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2009: Financial resolutions

You are in the midst of the first world-wide economic slowdown and recovery seems a long way off for the global markets. So do you need to change your investment strategy? Money Today thinks so.

Kamya Jaiswal | Print Edition: January 8, 2009

The most important inference from the predictions of our previous cover story, What to Expect in 2009, is that the investment landscape will alter dramatically this year. It is difficult to say how permanent will these changes be, but we are sure that, in 2009, your finances will not be able to survive if you go by the age-old rules of investing. They must also change. As always, Money Today is first on the uptake. Having made the predictions, we now bring you the action plan—nine financial resolutions that will protect your wealth against the dangers of a crisis-ridden financial world.

But this time around, you cannot afford to merely read the resolutions and leave them at that. Nor can you be choosy about which ones to follow. All resolutions are equally important to revive your ailing portfolio. In fact, it will be imperative for you to implement several resolutions at the same time. For instance, if you don’t want to borrow to invest (Resolution 2), you must hold more cash (Resolution 9) and restrain from impulsive expenses (Resolution 3). Remember, any oversight or slip-up can negate the effect of years of disciplined investing. Keeping this in mind, we have packed each resolution with a slew of dos and don’ts. We have also been careful to avoid any conflict in the recommendations.

When you look at them together, the collective message of the resolutions is clear—you can do much to remedy the effects of the 2008 debacle. There is a lot of wealth to be created, and protected, in 2009. So what are you waiting for? Scroll down the page to learn how to do it. Wish you a richer New Year.

1. I WILL NOT SPECULATE IN REAL ESTATE

Are you waiting for property prices to slither down further in 2009 before you buy an apartment? Or maybe you are not selling that plot of land in the suburbs of your city in the hope that prices will climb up in a year or so? You may not realise it, but such indecisiveness makes you a real estate speculator, though inadvertently.

To counter this allegation, you may point to a list of statistics that justify your decision. The problem is that there are predictions to prove both, a rise as well as a fall in property prices. But only one will hold true. Which one will it be, is anybody’s guess.

For the unintentional speculator, 2009 should be the year of action. Anshuman Magazine, chairman and managing director of CB Richard Ellis, South Asia, says, “If you get a good property at a good location and at a price that fits your budget, go ahead and buy it. End-users of property should especially avoid speculation as they are under a compulsion to buy a house. If you miss out now, tomorrow’s deal may not be as attractive.” Also remember that home loan rates are softening, so an EMI will not hurt your monthly budget as it did when interest rates had touched a high of 14% in November 2008.

Sellers must also be motivated by their personal goals rather than the overall market condition. Real estate prices don’t move in tandem across geographies. Even within the same locality of a city, a corner house may have a higher asking price than the one sandwiched between apartment complexes. If you are getting a price which matches with your profit expectations, don’t wait for a better buyer.

Short-term speculation by investing in more than one property will be suicidal in this year which is likely to witness several flip-flops in prices. Many investors bought more than one apartment in housing complexes last year in the hope of making quick returns. A majority of them are now sitting on huge losses. The prices in some pockets of Tier I cities like Bengaluru have fallen by nearly 42% (see “Prediction hazards”).

If you are one of these investors, then you have two options. First, continue repaying the loans that you have taken and wait for property prices to climb up in the future. But remember, this can take a while. If not, you must sell the property at a loss to prevent the home loans from becoming a huge burden.

However, if you want to invest in a second property, don’t let volatility scare stop you. Magazine says that all you need to ensure is that you have an investment horizon of over five years.

“Gone are the days when the value of a property that you bought for Rs 3,000 a square foot appreciated to Rs 6,000 a square foot in just three months,” he says. You could still get such returns, but after more than three years or so.

The difficulty about suggesting strategies for real estate investments is that what holds true for Bengaluru may be the worst option in Surat. Hence, don’t go by generalisations. Talk to your neighbourhood broker and research on property Websites to know exactly which way the price will move in 2009.

PREDICTION HAZARDS
CityLocalityPrice Change* (%)
BengaluruHebbal-41.8
BengaluruWhitefield-31.2
MumbaiNerul-31
HyderabadJubilee Hills-25.4
BengaluruSarjapur Road-22.6
DelhiDwarka-15.4
*Price change between January and September 2008
Source: Research report by 99 acres.com

• Let’s assume you booked a property worth Rs 40 lakh in Nerul, Mumbai, in December 2007 with the expectation of good returns in one year.

• You made a down payment of Rs 4 lakh and took a loan at 12% for the remaining amount.

• The value of your property in September: Rs 27.6 lakh.

• If you sell the property now, you will not be able to recover the money required to prepay your loan, leave alone earn any profit.

— Calculations in the story by Sameer Bhardwaj

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