I had a detailed chat with a very dear friend of mine just now and we had a very animated discussion on Real Estate investing in India. I feel Real Estate investing ranks very low in the asset class of investments and one should limit oneself to investing in the place one stays and maybe another home only when investments are done in other asset classes.
The various Asset classes one could invest in are:
4. Real Estate
The advantage of Equity, Gold and Debt investments are that one can liquidate the holdings in maximum 1 week and one is free to move around with the cash.
Real Estate when the prices fall, there are simply no buyers, lot of legal paperwork to be done, lot of chances of getting duped and one cannot have cash when one wants it.
There would be several people arguing with me saying that prices have multiplied 4-5 times in last 20 years or so. The same is with Gold or Equity. This morning I was discussing with an elder that in 1975, her salary was Rs 380 only. That time 10 gms gold cost 200 rupees.So 1 month salary bought her 20 gms of gold roughly. That means here salary was actually Rs 40000 in today's currency.
One more problem with Real estate is that the assets decay. There is maintenance required for the building. The property may get encroached. One has to make several trips to see if the home is good shape.
All these reasons have convinced me that real estate is the last investment option for me, after I have exhausted all other avenues. Gold,Equity, Debt I can sit i my comfortable computer chair and transact in peace whether ever having to make rounds of The Collector's office, Builder's office or the site itself.
A second vacation home would be an option only if one is willing to make those trips and have someone clean up the place regularly.
1 more option is that asset is given out on rent and I get a rent yield of about 6 - 7 pc post tax returns. This also mainly commercial real estate would give me that not a residential complex. The amount of black money component also is a 1 more thing which would put off salaried folks.