In early 2006, the real estate market, particularly in and around Delhi, was booming. Rakesh Mishra had followed the rising prices of property and decided to get a piece of the action. He booked five flats in a project coming up at Indirapuram, a suburb of Delhi, planning to sell four of them at a good profit by the time the apartments were ready in 2008. But by 2007, the prices had plateaued, and Mishra couldn’t find any buyer. He managed to persuade a friend to buy one of the flats—at no profit. Not wanting to be saddled with three extra flats, Mishra then asked if the developer would take the flats off his hands and transfer the money paid so far to one flat.
Luckily for him, the builder agreed. But Mishra is unhappy at the way his plans panned out. He could not derive any benefit from his investments for the two years that the funds remained locked in. Had he invested the amount in some other instrument, he would at least have beaten inflation. The only bright spot is that Mishra did not make the other classic real estate mistake— taking a large loan to buy a house, hoping that the rentals would take care of the monthly repayments. Had he done that, he would have been stuck with a bigger loss. On the one hand, rentals can fluctuate depending on local factors. So even if the market is booming, the rents in a particular area can be low. On the other hand, taking a loan without calculating your repayment capability can prove disastrous.
There might be a perennial shortage of living space, but the real estate market still goes through ups and downs. When the market stagnates, buyers can opt to sit out; it’s the sellers who need cash in a hurry who are at a huge disadvantage.
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