Anybody who advises you to invest in real estate is looking to sell his real estate assets to you. He wants to dump his bad investment and disguise it as a good investment so that his portfolio would not be affected that badly. A case of get-out-while-you-can. But the Indian sentiment of owning a home – the holy grail for lower and middle class people is not going to go away that soon either. Affordability is a huge issue. With the rates at which property is available, it makes little or no sense to invest and have a loan on your head for the next 20-25 years of your life. The rents are rising, no doubt. But it still makes more sense (if you factor in the opportunity cost) to live in a rented house than in a house that you own. Living in a 2bhk and paying a rent of 15k is anyday more affordable than shelling out 40k as loan repayment for a same 2bhk(assuming it would cost 40L and the monthly installment is at 1k per L). So what is the way out?
Consider this scenario – A man “buys” a house for 40L with down payment of 4L. All he has to pay is a rent of 25k(or a suitable figure, pardon my poor math skills) for the next 20 years; the rent would increase at an average rate of 10% every year. Instead of paying 15k for the same house, a premium of 10k would be affordable to this man and he would own the house! paying 40k to the bank on a periodic basis wouldnt be affordable for the common man, but this would. Every subsequent year, a percentage of ownership will go to the home owner – a percentage which he can sell to someone else, if he decides to, all other things equal.
What would this bring about
– spike in demand. Such a scenario would be a dream come true for buyers
– Annual revenue stream. The company would become recession proof for at least a considerable period of time, thanks to a steady revenue stream. at a steady growth rate. It doesn’t matter anymore who the buyer is – bad debts would come down considerably.
– No more renting business. Rent rates would be driven down if such an arrangement comes to place. Rents would become lower
– Reduction of interest rates by banks. Banks will have to reduce their interests on home loans to effectively compete with such an arrangement. This would spur more demand as the rates would now become affordable. More people would start to buy houses outright, thanks to the reduced interest rates. This in turn would mean that the property rates would increase. It would become a supplier market. One can very well see where this will lead to.
Are there any such initiatives already in place? Are there any hurdles owing to regulation, that would make such an idea infeasible? Let me know your thoughts