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 exploiting their needy situation is the handy job of a local land broker. So very rarely they make a deal with 1-2 % brokerage, usually they make an agreement with the real owner at a much lower price than market price(distress selling) and find a buyer(usually a builder who are always hunting for land). So within few weeks or months they make a killing ranging as much as 20-30% of land value.

Then the builder: They make a project plan with good number of flats with a very good margin on their selling price. Reputed builders even give sub contract for construction of part or full building. So you can imagine they are doing their business and having their real good margin at every level. Even for construction its not handled by a single contractor, there are different persons who supply different raw materials like one person sand, brick another steel and iron another cement and another electrical fittings another bathroom fittings for the project execution. They all have margins on top of the market price and bribe for all approvals.

Now house is ready, but the builder doesn't sell directly, its out sourced to a marketing agency who actually makes the deal with us. They have their margin priced in the rate we are quoted. That is the price we pay. Again we don't pay with our own money, we take a loan and we pay interest. So the interest cost is also added to the cost of house. If that is not enough we have to bribe to register our own house in our own name with our own hard earned accounted(white) money even if you ready to pay the full government guidance value.

Now where is the margin for us to make a profit after every body has taken their share - we have to find another bakra(scape goat) to off load the used flat at an appreciation in future which is easier said than done. In current scenario, RE has become one of the biggest industry and a big cartel of builders, black money holders, politicians, banks etc who want us to buy that dream house. The demand is artificially created to trap us. We will see the real demand when we try to sell the flat.

The full page ads are coming for the last few flats at that incredibly lowest price for the lucky few for last few weeks in every festive season. So you can imagine the real demand. You can go for site visit in free cab, Pre-Launch offer at half the rate, No PRE-EMI, Free modular kitchen, Booking by just paying Rs 10K or even online booking of flats in eCommerce sites. The builders and marketing agencies are sitting with huge inventory of unsold incomplete flats with a good amount of debt burden so we are the only people left to rescue them with money more than we need without any clue about how to make best use of them :).  



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