Investing is NOT a game with only one winner

Real Estate

This is one of the biggest bubbles waiting to be burst. I have explained this with a few examples and anecdotes.

35 year old Deven Desai is a frustrated man today. He has been waiting patiently to buy his dream house in Juhu for the last 3 years. He has seen many flats so far and is thoroughly disappointed at the overall transaction and deal that he is getting. He is earning Rs. 40 lakh post tax per year and is looking at buying a 3 BHK flat. He saw one where the halls and rooms were pretty small. The builder's sales person told him "Sir, this is the last flat left. All are sold. The price also is very reasonable at Rs 15000."Though he was not very pleased hearing the amount he still decided to go ahead considering the area and his long wait.

He asked the sales person about the size of the apartment and the net cost to him. The sales person told him that it is a 1980 sq.ft flat super built up. "What about carpet area?", Deven enquired. "It is 1188 sq.ft. There is a 40% loading." Deven was annoyed and said "How is loading just 40%? It is 65% minimum as the loading must be done on the carpet area and not in the reverse manner that you are calculating. If you add 65% to 1188, then it comes close to the super built up figure that you are talking about. Why do you guys calculate loading on the super built up figure? This means that my carpet area cost is Rs. 24750 which is ridiculous."The salesperson who had a lot of attitude said "Sir .This is a common practice and everybody calculates it this way. You take it or there are many people waiting in the queue."

Deven decided to let this go as it just did not make sense to him.

Ashok Ganesan , a sales professional faced a similar situation in Malad. He was made to believe that the price was low and that he should buy it before prices move northwards. However the loading on the carpet area was way beyond 55%. Many people are simply unaware about this computation and often ignore this. Additionally, how many people have actually measured the super built area that they have been charged for? The absence of a regulator makes real estate a perfect recipe for abuse.

There is no correct loading figure but I can't see why it should be more than 35%. 35% is too high a number but must be calculated on the base carpet area. There is no regulatory help or any other available but you can negotiate hard on this front as there is still a lot of inventory that has to be sold. For e.g in Andheri, Mumbai, a couple of buildings in a premium 2.5-3 BHK flat complex are completely vacant for the last 12-18 months. Investors have put in money but end users have not bought in as they still cannot afford and banks are unwilling to lend as they were back in 2006 and 2007.

There is no point in paying any price because someone else will buy before you. Prices are still not low enough to spur genuine demand in the real estate market so don't worry, you won't be left out. The patient ones will be amply rewarded.

Finally the key take home is "Investing is not a game where there is only one winner. Everyone can win in the investing process provided one develops the ability to filter the financial noise and take prudent economic calls rather than emotional ones."

- Amar Pandit

The author is a practising Certified Financial Planner. He can be reached at amar.pandit@gmail.com

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