Why will I NOT buy a house?

so very recently I was in Gua and all of you know that I love Gua a lot and in the long term I plan on staying there so I thought that hey since I in Goa let me go and explore what properties I can buy so I contacted a few property agents and I saw a bunch of properties so I was looking to buy a Portuguese architecture house and I saw a bunch of houses uh they were mostly two to three bedroom and they ranged from 3.5 CR to 5 cror so that was the base price of majority of these good houses now interestingly if I go to lisban Portugal and buy a house there it would cost me €350,000 and along with it I will get a golden visa to Portugal so the point is that the housing prices in India are at a mad level right this is not just one of instance for example I've seen people buying like 2 CR three CR houses in NOA and you know there is like a Nala that is there in front of your house it smells badly and still people go and buy those 2 CR 3 CR houses simple anal is will tell you that hey this is not the right move so on this video I'm going to help you systematically think about whether or not you should be owning and buying a house and towards the end of the video in case you are still convinced that you know what I have to buy a house then I will show you the right method of doing it so please stay till the end of the video and please give it a thumbs up it makes me very happy it helps the channel so please hit the like button so let's get started and I will speak in four simple points so the first point is that you must understand that why why do people buy houses so the first reason there is that people buy houses due to emotional reasons and the second is that they buy it from an investment reason so let's look at option one which is buying houses due to emotional reasons now if you have recently started working you are getting a good fat paycheck at the end of every month your parents will be very happy they will call you up they will say that you know what akat you are earning good money why don't you go and buy a house and take an Emi that will make us very proud that you own something that way we can get you married so these are the type of conversations that I have also had with my parents so essentially consider this as emotional blackmail from parents right I'm saying it in the right Spirit please don't take it otherwise but usually parents will speak about it from their own experience and they are not wrong I'll help you understand that also but essentially they are giving you emotional reasons that you can get settled you will have something that you can call your own we will get you married whatnot right so essentially these are emotional reasons now if you are buying house due to emotional reasons it's completely fine go ahead and buy it no problem okay but but please do not mix this with the second reason which is that you're buying a house for investment right don't mix both these things if you're buying a house purely for emotional reasons you are fine buy any house it's okay right be done with it don't consider your house as an investment and don't get into conversations like that I bought that Nala facing house in NOA because I thought that after 2 years my house price will get doubled and I'll get super no that's not going to happen and let me show you systematically why so this brings us to the second point where I will help you understand that what are the primary problems in terms of buying a house now the first systematic problem in terms of buying a house in India is that the growth rate of the housing market itself has been very slow now here is an article by Mint and it categorically says housing prices have shown an increase of just 1.4% in the first three quarters of financial year 2021 now you will say that okay hey aat you know what Corona virus problem was there so therefore probably the growth rate has been slow okay so let's read further it says that after growing by a kager of 5.6% in the specified 5year period compared to GDP growth rate of 6.7 so if we strip apart all this financial analysis in simple terms it means that the GDP was growing at 6.7% cumulative in The Last 5 Years and the housing market is growing at 5.6% so the growth has been slow and it has been slow for half a decade now this growth will not become 20% kager in the next few years so please keep this point in mind this is extremely important that if you are buying a house today then the growth rate will not be rocket it will not go from 5.6% to 12% or 133% a year just for comparison if you put whatever money you are going to put in your house if you just pick that money and invest in nifty50 passive mutual fund you are likely to make 12 to 15% return now you might say that AIT you know what okay fine we buy the argument that the growth rate has been slow but growth rate can kick in anytime right because I've seen that stocks in the past were going at 5% a year then they started ramping up at 25% per year similarly different sectors they were growing at 10% per year and now they are growing at 50% per year for example pharmaceutical sector so can't the same happen in the housing market the answer is no and I'll explain you why so okay so what you need to understand is that there is any asset goes through a cycle right so there is a cycle right it goes like this and essentially the growth of an asset only happens to a certain point in a particular cycle or a particular phase so let me elaborate more on this point what I mean by this so essentially here is the fact right so in the past you would have heard that you know in 2000 people bought houses right of 1 CR then by 2003 this house became 2 house right by 2005 this house became like 4 CR house etc etc right so this is called as growth rate right that every 3 years or 4 years the house price doubles literally doubles right so that is it is giving Almost 100% return in a matter of 3 to 4 years this sounds super impressive such a scenario has played out in India and I'm not denying that but let us now do a simple fundamental analysis that you can understand very very easily and explain it to your friends and you will sound smart press the like button if you like this piece of analysis so here is what you need to know so you need need to know something about PE ratio right so we have spoken about PE ratios in the past regarding stocks that what is the PE ratio of ITC stock baj finance stock etc etc the PE Ratio essentially indicates the pricness of an asset so what it means is that for example if the PE Ratio is 30 it means that in order to make one rupe you have to invest 30 rupees now certain stocks for example H right they trade at a p ratio of 45 so in order to make one rupe you have to invest 45 rupes in h so H is trading at a PE of 45 it looks super pricey I'll not buy it no that is wrong you should still buy it if the growth prospects are very high right growth prospects are very high if the h stock is doing 3x return after every 10 years and it has been doing consistently and if it is not slowing down then it means that this stock probably deserves a p ratio of 45 right so I hope this point is clear that hey p ratio indicates the pricness of an asset that how much money you need to put in to make 1 rupe you need to put in 45 rupes for H now let's do similar analysis for housing market so let's look at current circumstances and I'll speak from my own experience for example if you go to May vhar in Delhi or if you go to NOA the usual rate is that a house which cost 2 CR you end up paying rent as 50,000 per month right so if you are paying 12 months worth of rent this will become how much 6 lakhs right so what is the p ratio it will be 2 CR divided by 6 lakh so this comes out to be 33.33 that in order to make one rupee you have to invest 33.33 now this is the current PE ratio in a market where the growth of the Housing Industry is low now why am I saying that the Housing Industry growth is low as I showed you the mint study that the housing market is growing at 5.6% and GDP is growing at 6.5% so this probably does not deserve a PE ratio of 33 so this is the current circumstance now you would say that you know what parents tell me that back in their day they purchased a house for let's say 1 CR and now its value is 10 CR right or they purchased a house for 25 lakhs and the value of the house is now 5 crores or whatever number now these stories are true and these stories played out in the past right they are not going to play out now let me explain you the logic behind that also now let's assume that the housing price is double every 3 years right let's assume a hypothetical scenario because such a scenario was playing out back in the s back in 80s back in 2000s this was playing out up until 2008 so if you assume a case that hey where the housing prices is getting doubled every 3 years then it can only go up to a certain point right you might have heard that hey Google if it continues to grow at 100% rate every 3 years then in another 30 years it might overtake Us's economy right that is not going to happen the growth rate will slow down you need to keep that in mind so now you need to ask yourself the question that is the growth rate of housing prices is slowing down the answer is yes it is slowing down so let's imagine this that this is 2021 and you are buying a house which is 5 in gooda or NOA wherever and how much money so 25,000 rent per one CR is the general consensus in the market right so essentially every month you'll be making 1.25 this is the max you will make in rent so 1.25 multip by 12 that gives you 15 lakhs and if you divide that by 5 CR that gives you a PE ratio of 33.33 right now that is the present sit situation now now if you go back 3 years and if you are believing in the narrative that the housing prices doubles after every 3 years then what would have been the situation in 2018 you would have gotten this house at 2.5 crores correct right and what would have been the rent so this is your numerator 2.5 crores what about denominator would it have been 15 no right it would have been slightly less but how less because your rent goes up by 10% usually right you might have done rent agreement in Delhi or NCR region and you would have seen a clause that the rent will go up by 10% every year that is the usual assumption and if we decrease this entire amount by 10% rough calculation it comes out to be 13.5 lakhs so what is the PE Ratio here so the PE Ratio will become approximately 18.5 right so essentially what I'm trying to do here is very simple let me summarize that in 2008 the housing price approximately I'm just explaining you the math behind it was 2.5 crores right and the rental value was 13.5 the P ra itio was 18.5 now if the housing prices keeps on doubling right in 2021 this house becomes 5 CR right and your rental becomes 15 lakhs because the rent will not go up at the same measure right rent will not increase by 50% because the housing price is increasing by 50% now here the PE Ratio is 33.3 so the point that you need to know is that as you go further in the past in 2015 2012 1980s this growth rate was being exhibited in a certain scale but now it is not the PE Ratio is now becoming unsustainable also the growth of the industry is just not there it is hanging at 5.6% which is extremely poor for an industry where the p ratio right now is 33 so that is the mathematical explanation why buying a house does not make Financial sense now let me speak about some other qualitative reasons why you should not be buying a house the second reason here is black money now someone like me who runs internet based businesses so all the money that I make be it in stock markets be it in businesses it hits my bank account so that is white money right but in North India we have a problem of black money so what would happen with someone like me is that let's say that if I'm going to buy a house which is 5 cres and I go and buy that house today in G and after one year if I have to sell it at let's say 8 cres also I'm putting 5 cres in white money completely now at the time of selling the house at 8 cres the buyer will say that hey take half the money in black half the money in white then what am I supposed to do with the black money now despite the fact that the housing price grew in this scenario from 5 to 8 crores I'm still ending up as a loser right it becomes a massive problem to handle black money now please don't ask me how to convert black money to White money or white money to Black money I'm not a tax expert and I don't know anything about it all the money that I make it's pure white money because it hits my bank account and you as a salaried person also make white money now if you're running some mining operations or some weird kind of a business where you deal entirely in Black money then my advice you have to do further research but if you're earning money in white going and buying a house it can create a lot of logistical issues in terms of changing black to white Y2 black and all that headache so this is another key problem that you need to keep in mind third is the frictional cost so if you go and actually buy a house there is a lot of frictional costs and taxes that are associated with buying a house the stamp duties the tax treatment that is levied on buying a house it's massive and it incurs a lot of expenses on top of that both at the time of buying and selling a house you have to pay Brokers that is again an excess it becomes a headache final point is that in terms of buying a house what ends up happening sometimes is that you end up creating reverse emis which is an outflow out of your bank account many instances have happened in Delhi itself I can't name the builders but what ends up happening is that you will pay the Builder when 50% construction is done you will go and pay them like one CR to book the house that money gets stuck and the house does not get developed they will install the development you can keep trying to get the possession of the house the Builder does not give it to you it becomes a nightmare you will say that hey the court system in India is very good try or luck right it might become a very difficult circumstance to get it resolved in the courts also yes all the things are on paper and this is not meant as a criticism of the code systems all I'm trying to say is that it is not very easy to get your money back from these Builders and the law can take its time and it can be a very frustrating situation so please be aware of all these basic facts before you go and invest your white money in properties now you might ask theat I've heard you talking about the fact that you buy commercial properties so can you explain the logic behind why are you buying commercial properties okay happy to do it so number one the housing market in India so if you take a look at the entire map of India the housing market in India is saturated when it comes to major cities right so if you're looking at mombay if you're looking at Delhi if you're looking at you know Kolkata if you're looking at bunch of other major metros the housing market seems to be saturated right if you go to smaller satellite cities for example Agra which is near Delhi now these might have great buying opportunities because the housing market PE there is still low right so please keep that in mind that is reason number one I prefer to buy properties in smaller cities So I myself I'm from small City so I have a good Network it's easy for me to scout properties also number three I buy commercial properties at the time when these are finished I don't mind paying a premium of 5 10 15 lakhs that's not a problem but I literally pay the money next day I start getting rent right so those are the type of properties that I buy now where do I buy commercial properties I literally buy the most Prime most Prime commercial properties usually these are City Center areas right now why is that that I'm buying commercial properties the reason is very simple that commercial properties in City Center are unique productive productive assets what what do I mean by unique productive assets so let's imagine that you live in any city right there is a city center and there are only limited number of spots right so for example if you buy a corner facing commercial property which has certain big specifications there is only one such property that is there now if the businesses are coming to that particular City they would Scout for such a location because this is unique right so it's easy to rent it out on the flip side if you're going and buying an apartment in a building where there are 500 such units this is not unique Okay so it gets harder and harder for you to rent this out now I'm not saying that this is super easy to do it is not super easy to scout there are a lot of frictional things there are taxes are high what not right so there are a lot of frictions here now you might ask me that a why are you still doing it why don't you invest all your money in stock market so here is a video on diversification Ive explained why it is important to create a portfolio and diversify right you must invest your assets in different different asset class so I use commercial property buying as a diversification opportunity so very very quickly my strategy is very simple number one I buy in small towns and cities let's a b i buy Prime properties there because they are unique productive assets so it gets easy to rent it out and number three I invest because I want to diversify therefore I'm buying commercial properties I'm not buying all my money in commercial properties I'm putting a very small portfolio of my money in commercial properties so I hope this clarifies it now comes the final part if you have heard all the arguments and if you're still of the opinion that he know whatat understand everything we just want to buy a house just tell us how we should do it when we should do it and tell some things that we should keep in mind okay so this section is for you number one please buy a house in a city where you want to live longterm so if you see yourself living in Delhi for 20 years buy a house there fine please don't go and buy a house in Hyderabad if you plan on living in Delhi for a substantial period now given the changing nature of the jobs you might have to change your cities Etc so please think about your personal and professional situation in a more holistic manner number two before committing a sum of 2 cres 3 cres 4 cres 5 crores to a house please go and live in that locality and see if it makes sense for you to live there longterm because once you purchase and if you figure out that hey water is not coming or electricity problem is there or pollution problem is there you'll be stuck right so please go and live in that area rent a house in that same area or locality and try to live there for a little bit to get a better sense before making such a massive investment number three please do not buy your house from your first second third fourth year of your initial salary that is madness please don't create emis unnecessarily you should only buy a house when you can cover the Emi of the loan of your house through your investment returns I'll say that again that you should buy a house only when you can cover the Emi of the loans of the house from your investment returns so let's say that you have invested enough money in stock markets gold and other assets and those are giving you returns in some capacity and you can pick up that money and serve your Emi that's the right time for you to buy a house because if you're paying emis from your salary it can become a big headache for you if you lose your job or if something bad happens to you it can lead to a lot of financial problems for your family you might have such a massive debt and a headache on your head so I hope you found this video to be insightful and useful please press the like button and I will see you tomorrow [Music]

Channel: Akshat Shrivastava

Views: 721,091

Keywords: akshat shrivastava, cases over coffee, real estate, goa, P/E Ratio, stock investing, Housing market, housing industry, stock market investing, diversification, portfolio diversification

Id: IwBu_YYXGzY

Length: 19min 3sec (1143 seconds)

Published: Mon Aug 02 2021