Why we can not make money from buying that dream house

From my last posts on RE(Real Estate) investment in India, you can assume I am biased towards not buying a house as an investment and views are personal not to influence anyone for their RE investment decision. In continuation of the same, here is my observation on why you can not make profit on buying a house in current scenario.

Let us consider the scenario the process of how a flat is built and sold to an end customer like us(salaried people buying a house with 80% home loan).

First the Land: Most of the land in city outskirt or even prime locality(where the flats are constructed) belong to people who are either inherited agricultural/ancestral land or bought years back at very cheap price. Now the land cost is as good as a piece of gold so the owner sells only in case of urgent need of money or they do joint development. In either case the owners are either too reach to hunt for a buyer or not so smart to find one. Identifying the real owner of such land in a growing city and ex…

Are you(financially) literate?

I know, you(anyone reading this blog) is not only literate but educated(or may be highly educated) as well. How ever very few of us are financially literate, we hardly understand the basics of finance or money market instruments for which we become the easy target of financial product mis-selling. It's not just one off a case, I have so many friends and relatives who have been sold rather I would say I have hardly found anyone who has not been a victim.

Do you want to check whether you are financially literate or not, answer below questions( even though it looks like a subjective matter, I have tried my best to make it as objective as possible). All the answers are Yes/No type and you can consider yourself literate only If you can answer all of them correctly.

1. Do you know the difference between saving and investing?

2. Do you understand how equity mutual fund works?

3. Do you believe your money is safe in fixed deposit?

4. Do you consider investing in stock market is risky?


Why should you run?

Eight Most common Money Myths

In no particular order or priority the 8 common myths I have come across among friends or acquaintances on money:

1. Money is safe in savings account or fixed deposit : The most common and dangerous myth I have ever heard from anyone,  savings account gives you interest of 3-4%( except 3 banks give up to 5-7% ), fixed deposit give you around 9%, post tax it will be 6-7% depending on your tax bracket. If your money is not giving better return than inflation, actually you are losing your money every day. Better you spend that money today than keeping in such instruments resulting lower buying power in future.

2. Investing in stock market is risky : Unfortunately very few people have made money from stock market in last five years, so every one is convinced its not possible to earn money. But in long term this is the only instrument which can beat inflation with highest margin( may be gold or real estate can also beat inflation but very less chance for FD or RD). Its risky If you invest …

An interesting video - One Idiot

I found this video in another blog and found its quite interesting even though I knew the concept or the underlying message of the video, I liked the way its presented. Its little long around (33 minutes) but worth the time specifically who think investing or planning for money is not a cool thing. A good introduction to the world of investment and personal finance, it may change your prospective.

If you really like it, you can check another three videos here but not this long, 3-5 minute ;)

How our goverment gives undue incentive to home buyers

In last two posts(1 and 2) I wrote about our love for house and its consequences for the economy, but you are not the only culprit. You are conspired to fall in that trap by the number of undue incentives provided by the government or tax authority of India. The nexus of real estate industry and law makers are hand in glove to incentivize the whole process to turn the most part of surplus income to real estate.

First, you get a tax exemption on the 1st house(where you leave in) for the interest on the loan to the tune of Rs 1,50,000 per year. We don't get such exemption in any other loan except education. The argument can be to help people buy their home, check the next point. In all loans we pay interest which is the income for the bank which is also taxed, so we should get tax exemption on all loan interest or the exemption should be abolished for all loans(except education loan which I feel is justifiable). We can argue even a car or fridge or personal emergency(personal loan)…

How your dream house is contributing to the National Black Economy

In continuation of my last post I want to emphasize how your love for that home contributes to the National Black Economy(NBE). This is just like bribe, everyone hates it, against it but silently pay and get things done when their turn comes.

When you see a good house, you purchase even though the seller demands a portion of the money in black(unaccounted/cash), this contributes to the NBE. Then you register the house at lower price, save few bucks in stamp duty and bribe the register office fellows. Then the income from the house property(like rent) you don't add to the income fully. So just imagine how much a single real estate transaction contributes to the NBE and we just blame the politicians and bureaucrats for black money.

You think it doesn't bother you but the same black money affects you only, you only pay for it - When you pay a portion of the house price in black, you are providing a cushion for the price fall. Say you bought a house at 40L by paying 20L as black …