There are plenty of anecdotes of people of earlier generations doing very well out of real estate. Everyone knows some families who owned a house bought 40 or 50 years ago, which, when sold after decades, made them rich.
Now, A lot of people have second apartments, bought as an investment on a loan that is being repaid with some difficulty out of a salary. Now, the apartment is worth some theoretical number of crore but is practically unsalable and rental yield is a ridiculous 1% or so a year if one can find a tenant. Obviously , real estate ‘investors’ of this category are asking themselves uncomfortable questions, though they are not yet prepared to accept the obvious answer.
Let us look at what is involved. How does the price of real estate (land or hosue) goes up? There are a few ways
One, the legal `state change’ from agricultural or unused land to residential or commercial. In India, this involves politicians or hangers on to politicians who use their state connections to make the necessary change in classification. Sonia Gandhi’s son-in-law Robert Vadra and a whole string of Haryana land swindlers come to mind. This goes on all over the country in all state capitals and taluk level registration offices.
Obviously, using this method the Robert Vadras and Unitechs and DLFs of real estate world swindle money, using legal and illegal juggling of this sort, out of farmers who originally owned the land and the buyers who end up paying higher price. An average middle class buyer can be only a loser in this process.
Two, the creation of a physical environment which makes the real estate usable. If the land is prepared for construction, a bore well is dug, a pathway laid or a house is built the whole thing can be sold for a higher price. Here, the higher price reflects the material and labour spent on these works, and a profit earned by paying less to the workers who do that work. Nothing more.
Three, the improvement in actual livability as an area becomes fully populated and eventually comes into the mainstream. Four, inflation and general economic growth over a period of time.
These involve no effort from any individual or a company, but a social process, involving a city or the whole country.
With or without government planning an area may develop economically lifting the price of real estate. Using this development process to make money out of land holding in that area is literally stealing from the society. For maximum social benefit, the land should be made available to the most suitable purpose for the area, not to the richest person who is willing to pay the highest price for it. Such a buyer’s (investor’s) motive might not coincide with the interest of the community. For example, a person buying for profit making might use the land for building a huge multiplex, while the need of the people of that area and the city might be low cost housing for the working people.
So, if someone makes a bonanza out of holding on to the land and selling to the highest bidder, that person is directly injuring the welfare of people and the city. The same logic applies to exploiting the growth of nation’s economy to enrich oneself, using real estate as the lever. It cheats the fruits of hard work from others and it is not at all patriotic. No amount of sending messages to soldiers guarding our borders will make up for that. Such a person is stealing from millions of working people including the families of soldiers.
Five, the periodic booms and manias and slumps that inflict real estate. This is pure speculation and gambling. A sells to B for Rs 1 lakh, B sells to C for Rs 2 lakh, C sells to D for Rs 5 lakh. If A wants to buy back her land she will have to pay Rs 10 lakh. Instead of increasing money this way, one can as well gamble in a casino, or indulge in cricket betting. There is little difference between those gamblers and real estate operators of this kind.
An individual or a company may become rich by one of the above factors or combination of all of them. But as a society, there is no net gain. Construction, development of an area or economic growth of a country happens with the sweat of millions of working people (physical workers as well as brain workers). Price increase of real estate incidental to that process is nothing but a portion of value created by this labour and captured by the person holding the land as monopoly. The monopoly hold on the land enables the person to exhort (like mafia) money for the use of land.
So, no pride or fun buying land or house and waiting for it to appreciate. Such a person is at best either a stupid loser who lose out to the legal swindling by real estate mafia or in the gambling. At worst, a parasite on the society leaching on the hard work and effort of others.
Based on an article in Economic Times