It is possible that you may not know a person who has made money in stock markets. However, it is rare to find a person who doesn't know people who have earned good deal of money in real estate. Indians believe more in real assets such as gold and real estate. But before you commit money to any asset class; it is imperative for you to understand fundamentals of the asset you are investing in.

Can investment in real estate prove to be risky?
It may come to your surprise but unsold flats (inventory) in Mumbai and Delhi have been rising for a considerable time now. As reported by Financial Express dated October 17, 2014; 1, 67,000 residential flats are unsold in the Delhi NCR region while Mumbai Metropolitan Region has nearly 2,14,000 unsold residential flats.

Reasons for high inventory…

• Unaffordable prices
• High interest rates
• Supply outstripping demand for real estate in many pockets
• Unwillingness of developers to lower prices
   

Among others, slowing economic growth and high inflation have also affected the sale of residential properties to some extent. This is because when the economy is not doing well, it is rare that, income of households would go up considerably. To worsen the situation, if the rate of inflation is high, as it has been for about past 3-4 years, purchasing power of people declines in real terms.

Many people speculate on real estate prices, and invest aggressively in projects before completion considering that, properties might fetch good returns in future. Those who had invested in the residential properties (that remain unsold in metros) during the initial phase must be repenting now. Their capital is stuck as there are no buyers at least at present. Usually it is believe that during festival season, people tend to book new flats. But considering high property prices, the needy might keep away from buying properties this season. It is believed that it may take years to absorb the unsold inventory. Eventually this may put strain on property prices. Many of you may believe that residential property prices can never fall but fundamentally it is possible. PersonalFN is of the view that you should stop believing in a myth that, "real estate prices never fall."

Your approach to wealth creation…

PersonalFN has always believed that asset allocation is important. Before you decide upon where to invest you must thoroughly analyse your situation. Your age, financial goals, expenditure pattern, earnings and risk taking capacity affect your decision. Many of you might be finding it boring. But what sounds boring that doesn't essentially mean useless.

When you try to chase asset classes and mistime entry or exit, you are likely to suffer a loss. But if you chalk out your asset allocation keeping in mind your long term goals, you don't have to chase assets classes. PersonalFN is of the view that no asset class can have a bull or a bear phase for indefinite time, so why try to predict it?

PersonalFN is of the view that, if you are purchasing a house with a purpose of living into it, price may not be a barrier for you. Having said this, before you zero on the locality, which is one of the most important factors in determining the real estate prices you need to understand your . You must revisit your expense pattern and try to check if you can shoulder higher outgo on account of EMI, if you are not buying property by making outright payment. You must provide some breathing space to yourself and shouldn't go neck to neck.

If you invest in a project with a motive of earning returns, fundamentals of the real estate market become even more important for you. PersonalFN reiterates, before you commit your money to real estate, do check its role in your overall asset allocation and financial plan.

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kiran@yyahoo.com Nov 26, 2014 India needs definitely Real Estate Regulator. Govt of India cannot keep this sector unregulated. This is a highly unorganized and unprofessional. India is the only country where anyone with money can become a builder..its high time govt acts on this

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