away (c) You can trust the quality …
(5) Lack of Investment Options: As the salaries for professional in India are growing, professionals have a big amount of money in their hands. Most of these professionals , really do not know what to do this money. They do not have any prior business background and they do not have much investment skills. They find real-estate as the most safe and effort-less investment. If you try to collect statistics from buyers, you will realize that most of the people buy apartments for investment and not for living (they already have apartments and houses). Increasing rentals also promise them a continuous return on their investment.
A WORD OF CAUTION: There is a big number of consumers who are willing to invest in real-estate sector. Those consumer who made investments a few years back have got very high returns. The commons mentality of investors is that they are going to get similar returns even on the current investments. The real-estate companies realize this mentality of consumers and they have increased the prices on anticipation. Those who are investing their money, need to be a little cautious and analyze if they are really going to get a very good return. As I mentioned before, the biggest reason for real estate boom was the big gap in real estate prices between India and USA. But this gap has been constantly bridging. In fact most places in USA are now more affordable than Bangalore (and other metro cities of India). Also if you compare the availability infrastructure and quality of life, then you will observe that India infact is now much costlier than USA. I know a few friends of mine, who wanted to buy apartments in India (recently) and after checking the prices they decided to buy it in USA. So be a little careful. Do not invest your money blindly in to any property. Check the prices. Analyze how much infrastructure growth can happen in this area (where you are investing) and check up the prices of similar property in the areas where that kind of infrastructure is available. If you see a difference of less than 100%, do not invest. However if you are planning to buy, with an aim of getting a shelter (rather than investment), it might be wiser to go ahead and buy the property.
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