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The real estate investment dream is over

The earth has shifted from under the feet of those who thought real estate was a sureshot investment

As I'm writing this, comes the news that the government intends to prioritise the passage of the GST Bill and the Real Estate Bill during the coming winter session of parliament. It's laudable that the government realises that in terms of legislative priorities, the Real Estate Bill is second in importance only to GST. Hopefully, this is a recognition of the fact that the mess in the Indian real estate is a major problem in the lives of Indians, as well as the disaster zone that real estate development has become or businesses.

At the same time, Housing minister M Venkaiah Naidu said something interesting, that the government will soon unveil a policy to promote rental housing as a viable housing option. Naidu pointed to the obvious anomaly that despite a housing shortage of approximately 19 million units, there were around 11.09 million houses are vacant in urban areas.

While the collapse in house sales (despite prices that are finally going down) is now well under way, there is the separate puzzle of a vast proportion of house owners preferring to keep their property vacant rather than rent it out. The impediments are many, but underlying it all is the low rental yield. As against, 5-7 per cent across the world, rent in India generally adds up to no more than 1-1.5 per cent per year of the value of a property. Moreover, this is not reflection of low rents but of overly high prices. After all, the rental market is a real high volume market with consumer choice and low friction, whereas the value of properties is not at all a trustworthy figure.

What this indicates is that those who have bought second or third houses (or more) for investments, should finally give up the fantasy of it being anything but a disastrous investment. Don't stay attached to discredited notions of how real estate always comes around; and don't stay mentally anchored to the buying price or some other notional price that your property is worth. Your money is losing value at 6-8 per cent per year, and if you're still paying EMIs, it's much worse. The real estate investment dream is over and the sooner investors accept it, the better it will be for them.