Once there was a man, he went and stood in front of a snake. The snake bit him. He got extremely upset and went to his Guru.
“Guruji, look at that bad snake it bit me.”
“Don’t blame the snake, but blame yourself. It is natural for a snake to bite. Your lack of knowledge and wisdom is what bought you the snake bite.”
Understanding the way news works is very important for any investor. You can’t create wealth if you are in a constant state of ignorance. As they say a fool and his money are soon parted. Recently I was reading the headlines on the website of a popular business paper. In the past few weeks, the number of articles talking about increases in real estate prices as well as how now is the best time to buy real estate have gone up.
But when you read any of these articles closer, you realize that they are filled with quotes from builders and real estate brokers’ telling how now is the best time to buy and how prices have been going up. It is like asking a barber if you need a haircut or like asking me if you should be a Happionaire.
Are property prices actually going up and is there real demand? The main problem with real estate is that is not at all transparent. For the stock markets, gold or commodity prices you can easily look at your laptop and see at what price people are buying and selling. This isn’t the same for property.
To find answers to this, don’t follow news reports but simply try to find out the amount of registrations that have been happening for new properties. It is hard, but once you are able to speak to the people in charge of registrations you will find out. Take a walk down ‘hot’ real estate destinations at night and see the number of residential properties that are actually occupied. Take a walk into newly built malls and see the amount of commercial real estate lying empty. Properties that were on the market for sale 6 months ago or even from a year ago even today are available and are unsold.
The main reasons you are reading so many reports about rising property prices is because, most developers today are cash strapped and are in desperate need of money. I know of one who has six entire projects lying completely vacant in prime Mumbai areas. When more and more such reports keep coming and when you see a large number of property ads and exhibitions, you need to realize what actually is happening here. Gradually the holding power is coming down, and nobody can keep holding onto overpriced real estate or ever. At some point prices will correct to meet actual demand. This in some areas could mean a price correction of as much as 70%.
Builders have been holding property prices till now and the correction hasn’t yet been as much as expected, but that isn’t the same case for end users and investors who are stuck badly. While the stock markets have bounced back to some extent, it hasn’t been the case with real estate. I know of someone who has been unable to sell a property in Bandra since the past five years. When he bought it as an investment, it was brand new and he thought he would make a killing on it. People like him will rarely speak out in the open; because they fear what they say will cause a crash in property prices.
But people like him need to realize, that with the internet people are able to communicate freely. In fact, he should share his story so more people like him are not living in fools’ paradise. But why do some outlets in the media not report this? Let me ask you something honestly, would you do such a thing if you ran a paper and a large part of your ad revenues came from real estate developers?
I wouldn’t blame anybody, neither the media nor builder or real estate agents, because in this world a person who is ignorant and foolish will always lose. At the end of the day everyone is doing their own duty/karma.
If more people realize what the truth is and search for value, automatically real estate prices would be forced to come down. If everyone decides not to buy real estate as long as it is overpriced, what do you think will happen?
I know many people today will find this idea strange, but look at what has happened in banking over the years. When there were moneylenders and no transparency interest rates used to be very high – as high as 60-70% a year, today see what happened.
Keep smiling and keep sharing knowledge!
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