The lure of Real Estate Investing

Every now and then, I see some one claim that equities are a better bet compared to real estate. For a long time, I have been a believer in that idea. But the reason people invest in houses has to do more than just the attraction of higher returns.

The biggest reason for the recent growth in investments in Real Estate has to do with “Recency Bias”. Too many people have seen how either their own or properties owned by friends have given exponential returns. With it being very easy to extrapolate such returns, people tend to believe that investment in real estate carries no risk whatsoever.

But for many, its not just the returns that lure them to invest in real estate. Owning a house is now seen as a coming of age. With the Indian economy growing and jobs in plenty (for those who are educated in the right areas), the two big acquisitions they plan to make even before marriage is owning a Car and owning a own house.

This is more pronounced in households where the kids have seen how tough the lives of their parents were and the issues that come with living in a rented house. So, once one lands with a nice job, he begins to work out where and when to buy.

Last year, I was living in Mumbai where I had rented 1 BHK on the outskirts of the city. The rent was not cheap, but then again, with limited choices, I went for the best I could get on the market. In Bangalore, a real estate agent is paid only once, when one takes a house on Rent. Amazingly in Mumbai, one needs to pay every 11 months (validity of the agreement) and since I had gone through a broker who acted more like a sub-broker in the stock market, I had to pay double (1 month for the main broker and 1 month for the sub-broker).

In total, for living 11 months, I had to pay 13 months of rent. I have been told that this is more or less the norm in Mumbai. And the worst thing was that since the agreement was itself for 11 months, I could be out looking for a new place if the owner so decided.

My own family having lived for a considerable time in rented places understands the difficulties that come with it. Its easy to say that if one were to invest a similar amount in the markets, one could get a better return.

But what about the small joys of life. The length of our live’s being unknown, what is the whole point in struggling to make a better return on our money and yet be unable to enjoy the pleasure of it. For most parents, its a pleasure to see them owning their own house. And unlike elsewhere, most parents pitch in towards the initial investment making it easy for purchase to go ahead. How does one assess the cost of such simple joys of life?

While I continue to regard investment into real estate as not the best choice, if that gives you the happiness you crave for, why should some future return (which is pretty variable too) stop you from enjoying the same now.

True happiness is… to enjoy the present, without anxious dependence upon the future – Lucius Annaeus Seneca