Day 18 - Buy a home beta!!

Upfront disclaimer: I may be suffering from a full blown case of confirmation bias and I may be looking only for information that suits my belief. So bear with me. 

Rent hai paraya, aur EMI hai hamara. Thats how homes are sold in India and world over. Playing on our primal instincts for shelter, this social construct is now an industry so large that the global economy can be bought down with it. 2008 is still fresh in our minds.

Germany is perhaps the only developed country where home ownership is not encouraged. Germany’s home ownership rate remains quite low at 43% in 2013 vs 66% for Britain in the same year and much higher in most other EU nations. The only populace that rents more than the Germans is the Swiss populace. And we all know that the Swiss and Germans are quite logical and rational albeit boring maybe.

You can read more here. Most Germans don’t buy their homes, they rent. Here’s why

The only reason one can perhaps buy a home if it is available at a reasonable price (as a thumbrule your house should not exceed 2-3 years of gross annual income at the time of purchase) is to use it as a piggy bank to save your surplus income. I doubt most homes in Mumbai would qualify. If you are not savvy enough to invest in equities and mutual funds, then perhaps a home is ok. But it would be stupid to buy one, especially at these rates, if you are a decently savvy and well informed investor.

Why It's Plain Stupid To Buy A House In India

A blog on this by well know finance advisor Subramoney : Should you buy real estate?

A table is worth a thousand words. So look at the post tax returns below. Assuming you can sell your property at will at the price you want, you would still make a much lower amount than equities and just as much as gold. 

But if you had bought Asian Paint shares versus a home, you would not have called people home for a Griha Pravesh and got some social rub off of owning a home. Imagine how the conversation would go: Your mother/father calls up your relatives and invites them home for a puja because 10,000 shares of Asian Paints are going to be credited to your demat account. So buying equity and mutual funds woudnt get you social prestige but it can make you rich if you are willing to postpone that gratification. 

The 14% of smart money that could exit between 2000 and 2013 has generated a mind boggling 2% IRR. And if the balance 86% smart money below could not exit, I doubt the average retail guy has much of a chance.

I may be completely wrong but thats my view. 

Next three days I will cover, picking mutual funds (which is even more difficult than picking stocks) and buying equity. 

Regards

Anish

QED Capital