Last week, I wrote about the decline of the real estate market. I wrote about how after a point, homes, shops and offices were priced out of the reach of real buyers by speculators. The kind of places that people wanted to buy became out of reach in a matter of months as prices shot up. Eventually, a good proportion of the real estate got valued at fictitious prices which real end-user won’t be able to afford for a long time to come. This is true of moneyed individuals who have bought three or four apartments as an investment as of the so-called ‘land banks’ held by the big real estate companies.
I got a lot of feedback to that article, including some from people who are such investors and interestingly, some real end-users who’ve stretched themselves very thin in order to buy some decidedly overpriced homes. One such person is a young man who at the age of 29 bought a four bedroom house in late 2006 whose monthly repayment, even at the beginning was around 70 per cent of his large salary. The fellow is a high-flier in his profession and gets a huge salary but the fact remains that he and his wife are stretched very thin financially. They have no scope for any other savings and any kind of slowdown in their careers would cause them major hardship.
However, the strangest part of the picture is that they don’t really need this house. They have one infant daughter and effectively use only one of the bedrooms. Basically, most of the house is for use twenty or thirty years down the line. All four bedrooms will probably be used some time in the year 2030 when their daughter visits them with her husband and kids.
I suspect this is not an isolated example among recent home buyers. Just as I sat down to write this article I saw HDFC’s Executive Director Renu Karnad make a similar observation on a business channel. For decades, we Indians have been used to the idea of a house being a once-in-a-lifetime purchase. In fact, the idea generally used to be to make it a once-in-several-lifetimes purchase since an Indian building a house would fully expect his next several generations to live in it. Generally, someone would work hard for many years, buy a piece of land and then work hard for several more years and save up for the construction.
Nowadays, things are different and young salaried couples seem to go home-shopping the very first weekend after they’re back from their honeymoons. However, it appears that many of them do their finances serious damage by trying to buy that same once-in-a-lifetime house. The result is that even though they are in their twenties, they try and buy something that has space for grown-up children and perhaps even their own post-retirement life.
There’s nothing with planning for the long term and it’s good when this can work out. However, in today’s environment of volatile real estate prices and interest rates, it actually isn’t working out for many young people. They’ve squeezed themselves to buy this outsized, overpriced home in an easy-money environment and now things have turned difficult. I think many of us will have to change our mindset about what owning a house means to us emotionally, at least in our younger years.
We should start with buying a ‘starter’ house and then trade up as and when our needs (and locations) change. I guess we’ll live and eventually learn to adjust our attitudes to this new way of living.