We all love to discuss Real Estate and real estate myths.
Be it with friends, family members, or colleagues in our office.
It’s common to hear: Koi plot dilao bhai (please suggest me a good plot). Isn’t? And the best part is that almost all of us have some opinion about a particular property. Constructive or destructive opinion, that’s a different question😊
As we know, hundred different people tend to have hundred different opinions about properties be it apartments, row houses or plots. Some of us may have a real idea about real estate but unfortunately, most of us have half-baked, illogical ideas (second-hand opinions).
In this blog let’s dwell on the deep-rooted myths regarding real estate and try to bust each myth one by one.
Myth 1 – Real estate is a rich man’s game.
Reality – This was true. But, today, with the regularly lowering of bank interest rates and competition in the real estate industry & long lull in the market, property prices are not increasing much.
It will rather be right to say that prices are more or less stagnant in most of the market barring certain pockets/ cities. It will not be right to paint pictures with the same brush because India is a big and diverse country and different micro-markets behaves quite differently.
Let’s take the example of Lucknow: The state capital of Uttar Pradesh.
Hazratganj being CBD (Central Business District) is the most expensive real estate market in Lucknow. But this doesn’t mean that you can’t find property at lesser rates in other parts of the city.
Properties available in Faizabad Road, Sitapur Road, Sultanpur Road, and Rae-Bareli Road are quite reasonable today. Not only that, but some of the builders are also making good quality affordable row-houses in good areas.
Besides this, if you want to have exposure to Lucknow real estate market and didn’t have a so-called BIG budget, you can consider buying PLOTS on the highway from any reputed builder such as SDS Developers.
Myth 2 – Real Estate is a highly risky investment
Reality – We all know that all investments come with associated risk with it. Do we know any asset class with ZERO risks? Mutual funds, Shares, Gold, Commodities, etc all come with an element of risk. Off-course the degree of risk varies from assets class to asset class. For example, equities, in general, are riskier than debt instruments.
A smart investor always knows this and is ready to take prudent, calculated risks.
Fundamentally, if you see, real estate is one of the least Volatile and thus least risky asset classes available to today’s investors (considering high growth potential in long term).
Fact: We should not forget that real estate has given most numbers of millionaires/ billionaires to the world😊
👉 READ MORE: Home Buying Guide- 2024
Myth 3 – Taking Debt is bad
Reality – Taking debt is bad in case you are using your credit cards recklessly.
It’s true if you took personal loans for extravagant purchases.
It’s true if because of peer pressure, you bought a second car, which you really didn’t need.
It’s NOT true in the case of taking a home loan to buy your dream property. In fact, the opposite is true here. Debt is used as a secret weapon by most of the billionaires across the world. Its simple mathematics: if the RoI (return on investment) is higher than the cost of debt, then debt is good😊
In the case of taking a home loan, we should consider a couple of facts.
One, we are going to use it for personal use (24×7) or give it on rent for producing rental income.
Second, we can avail of tax benefits on both the principal and interest components of a home loan.
Third, a home bought will give you the benefit of capital appreciation in a long term.
There is a high possibility that this capital appreciation will offset the interest paid on your home loan.
Myth 4 –It’s not a correct time to invest in real estate.
Reality – Typical investment philosophy prescribes that we should invest in lows and sell during highs (in the market).
In a typical market situation, we all know that most of us tend to sell during the low times, out of panic, and buy during the high & euphoric times. You know that is because of herd mentality. This phenomenon is called FOMO: Fear Of Missing Out.
Fear and greed are the two most intense emotions we have. Because of fear, most of us start selling during a bearish market and tend to hold our investment until the market recovers.
That is dead against the prescribed solution. Now, I am sure you will realize why only a select few investors make money and the rest (most of us) bleed.
If, at all, we think that the real estate market is going through the worst of times now, don’t you think this is the most opportune time to buy a property?
We should grab it with both hands when a quality asset class is available at a deep discount because of broad bearish sentiments. Isn’t? Think!!
Myth 5 – Buy only in the heart of city. Outer area is worthless.
Reality – In a stock market what kind of stock offers the most upside potential? Blue-chip stocks or small & mid-cap stocks?
Of course the latter one. Blue-chip stocks are less volatile and offer consistent & small growth whereas, small & midcap stocks, though volatile in short term, offer higher returns in long term.
The same is true with the real estate market in emerging markets. Pick any posh location in your city. You will notice that prices are near their peak. This means, prices are nearly saturated and offer less growth potential.
With high urbanization, cities are expanding and micro-markets in the outskirts offer stellar growth potential in long term.
Myth 6 – It’s advisable to buy property in my native place only.
Reality – It depends. If you want to stay in your native place, because of your job or business, then it’s ok to purchase property in your city.
However, if you are an investor, you should be, ideally, location agnostic. The focus should be on the risk-reward equation of a property. Analyze it in terms of location potential, commercial opportunities nearby, social infrastructure, etc.
Today, this can be done easily. Do your primary search online, speak to your trusted property consultant, discuss with him/her at length, and finalize it. That’s it😊
Myth 7 – Property consultants sell dreams not reality.
Reality – Buyers build this perception when an agent does not do a proper “Need Analysis” for a client.
Say, for example, an agent sells you a plot with extremely good upside potential in long term but you bought it with an expectation of rotating your investment in 1-2 years. This is where the gap in understanding happens.
It’s the responsibility of both parties to discuss, at length, so that post-purchase cognitive dissonance can be avoided.
Myth 8 – Real Estate industry is operated by Goons.
Reality – Any industry, which works well and becomes highly successful and profitable attracts people from different walks of life. Slowly we see both professionals and goons try to snatch the market pie from each other.
Myth 8– Real estate always appreciates.
While historical data shows a general upward trend in real estate prices, it’s not guaranteed.
Several factors, like the economy, location, and property type, can influence value.
Don’t invest simply based on the assumption of guaranteed appreciation.
Myth 10– All renovations increase property value
Not all renovations are equal.
Trendy upgrades might not appeal to every buyer, and expensive renovations may not recoup their cost when you sell.
Research what improvements have high return on investment for your specific market and property.
Myth 11– A bigger house is always better.
Bigger isn’t always better.
Consider your needs and lifestyle before buying a house that’s too large.
Maintenance costs, energy bills, and cleaning can become burdensome for a house that’s too big for your needs.
Conclusion
With a period of time, almost all industries face consolidation. Real estate has also seen the same fate in India after the introduction of RERA and GST. Today, most of the miscreant players are out of the market.
Not only that, with the advent and steep adoption of technology in the real estate industry across the globe, many bright professionals from IITs and IIMs are leaving their cushy jobs and starting a real estate venture. I am sure you may be knowing a couple of them.
So, the crux of the matter is that investment in real estate is a smart game of patience so that you can reap the benefits of compounding effect or snowballing effect where go tend to get growth over growth. There is a wonderful book: The compounding effect by Dareen Hardy. I have written a crispy review of the same book.
Would you like to share more myths related to the real estate market?
Please comment below.
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