A financial plan budgets for a house as everybody would like to own one. However, over and above this, real estate is also used as an avenue of investment. While it is an excellent long-term avenue for wealth enhancing investment, it has a few drawbacks.
- Poor liquidity. You can sell on the stock market instantly and get your money within three days or encash a mutual fund investment within a week. But you cannot sell real estate quickly and easily, even during boom time.
- Difficulties and dangers in title verification. This is when you purchase real estate. There’s also the risk of black money component in such transactions.
- Huge funds. You need large amounts even to purchase a single unit. Plus, there are high stamp duties to be paid at the time of purchase.
- Huge sum for additional purchases. Let’s assume you bought stocks and real estate worth Rs 30,00,000 each, and now want to make additional purchases since the markets have fallen. Your stocks and real estate are both valued at Rs 20,00,000. You can buy additional stocks even if you have a lakh or two, but to buy additional real estate you’ll perhaps need at least Rs 20,00,000!
- Cumbersome formalities. For both buying and selling of real estate.
- Administrative efforts. Once you buy real estate, you’ll need someone to look after it. There could be problems associated with absentee landlordism, such as encroachment, squatting, deterioration of houses/ apartments because of keeping them locked up, etc.
All these matters make real estate easy to get into, but difficult to get out of, especially if you have made a mistake.