Real estate goes up by 40,000 times! wow what an investment
You bought a share for Rs. 100 and in 2 weeks it became Rs. 200…you were impressed that it went up 2 times..so you sold the share.
Now that is what happens when you have shares, etc. there is an urge to sell. So if you buy a share will you wait for it to go up 40,000 times?
No. You will be tempted to sell it as soon as it goes up…so why is Vivek Kaul acting as a dampener..saying 40,000 times is only 11.3%..over 100 years…?
lets ask Vivek
Some New Old Lessons in Real Estate
Kalyan
Hi Subra,
I wud like to highlight a few points
1) how many companies in the stock exchange can survive 99 years? Airtel? Reliance? Infosys? I don’t think so. Hence buying an asset and leaving it unmonitored for 99 years and still pocketing a handsome profit, is not possible in equity.
2) the author conveniently forgets the rental yield from the property. At 3% per annum, the rent, if suitabily reinvested, would have yielded another few hundred crores. It may not be inaccurate to assume that the actual rate of returns (including rent) will be between 14-15% p.a
3) This 14-15% yield was obtained in an era which was mostly characterised by political instability, two world wars, freedom struggle, partition, famines, poor rate of ecenomic growth, Indo Pak wars, socialism and license Raj. Only the last 25 years of the tenure witnessed liberalisation. Do you think equity (if invested in just ONE single company shares and left undisturbed for 99 years) would have fared so well?
dr m kishan
Dear Mr Kalyan,
Sensex started around 1977 and so hundred years are not yet over to check whether companies survived that long or not. But some companies have survived this time and given phenomenal returns. E.g.: If a buyer had invested just 10000 in WIPRO in 1980, he would have been richer by about 550 crores. This in just 35 years not 99 years a CAGR of 47% tax free with no expenses in between
But this information is of no use to us like the news about 40000 times increase in real estate. Almost no body has the capacity to spot the next WIPRO or the next big bagger in real estate. Foresight is not common. Therefore we have to seethe bigger picture, the general picture, the average picture. And in that average picture Systematic equity investing edges over Real Estate.
My two cents
Thanks
kishan
Pandu
One does not have to invest in *individual stock*. One can invest in an Index (basket of stocks) OR Mutual funds (similar concept, just hand-picked).
Kalyan
Dear M kishan,
Wipro is one exception. There are a hundred stocks which have bitten dust for every Wipro. But in realty, in every city I am aware of, even tier 2, the land value has appreciated 100 times in the last 25 years.
Kalyan
Dear Pandu,
We can compare only apples with apples. Did we even have an index or mutual fund in 1917? Pls enlighten me. Thx.
param
@kalyan: “But in realty, in every city I am aware of, even tier 2, the land value has appreciated 100 times in the last 25 years.”
Being is a tier-2 city for 18 years, I cannot disagree more… I would say 3-5 times is a more realistic number, 10 times is highly optimistic.
Kalyan
@ param:
Well, the land value of my father’s property in a tier 2 town has ‘only’ increased 400 times in the last 27 years, and my dad keeps cribbing that it is performing “below par” when compared to the other relatives’ investments in Chennai 😀
Kalyan
In fact, I know several areas in Chennai where land has appreciated 6000 odd times in last 40 years. I.e, if u had purchased a plot in Chennai for Rs 10,000 in 1976, it would be worth around Rs 6 crores now.
QS
Subra… No time for research?
In 1901 repo rate was 1%. 1935 – 3%. 1965 – 6%. Hit 11% first time in 1991/1997/1998.
http://www.allbankingsolutions.com/Banking-Tutor/Chronology-Bank-Rate-India.shtml
The epfo site provides similar rates from 1952 onwards.
The seventies were the time when marginal tax rates ranged from 50-97%! My compounding for interest bearing securities/dividends is well..scr###.
Will some erudite person now please explain why 11.3% compounded is bad ?