While reading this blog post https://www.jagoinvestor.com/2009/12/returns-of-real-estate-in-india.html following question propped up in my mind.
My question to you is isolated and hypothetical – please correct me. I will take the example pointed by in the post – so here it goes again.
[“The current market value of my flat in Mumbai is close to 1 crore , I bought it at 28 lacs in year 2000. The returns have been Mind boggling 72 lacs in 9 years, i.e 8 lacs a year approx , more than my current salary and now I am planning to invest more in real estate instead of Equity, What do you think” . A not so close friend was discussing his Real Estate portfolio with me.”]
For a common home buyer lets create some more condition.
1) What if you take home loan
2) What if the city is not Mumbai
Now lets suppose this guy sells his house with 72 lacs of profit with 1 crore in hands. As the example says he earns less than 8 lacs per month and he has this house only, he is planning another property though. Now after sale either this guy needs to buy another house or take a rented house. Lets consider he stays in mumbai only and maintains the same life style, in both the cases where is the profit in real sense? He has to invest that money back for living.
Is he going sit on the cash at the cost of change in lifestyle? What is the future of the money earned? I understand I am considering a closed case, this guy may sell it off and settle in a less costly city.
My questions are:
1) Are profits in real estate hypothetical?
2) Do they diminish after you realize them?
3) Most people buy houses as an investment, but do they really are investments or just a consumption product?
4) In a normal investment product you own the Capital, but if you take a loan, how risky this investment is?
Hoping for a detailed analysis, thanks in advance.
Harsh