Indians love to invest in properties, no secret here. RBI report, March 2023 has yet again shown that Real estate comprises close to 50% of Indian household assets.

A large part of the Indian population is still driven by the historical trend of investing in real estate and gold. In the past, there were hardly any other asset classes for people to invest in. The only lucrative asset classes were real estate, gold, and commodities. Indians invested a lot in real estate because of its perceived notion of being safe. This trend continues. Now with work from home becoming the new normal, the demand for homes has increased.

Buying the first property signifies security, stability, and the feeling of being settled in life. The innate human need for a place to call your own. The second, third and all others thereafter are meant for investment. Now this is where the issue is, this over-dependence on real estate to give you returns that will take care of your future lifestyle. This needs to be looked at objectively. This is when we lose perspective and don’t do the maths of investing for long-term goals like retirement. It is generally believed that real estate prices will only increase, no matter what. The fact is, there are long periods of a lull when there is no movement or a downward movement in the real estate prices, but people patiently wait, not realizing that the loss of time means loss of returns.

I guess it’s the tangibility of the asset that gives us comfort and we are happy living in that comfort zone. We don’t want to objectively assess the demerits of over-investing in this asset i.e. illiquidity – cannot sell as and when we want or sell piecemeal, low rental yields(3-4). Not to forget the cost of maintenance of the property. Investment returns from real estate are not generic, not everyone receives the same return, it’s all about demand and supply in your specific location. The returns also depend on how much loan one has taken to buy the property, which again, we happily seem to forget when we look at the overall returns.

I believe the fact that you can invest in a property with a small amount as a down payment and the rest as a loan, which gives a tax benefit plays a huge role in this. The defaults in home loans range between 2% to 3% as per RBI. So obviously Banks love selling home loans. Most are paying off debts for a large part of their lives living in the myth that you are building an asset. Not realizing that you can build still an asset without being in debt, at a lower cost.
Asset allocation and Portfolio Diversification are the two pillars of financial planning. If real estate is more than 50% of your portfolio, then clearly it is skewed, even obsessive.

Too much of anything is good for nothing.

Do the math of investing in real estate, you cannot base your financial decisions on other people’s experience, hearsay or emotions.