A close look at Real Estate Returns in India

POSTED BY Jagoinvestor ON December 6, 2009 COMMENTS (338)

Real estate is one of the largest employer after agriculture in India. It is also a globally recognized sector which is witnessing a high growth in recent times because of increasing demands of offices and residential places.

One of my friend has shared his own experience about real estate, let me share it with you.

Real estate in India

One of my friends experience about real estate:

“The current market value of my flat in Mumbai is close to 1 crore, I bought it at 28 lacs in year 2000. The returns have been Mind boggling 72 lacs in 9 years, i.e. 8 lacs a year approx. , more than my current salary and now I am planning to invest more in real estate instead of Equity, What do you think”.

A not so close friend was discussing his Real Estate portfolio with me.

He belongs to first category of common sense deprived idiots, who do not understand mathematics well. 28 lacs flat became 1 crore in Value in 9 yrs, the returns are great, but not exceptional enough to make someone eyes pop out.

Simple math’s will tell you that its 15.2% CAGR return over 9 yrs.

Now what’s so great return about this 15.2% Return?

15.2% return over long term is desirable and great and what’s normal return from Real estate in last decade in our Country, The only thing irritating is how people make fuss about it.

Even Gold has outperformed, Gold was $300 per ounce in 2001 and now it’s close to $1100 ounce, that’s 15.5% return, 0.3% more. On the top of that Builders are not keeping their promises of Delivering Projects on Time and with same quality Promised.

Real estate investments have caught everyone’s attention in the past decade and every Tom, Dick and Harry with 5 lacs salary tries to grab a 40 lacs flat. I will try to throw some light on Average Real estate returns in past 8-9 yrs in India.

Coming back to my Friend:

I told him that it’s been a very good return, and I appreciate his timing, good job. But definitely he is bragging more than it deserves. A second person (his friend) suddenly comes to his rescue and challenges me.

“But Manish, I bought a flat in 2003 @20 Lacs with 3 lacs of down payment and rest a home loan. I spent total of 7 lacs till date and the flat is already quoting around 60 lacs, that 40 lacs of profit in just 3 yrs through investment of 7 lacs, that’s 78% return on annual basis”, showing off his fast calculations skills and giving me a “anything-else-you-young-financial-planner” looks his face .

These people are from another category of “common sense deprived and mathematically challenged” people. It is worse than first category. The problem with these people is that they do not understand “leveraging” .

What is mean by Leverage?

A situation of sitting on huge profits by just investing a small amount as down-payment and rest with home loan is pure example of leverage and very common in India, This gives a feel to people that they are very smart.

These people never consider the case when their house value drops by a big margin like say 15 lacs and they have just invested 5 lacs from their pocket, then they are in loss of -300% (absolute). But as you know, investors like to consider a rosy picture; they somehow believe that it can’t be the case with them.

When Real Estate broke in US:

As US citizens who bought Real estate in the middle of the Bubble just because credit was cheap and they could have made a lot of money by taking a Home loan and almost nil Down payment, When Real Estate broke in US, people who has put $10,000 from their pockets for a $4 million house were in losses of $1 million, because they had to pay $4 million as a loan money for something which is now costing $3 million.

That’s an unrealized loss of $1 million in a short time. That’s the problem of Leverage. Investors never think about this, India is a success story and housing is scarce, that’s enough for them to take a chance.

With my amazing quality of self-control, I kept all this in my mind and didn’t argue with him, sometimes your skills of explanation is limited to blogs only.

What is RESIDEX?

Don’t feel amazed if I tell you that there is an Index for tracking Real Estate in India. Its called Residex and maintained by National Housing Bank in India. It’s updated once every 6 months.

It covers all the major cities and the sub-areas in that city. The index Value over time will tell you how real estate prices are doing in some area or city.

Please understand that these prices are average real estate prices and not some general case which would negate what we discuss here today.

I don’t know how that is calculated but a common sense way of calculating it is to take a sample of real estate plots/flats in an area (for example 1000 units) and calculating the appreciation in value from last 6 months .

Lets see the RESIDEX values for 5 cities

Here is the chart of the same table

What is the mistake people do when they calculate Returns?

The beautiful mistake which everyone does is that they calculate pure absolute returns from Real estate which is in many lacs of rupees obviously.

So, if a person invested 30 lacs in a flat and it becomes 60 lacs in 5 yrs, they are sitting on a 30 lacs profit.

That’s a lot of money and people are excited to see that much money, but you also have to see that they invested damn 30 lacs !! for that, which is not every one’s cup of tea and the returns are normal 14-15% return/year on investment if you compare it with Gold or Equity.

You could have made more returns if you had invested in Equity (SIP in mutual funds in some top funds) . If you consider the risk taken for the return people have got in Real estate , personally I am not very much excited then, Investors forget the risk taken to get some return and only concentrate on Return part.

See an Article on GFactor , A tool to find out if an investment suits you.

What you have to see is how much return you got from something after adjusting the risk taken for that . So given a time frame of 1 year .

  • If you do a FD and make 9%, it’s amazing !!
  • If you invest in Real estate and make 10%, its ok
  • If you invest in Equity and make 11%, its just fine.. not a big deal
  • If you speculate in Options for one year and make your money grow by 500%, I would be personally disappointed a lot .

Some smart (second category people) people think that they can buy Real Estate on loan and make 30-40 lacs in 4-5 yrs from house value appreciation, While that is possible and has happened to a lot of them and definitely the return would be amazing.

But this exposes them to a great amount of risk which they don’t understand, its pure leveraging. There are better ways of leveraging than this. This kind of Leveraging is still nothing in front of Options trading in Nifty or some Stocks.

Not that I discourage people from taking a home loan and invest in real estate , but don’t overdo it , and understand and accept the risk involved, be ready for it.

“Risk happens when you have no idea what you are doing”. If you pre-calculate it and consider it, then it’s called Speculation, which is my favorite 🙂 .

An option trading is something I would recommend who have great risk appetite and dream of millions in short span of time, better than real estate.

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What is Average Real Estate Returns in India

IF we see the above chart of RESIDEX Values (for 8.5 years), you can find out the CAGR return of Real Estate in different cities. Let me show that for 5 cities in India.

Chart f or the same data

Note : I have assigned Index value for “India” by assigning weights of 25% , 25% , 25% , 10% and 15% to all five cities in same order .

What Should you Do ?

First of all, understand that Real Estate is important and you should always invest in it for Diversification of your Portfolio (If you can afford it right now). But that does not mean compromising with your Risk Appetite and investing just for the sake of Investing.

If you want to buy home, make sure you afford it, Buy a 1 BHK which you can afford if you want to live in it. If you want more than 1 BHK, plan for it, take it later. There is no rush. Real Estate is not the last thing in the world.

Don’t feel left out when you see others minting money in Real Estate, believe me they are making similar returns which you can make from Equity, just that the magnitude of profits they are making is high, not the returns on average. So Chill !! .

Note: Understand that whatever we have talked here is based on the RESIDEX index and there will be many specific cases which would make this all talk a nonsense, but we have to look at general case and not a specific case.

Download More data on Residex from HERE (From 2001-2007) and after 2007 at NHB website. Note that you can’t get all data of Residex at one place.

I combined the data from NHB from 2001-2007 and combined it with data on their Website to construct all 8.5 yrs of data. There was a shift in Base year because of which I had to do so.

What do you think about the Real Estate Prices at the moment in India?

I do not feel they are justified and the prices are mainly driven because of unnatural demand created by easy access to Loan. People buy it, but cannot afford it, If things continue for some more years. I would be surprised to see a big bubble burst in India like we saw in 2007.

Leave your Comments and let me know you are reading this blog.

Disclaimer: I have not invested in Real Estate, I am not very much excited about it and I don’t have money for it.

338 replies on this article “A close look at Real Estate Returns in India”

  1. Vivek Sood says:

    This graph and info on this will look even more funny now in 2021 as property prices have fallen so much.

    1. Jagoinvestor says:

      Someone needs to do the working again!

  2. Shrikant says:

    Hi Sir, Great analysis as always. However, I thought residex index started only from 2007. Is there any link for the data?

    1. You can get it online .. search for it

  3. Anupam says:

    May be I am reading this blog very late although it is very good. Giving insight of real state.

    1. Thanks for your comment Anupam

  4. Mansoor says:

    AS of today all the investment are all time high, no body knows what’s going to happen tomorrow with any investment gold, stock, real state , Bonds, ETF, silver Etc., every 6 to 10 year of time there is correction in the prices so fare we don’t see, except 2008 real state price burst OIL from $140 it came down to $30, & stock market nifty/Sensex CRASH was down more than 60% Trillion wiped out of the market, did anyone notice…… I don’t think, very few who is really smart they minted & printed as much as they can. The best think what we can do is to wait until US Election result are declare that is end of NOVEMBER 2016. Does any one know what’s happening, no if we know, then we don’t have to ask anyone. Keeping CASH in hand is the best investment.

    2009 was the best year for investment, every thing was selling @ 50% discount.

    1. Thanks for your comment Mansoor

    2. Azaz says:

      Well said

  5. dilip says:

    hi Manish ,
    very informative article,thanks for sharing, earlier also you guided me ,this time i have one difficult situation , i am running my hospital since 6 yrs successfuly and since 4- 5 yr i started sip in mutual funds getting good return about 15 -18 % .accumulated about 45 to 50 lakhs for my personal purpose (apart from children education and retirement sip)now i want to own big plot for my big hospital 10000 sq ft for 1.2 cr ,i have to take around 60-70 lakhs loan for it ,current liabilty only home loan 42000 jointly owned by me and wife ,she is a govt servant .
    my query is that i should take risk and loan for property for which i have to redeem my mutual fund amount ( which are getting compounding benefit after 4 yrs) or
    i should drop my bigger hospital dream and just focus on my existing hospital improvement.

    1. Yes, If I were at your place, I would have taken the risk and built it !

    2. bhavan kumar says:

      if you are confident that you can earn more by taking you do first option for bigger hospital -remember that now with bigger one you have to spend monthly expenses also increase
      instead of going big part of loan you improve your old one

  6. Avinash Sardesai says:

    Manish, great article as usual. In India, real estate prices went through roof between 2003-2008. This period coincides with the period when even equity markets did equally well if one looks at Sensex.
    However one does not realise that fact as generally original capital invested is small here compared to down payment in buying an apartment. If one considers 15 year period, if one invests the same amount through SIP as much as EMI, the equity returns are likely to be similar or a little better in amount terms and they will come in a tax efficient way with a high level of liquidity compared to the real estate.
    Having said that, it may be lack of liquidity that forces real estate investors to take a long term view. Also no one sells real estate because prices are down on a day as in case of stock market. 🙂
    Thus in stock market a lot of people can’t get even the market returns as they try to time the market and enter and exit at wrong time, rather than staying there for a long time. So it may be a good idea to have a home as a consumption asset where you can stay, but investing in multiple homes may not be an optimum way to grow the Wealth.

    1. I agree with you. Beyond one real estate, I dont think for a common man it makes a lot of sense, unless its a very good deal or great potential investment

  7. Manu says:

    Thank you Sir for all this info. Please if you can give your opinion. I have just bought a 2BHK flat on ground floor in Haridwar (Uttarakhand) in Deepganga Apartments ( Delhi Apartments Pvt Ltd). It cost me around 35 lacs. I have bought this on staff housing loan and the installment is coming under Rs 12000 pm. I’m working in a bank. I want to know that how much return should I expect on the property in next 5 or 10 years. Or if I sell that flat within next two years, will I be on safe side? I mean I don’t care if I do not get a fine return but how much can I fetch from that property. As Haridwar is a place where people are still buying plots and making home. Though land rates are now growing much there. My flat is about to be ready for possession. Please let me know if should I worry about selling that property if need arises to sell or should I be assure to at least get back my investment. Deepganga society is in center of the city. People are residing there in good numbers. Please give an idea about future prices of my flat there. Thank you 🙂

    1. Hi Manu

      I think we cant predict the home prices like this.

      1. Manu says:

        Thank you Sir.

  8. Vineet says:

    Although I do agree with the idea of not buying a house but not solely on the basis of returns. What hasn’t been considered here is the opportunity cost of buying, that is , renting. That is the major comparison variable which should be used in the decision making along with(in) returns(unfortunately that hasn’t been considered).

    Here is the bigger picture: Rental yields in India are very low compared to the other nations.

    Example: Consider a 2 BHK in Mumbai which rents out for 40K per month.

    The purchase price of the similar flat would be around 2Cr.

    With 15% down payment (let’s just say 30 lakhs are lying around with you which can’t be invested anywhere else. Woah!), the EMI comes around to 1.5 lakhs + per month.

    Now compare that to 40K you were paying as rent. Even with the generous capital appreciation of 20%, you won’t start saving on this before 15 years. (all approx figures just to give the bigger picture)

    Oh wait, I effortlessly assumed that if you can pay 40K per month as rent, you can pay 150K as installment. No biggie! On the basis of HRA of 40 % ( metros), my salary would be 100K per month! (Case closed here!!)

    Case reopen: You are not going to buy a similar property as you would rent. You don’t want the same lifestyle when you have your own house.

    That makes any study impossible then! But anyway let’s look at it.

    So what we are saying is that the comparison should be apple to apple right? Let’s say our apple is the monthly outgo, then we are looking at a property which costs around 50 lakhs on which we can pay the approx 40K EMI for 20 years. Since we are still in Mumbai, we know what we can get in 50 lakhs. If you are happy with that lifestyle downgrade. Good for you! Just remember it won’t end!

    1. Yea Vineet

      I agree that this article was written by not many things in mind. I will try to bring more elements in this article. Give me some time .

      I think you have given some good analysis with numbers

  9. Subhash Chandra says:

    Very good article. I feel the worst thing that has happened in india in last decade is the exhorbitant rise in real estate prices. because of this common man is badly affected, sometimes without knowing. Due to high real estate prices most of the businesses have become uneconomical to run. Imagine a barber buying a space for his saloon for 50 lacs. after this whats his option – charge very high prices if he can otherwise suffer a big loss. Only a hope of being able to sell his shop keeps him surviving. similar is the case for people owning or renting shops everywhere. This results in higher costs to every consumer.
    High re prices are frustrating the young generation who wants to buy a flat for actual use. Black money generation is another evil of RE investment.
    Worst many indians have started thinking of this easy money – invest in RE and do nothing else productive- retarding the progress of society in general.
    Case of NOIDA farmers buying mercedes cars after selling their land and then later going back to reclaim the land is a case in point.
    I wish the govt takes note of all these disturbing trends and discourage investing in real estate.
    No body should be allowed to own more than 1 residential property in a city and maximum 2 all over India.
    PSBs must not be allowed to extend the repaymnet schedule of loans given to builders.
    Housing construction standards (like BS) must be developed and strictly implemented by govt.
    In my view housing is a need and not investment. Hoarding RE is more like hoarding essential commodities – which is a crime in India.

    1. Hi Subhash Chandra

      Thanks for your sharing your valuable comment on this topic. Please keep sharing your views in future also


  10. Arun says:

    In metro cities still there is huge potential atleast in affordable housing because of the initiative taken by the modi goverment housing for all by 2022 so if you invest in this sector it can give you good returns.

    1. Hi Arun

      Thanks for your sharing your valuable comment on this topic. Please keep sharing your views in future also


  11. Prashanth says:

    Dear Manish, thanks for the informative article. I am 28 yrs old, unmarried & I would like to start investing in mutual funds from now itself. I am right now not interested in opting for Real Estate as investment. However, I am facing a lot of opposition from my parents, close relatives and close friends with whom I discussed about the same. They are all of the opinion that I should only invest in FDs and Real Estate (that too, preferably flats).

    I tried to convince them about the benefits that mutual funds offer over Real Estate – the generally higher returns over the long term & that since it is liquid, I can quite easily shift my investment from a poorly-performing fund to a well-performing fund – now, if I purchased a flat and it did not appreciate as per my expected goal, will it be easy to sell it immediately and purchase a new one without much effort?

    Despite all these facts, my folks are still adamant – they say Real Estate is a time-tested proven approach of wealth appreciation which their fathers followed, their uncles followed and many of their friends are following & that on the other hand mutual funds are a new-fangled notion without proven track-record…some are even going to the extent of comparing mutual funds to gambling dens where I will end up recklessly blowing off my hard-earned money investing in unreliable and sometimes fraudulent schemes!!!

    Despite all this, I am sticking to my decision of going for mutual funds right now, but I am just expressing the amount of pressure and opposition I am facing because of it 🙂

    1. Thanks for sharing that amazing experience you are having. I can totally understand your problem and its a issue with how one is experienced with this opposition. I will use your experience in one of my upcoming article

    2. Nikhil says:

      Dear Prashanth

      Just a thought. Great economist Keynes once said that it is fine (read acceptable) to fail conventionally than to succeed unconventionally. Our society is crippled with age old idea of buying property. And I don’t blame them. LIC and property was all they knew about. Our time is different and we should adopt it accordingly.

      And to be frank, crowds of people submitting themselves to a lifelong of unaffordable debt actually excites me as I am definitely not gonna one of them. Each and everyone of them can’t be right at the same time. They can at most get a mediocre return. With equity I can at least be sure of 12% return. With some knowledge you should be able to enhance it to 15%. An option I would choose any day.


  12. Rajesh says:

    Hi Manish,

    Read this article in Economic Times: http://articles.economictimes.indiatimes.com/2014-07-25/news/52026608_1_real-estate-equities-various-asset-classes

    which will tell you that Real Estate returns have beaten the equity market over the last 23 year period from 1991 till 2013. Of course, in 2014 equity surged by 30%, but it will still be below the 20% CAGR given by real estate !

    Will love to know your comments on the Economic Times article!

    1. Nikhil says:

      Your answer lies in the post. The data is not reliable for drawing a conclusion on the winner. And the most alarming fact is that real estate has grown 670% in 2008-2012. That got to be a big bubble like the 2000 IT bubble in US. People are paying anything for a house without any regard for their future liabilities. Wait some time and the prices shall fall. You at least need to give a window for a big IT recession to arrive where people lose (hopefully not) their jobs and can’t pay their EMIs. You will see a mortgage crisis.

      The Post:
      It said that the realty sector performance has been measured based on the average of the land rates (1991-2006) and circle rates (2007 onwards) set by the land and urban development authorities for residential property in Delhi.

      These have been used as a proxy for real estate prices since reliable data is not available for the period since 1991. Furthermore, the rental yields have been sourced from various new reports for the respective periods, the study said.

  13. Dear Manish
    Actually we are living in chawl system which goes under developement 3 years before and we are getting flat of 325sqft. But this flat is of my mom & I also have 1 brother & 1 sister. My brother is living seperately & my sister is married & living in house & giving rent Rs 5000/month. Only I with my wife is living with my mother.If I want to take this flat I will have to pay to my sister & brother as they also have their share in mother property. I have owned one flat in kondwa pune some 2 years back at Rs 1500000. So I am thinking of selling that to pay the share of my brother & sister. But by that I will lose my self owned property. And I am thinking to purchase 1bhk flat in mumbai in suburb by taking loan of Rs 2500000 from bank so in which area should I purchase from where I can get good returns in future if I give it on rental basis.
    Please suggest me whether I am going on right path or on wrong path.
    With warm regards
    Raees Ahmed

    1. Seems a right path to me .. go ahead

  14. Saurav Sinha says:

    Hi Manish,
    Good read as always.
    I have returned to JI after a long time & am happy to see “happening things” here.

    Just a little reminder: Please dont use “second category people” and other such words as theres no need. These people (even if taken as an example) are simply overl-ignorant who didnt get enlightened like you or many others out there (a big part played by, ofcourse JI team effforts!!).

    warm regards,

    1. Hey Saurav

      I didnt mean “second category” in bad sense 🙂 . If you read the article, I was talking about 2 different types of people . I had talked about 1st type earliar and then was talking about “2nd type” . Seems like I didnt give much thought to my wordings 🙂 . Will change that

  15. bhanu prasad suda says:

    one more important thing for achieving financial goals it is better if lesser real estate exposer. For middle class or below middle class persons it will be very hard accumelate large sums of money to invest in real estate. we can easily liquidate real estate properties. Even for HNI clients. It is advisable to invest according to their risk appetite. It is also important to re balance assets as per ones risk appetite frequently. Can we sell 1 yard of real estate property for the purpose of re balancing. Any how for achieving goals like child education and retirement real estate investment is not suggestible.

    1. Whats the query here ?

  16. Pingback: Embedding ethics in Indian Real Estate Market - Real Estate India - Indian Real Estate Forum
  17. ram says:

    Hello Manish,

    Very good article indeed. Helpful for a guy like me (Software Engineer 🙁 )..
    I have a question for you: I have a LIC home loan for 27 lacs for 25 years (EMI-Rs. 25013). At the time of buying the flat, my salary wasn’t supportive to have higher EMIs…so took a decision to increase the tenure to 25 years. It is for 2 years at fixed interest rate of 10.25%. I guess LIC charges 2% fees for prepayment on any amount if paid during first two years. But my question is (I know answer but want to make sure): Whether this prepayment amount would be reduced from principle amount only? Lets say after 6 months of EMIs, remaining principle amount is 25.5 lacs and make a prepayment of 5 lacs. So remaining loan amount would be 25.5 – 5 = 20.5 lacs?
    Sorry for a dumb question… new to real estate world…!! Today I paid 5th EMI only.
    Also, what would you suggest is the better option –
    1. either to make prepayment on regular interval (for eg. quarterly) and keep paying EMIs (Rs. 25013) or
    2. reduce the tenure to 10 years (EMI would come down to some 38000, but total interest would substantially come down).
    I do not know about future, but for at least next two year I can afford 38000 per month 🙂

    Thank you very much in advance !! Have a good day….

    1. Yes it would reduce the PRINCIPAL Amount and the new amount will be 20.5 lacs

      1. Keep making prepayments , your tenure will come down drastically

      2. Its the same thing , when you bring down the tenure, it means you have the ability to pay more money , which is nothing but prepayment only !

      1. ram says:

        Thanks for the answer, Manish. 🙂

  18. Mohana Ganesh says:

    Hi Manish :

    This is a real eye opener, which removed my confusion over Real Estate Returns. I read the whole article today and I came across a gentleman saying that he had invested in REIT and then later invested in a flat with the returns from REIT. Can you please suggest what is it and also advise whether it is worth investing now?

    1. REIT are still not functional in India as commercial retail products , it will take lot of time to come

      1. Mohana Ganesh says:

        Thank you Manish. Are there any other product similar to REIT in India?

          1. bhanu prasad suda says:


  19. Sudheer says:

    Hi Manish
    Thanks for nice article. My search finally ends here, as i am searching for residex value for a span of 10 years in India but could not get anywhere. My question is whehter we are in the bubble of realty sector or not. I read many magazines but got conclusion that the average middle class people have roughly 10-12% of increment in their annual income (but CAGR of realty is 15% in india) . Adding to above, with increased inflation in present years the percentage gap is further increasing.

    1. Great .. good to hear that 🙂

  20. Alok says:

    Hi Manish,

    Bowled over by your clarity in making the post lucid on real estate investment. After reading the article, a question is haunting for your clarification:
    If A puchase a under construction house on Housing Loan and exits before it is offered for possession (after a span of say 3 years of paying EMI’s) and re-invest the earnings/profits in another RE Project, will he:
    1) get Tax benefit on the interest paid in first three years?
    2) be exempt from Capital Gain Tax?

    1. Alok

      1. No
      2. No , if its before 3 yrs

  21. amit says:

    Hi Manish , Really good article considering a lot of facts about how the real return from real estate is generally disregarded and instead hyped up returns

    are touted .

    But to counter argue the facts I would like to put forth some of my arguments for going for real estate . I would request you to respond for each point .

    1. While calculating the returns for real estate you must account for the yearly tax benefits on principal and interest repayments as well . If you plus

    those in you will find that even higher returns are there than what most people say they have got.

    2.You mentioned that people do not generally understand that leverage is bad/dangerous and hence they tout higher returns. Well agreed but leverage is bad

    when your asset price is going down not when going up . I would really like to know that over a 4-5 year period anywhere in India the price of real estate

    has gone down by even 15% . Indeed if you can show that place for every place you will show me I will show you at least 30 different places where the price

    has gone by minimum of 3 times the loss incurred by that real estate investment .
    How about that !!!!

    3. You mentioned “house value drops by a big margin like say 15 lacs” “they have just invested 5 lacs from their pocket, then they are in loss of -300%

    (absolute)” . By this i assume you are saying that 20% of House value being 5 lac implies 25 lacs property . Whereby a 15 lac drop in that would mean that a

    25 lac property bought is now on the market for 10 lacs . Right ? Thats like a drop by 60% . Sounds a bit far fetched and I challenge you to give any example

    anywhere in India since independence whereby a property price has dropped by 60% in any time horizon . Again if you are indeed able to give me that 1 example

    I will give 30 different examples whereby property prices have gone up by 60% in same time interval as you would mention .
    I am sure you love challenges and I am waiting for that one place in India where proeprty prices have gone down by 60% . Pls no examples from abroad.

    4. You mentioned “some times your skills of explanation is limited to blogs only” . It seems like saying “well it can happen in practice but never in theory”

    !!!!! .

    5.”These people are from another category of “common sense deprived and mathematically challenged” people” This kind of thing seems a bit disparaging . I

    6. I am sure you would understand that basically govt all over the world control the amount and crucially the value of money via Banks n central banks . And

    they are surely going to debase the currency in future ad infinitum . To protect yourself from the debasement of currency people invest in various asset

    classes like equity , bonds , real estate , gold , etc .

    Here is some sobering “equity always outperform over long term hyper bole ” –
    USA eg: Dow Jones Industrial Average

    • Dec. 31, 1964: 874.12

    • Dec. 31, 1981: 875.00

    For last 10 years S&p 500 has gone nowwhere .

    Lets come to India – http://capitalmind.in/2012/04/chart-the-great-indian-stock-market-story-was-only-5-good-years/ Amazing read . The gist is this –The

    “Great Indian Stock Market Story of the last twenty years is only about four years, 2003-2007 , Just five years of the last twenty two have accounted for

    nearly all of stock market returns.”
    Read that again and again .

    From 1991 till 2003 a whole of 11 years was negative return accounting for Inflation . Infact long term bonds were giving almost 16% .

    I am sure you know what has happend from Dec 2007 till Today . Equities ie index still not caught up .
    I would request you to find out anybody in India whom you know or your connections know whether any real estate (which was complete in 2007) is not at least

    double if not triple from 2007 till 2012 .

    Dont give me the excuse that a lot of developers are not giving possesion because delay pls find one home anywhere in India which has Not doubled in last 5

    years when your lovely equity markets have NOT MOVED A NEEDLE . Again as I have mentioned above if indeed you are able to find that property which has not

    doubled I will give you exact prices of properties which have been SOLD (sold and not just quoting) at triple the prices from 2007 till today .

    If you could find one property whose price has remained exactly same or lost value in last 5 years I would buy that. Dont reveal that here . Email me

    personally in that case . (I am assuming that property is not in Maoist area or laskshdweep ) .

    7. India has more than 50% of its population below the age of 25 and more than 65% below the age of 35 . What do you think is going to happen to demand of

    real estate in next 5 or 10 years or 15 years ? Price of anything falls when the demand goes down . If you have so many people entering the workforce over

    next decade how do you think the price of real estate is going to crash or go down ? Really how can anybody say that real estate demand is going to go down .

    8.Lets assume no increase in demand but If inflation is almost 10% per year then why do you think the value of the already made up homes is going to increase

    at lower than 10% or go negative ??? You mentioned this –“As US citizens who bought Real estate in the middle of the Bubble just because credit was cheap

    and they could have made a lot of money by taking a Home loan and almost nil Down payment, When Real Estate broke in US , people who has put $10,000 from

    their pockets for a $4 million house were in losses of $1 millions , because they had to pay $4 million a loan money for something which is now costing $3

    million .That’s a unrealised loss of $1 million in a short time . ”

    Let me clarify why what has happened in US is so far away in India that I dont know when it is going to happen .
    a) Inflation in US had been around 2.5% for last 20 years meaning price would double in (http://www.inflation.eu/inflation-rates/united-

    states/historic-inflation/cpi-inflation-united-states.aspx) . Hence the loan rates were again at or around 3-5% for 30 year mortgages and that is why the

    people could get home loans at 3-4% for 30 years. When do you think India will have a 2.5% inflation over a 10 year period ?? Has there ever been that kind

    of inflation over even 5 years ?? I want your estimate of when a 20 year home loan in India is going to cost 4% fixed ?? Guess at least .

    b)Home owenership in USA is more than 65% . I could not get data about India but you know for sure it will be surely lower than 10% . Because so many

    people already owned homes in US when the housing bubble started that is why after it burst the home prices were easy to go down .Simply because lot of

    people were having multiple homes and there was no demand to buy and their population growth rate is far below on a far lower number than India . When do you

    think homes will be owned in India by so many people that you know the demand itself will go down ??

    c)The home loan requirement went to such low extent in US that they will require 0% down payment , then no need to pay interest/principal for 3/4

    years ,and you need not even have a job to get a loan . YOu could be just a part time plumber and own a $200,000 home . No documents of income needed .
    Well Manish as far as I know you have not invested in real estate . Try it once . Tell them that I want a loan where I Will NOT pay 20% down payment or I do

    not have steady income proof , or I do not have a steady job and then GET A LOAN . What do you think is going to happen ?? WHen do you think India will have

    a situation when you will not have to put in say 20% or at least 15% of down payment from your own pocket and bank will finance almost 100% ? Think …
    Infact if you have your money as downpayment then you are not going to be that worried of a fall in price of home but you will hold on .

    d) On the same point of leverage above of downpayment lets come to how REAL real estate works . Some amount in black rest in white . Have you ever

    thought that this actually means that house prices have more equity from owners pocket in them than it may look like to the banks ??? Banks and other

    regulators and data colletion agencies will say that this property costs 50Lakh only when infact most people in india put a down payment of even more than

    20% . The general rule of the game is if property price is 1 crore you would pay 20 laksh in black (ie your own equity) , 16 lakhs as a official downpayment

    and then get a loan of ONLY 64 lakhs . Think what this really implies . This implies real estate is MUCH more safer than what you may have been thinking of

    a dream crash as the leverage is NOT that much which looks on paper.This means its much more SAFE than it appears to be .
    Try to find one american from internet who paid almost 40% in cash as equity for his home during the run up to real estate bubble .

    e)I am sure you know that US citizens are the most reckless consumers in the whole world with the highest amount of debt to income ratio because of

    100s of resons . Indians are NOT debt loving . US citizen going bankrupt is no big deal . But lets put aside that mentality and concentrate on why the banks

    could make loans to no income no jobs borrowers . You obviously know that banks were able to slice and dice the mortgages and sell it to other investors .

    Banks could clean up their balanace sheet and hence had NO risk while making these kind of 0% downpayment loans to NINJ people . THey would sell it to other

    hedge funds or foreign banks etc who were happy to pay cash to banks .

    Do you know of that kind of reckless securitization present in India .?? WHen do you think foreign banks and hedge funds will be raring and jumping

    up and down to buy the Mortgage bonds of ICICI or HDFC ?? Do you think RBI will allow bankers to make a loan(at 0% to no income no job guy) and then turn

    around and sell it to a Foregin Investor ??
    When wil this happen ? Dont you think that securitization (ie no risk of the bank making a loan) was the biggest reason of bubble and collapse ??

    And if securitization upto the extent of US cannot happen in US why do you think there will be crash ??

    f)US average income per person is close to $50000 one of the highest in the world . For India its around $1500 . Just based on this I can say that US

    citizens being rich enough already would own more homes as a percentage of population than India even while accounting for the living expense and real estate

    value . THink when will you get a situation in INdia when lots of people will own a decent home . Just FYI –the average home size in the United States was

    2,700 http://www.infoplease.com/askeds/us-home-size.html .
    In India thats the most premium largest area 3BHK home size which I have been fortunate go in . I have never gone in a home bigger than the average home size

    in US .

    Because of this huge difference in type of housing market in US and India I just laugh when people say that US housing crash may well happen soon in India .

    g) When you say “As US citizens who bought Real estate in the middle of the Bubble just because credit was cheap ” and try to compare a US citizen

    with Indian who is planning or buyin a home I take an offence . A US citizen with zero income could buy home .US citizens have savings rate almost close to 0

    . They are debt slaves and dont think twice before buying a product which they dont need from money which they dont have . Part of reason is US can print its

    own money but again that will take another blog to explain it clearly .

    But here is the deal you cannot buy a home in India first without a steady income and second where your property value is more than 5.5 to 6 times your

    yearly income . Try to do that , Walk into a bank and say you want a home whose price is 7 times your yearly pay or >65 times your monthly pay and watch the

    fun in the bankers eyes.
    Think why has RBI made these kind of rules. You think Subbarao who has held on for last 3 years at high rates is duffer that he does not allow zero

    downpayment homes ?? or why does nt he reduce rates at 5% ……

    8) “Investors forget the risk taken to get some return and only concentrate on Return part” You mention that investors forget about risk . Why dont you

    explain me what is risk ?/ I consider risk as some asset which you bought made you lose your principal permanently over your investment time horizon . Please

    again refer to point number 3) above and explain me what is the risk of losing principal in real estate . How many times has it happened in past ?? How much

    have people lost in real estate ?? What is the most probable loss I have to keep in mind while putting money in real estate based on historical experience ?
    Pls all examples from India .

    9) “Options trading is something I would recommend who have great risk appetite and dream of millions in short span of time , Better than real estate .”

    This really hit the nail on its head. I did not expect this from you . Seriously . Options Trading . Are you crazy ?

    You are saying people should avoid real estate and speculate in options trading . By god I wont put in words How am I feeling about this . Pls take these

    words back . options are going to bankrupt each and everyone .

    Why dont you give me one guy made money via options consistently enough ? If you give that one guy I will give you 100 guys who made money in Real Estate ,

    sleeping peacefully at night and doing the work they love (maybe IT or may be sales or marketing or operations).
    DO you seriously think guys make money in optiosn while they go normally doing their day job ?? If yes then I dont have anything else to say .
    Anyway you have put it correctly – “Dream of millions” because option traders dream but real estate INVESTORS DO and its right infront of your eyes though

    you will chose to ignore it .

    10) One more thing which I hate which every guy(who has not put money in real estate) says about the home investment which a person lives in . They say home

    which you live in should not be counted as investment but almost a liability of emi n maintenance . Well why on earth do you guys think I will not EVER sell

    the damn house I live in and buy another one ?? Is that such a remote possibility that you cannot fathom a person owning and living in same house may want to

    sell it and buy a bigger/better house ?? Is it next to impossible that you ppl just disregard the price appreciation of self occupied home asssuming that it

    will NEVER be sold ?/ I find it a ridiculous argument that home I live in is somehow NON SALEABLE FOREVER .

    Please if a person buys a home and lives in it , it is still a invsetment *(whether you like to call it with some other name- one of the funniest and

    ridiculous word being expense – Holy God If I pay EMI on home I Live somehow its an expense-) . The day the guy finds a better home which he can afford he

    will sell the current home and move there and of course in meantime reap the rewards of higher price . This is how it happens every damn day in market .

    Dont you think so ?? Maybehe will do that every 5 years or 10 years whatever but pls stop tyring to be intelligent and ASSuming that a home I live cannot be

    sold by me . Its plain ridiculous to think like that .

    11)When you have given the real estate returns you have hit the nail of problems head. A 15% average return is mindboggling . Mind you Buffet became greatest

    investors of all time by getting around 17% returns. NOw the crucial thing is not just return but with what volatility the return has been made .The stocks

    have had volatility of 40% and then they give that kind of returns. How many have the stomach to see their stock investments go from 100 to 50 and not sell

    ?? If you have that ability you dont belong here , you should not be reading this but rather be a future warren buffet calculator .

    Manish if you wre in the market during 2006 till today continously I would bet my last dollar you were buying till 2008 Feb march . And started selling

    precisely in sept-march 2008-09 when best bargains were available. I would challenge anyone who is a stock market investor to just show what they were doing

    during those fateful August 2008 till Feb 2009 months. I will bet my last rupee that everybody was selling selling and selling more than they were buying

    except maybe warren buffet.

    Not everybody has the stomach to deal with stock market investments going down n ability to hold on Manish else investing in stocks would have been easy .

    For the rest they can do what they love and buy real estate .
    And when the Euro Crisis or fiscal cliff hits the fan —- I will ask the stock market investors and Real Estate investors as to who is making money and who

    is sleeping peacefully at night . It may be sooner than later .

    1. I agree that there are different counter arguments, this article only focuses on the real change in value as per guidance value and nothing else !

      1. Parth says:


        How much part of your salary % goes as your flat’s EMI ?

        And your actual job is to do FINANCIAL PLANNING ? Do you write articles against property investment to attract client and reach your targets ?

        And buy another flat/property ?

        Grow up man !!


        1. Hi Parth

          thanks for replying . Not sure which point of mine are you referring to ? Which point do you feel is incorrect ?

    2. Tarun says:

      Dear Amit,

      What a detailed and thoroughly researched reply, unlike this novice – Manish.
      Thank you for this wonderful comment.

  22. ANAND says:

    Well, any comments on creating land banks of small properties. These small lands can be bought at a much affordable rates and assume them to be long term investments.

    1. WHy not . if you can justify the decision financially, it makes sense ..

  23. sumit dass says:

    Find out the REALITY about your dream home! Check the current construction status and the issues surrounding your property at Real Estate India

    1. Thanks for that comment Sumit !

  24. RD says:

    Hi Manish,

    Everyone here is telling that Investing in Real Estate is risky and you should prefer Equity instead in the long run but to invest equity you should have good knowledge of market. You will have to constantly see where market is going and need to update your self regularly.

    But if you are investing in Real Estate you dont need to worry abt above things. I have not seen a single case where investing in real estate have given bad returns.

    But there are lot of exmple where investing in Equity can be very risky..

    1. No where it communicates that Real Estate investing is bad, I think its awesome ,the only thing mentioned in article is that its over aggegerated in general and investing beyond one means just puts the pressure

  25. Ravi says:


    Two aspects that I don’t think you guys haven’t touched upon with regards to RE investing in India…
    1. legal/litigation aspects of investing in RE in India. There are many disputed properties and little transparency in the title process.
    2. lack of liquidity in investing in RE in India…esp. open land.
    3. lack of transparency in sale prices/number of sales/open listing of sales that occur (of RE).
    4. effects of high inflation/depreciating currency on absolute returns noted.

    Would love to hear people’s thoughts as I am big believer in MF’s and DCA as I/family have done well with it for 30+ years with limited amount of work/time spent doing it. – Ravi

    1. Yes Ravi

      Your points are very valid, and I think these are the issues which are true for any country which is very old like India, Pak , Bangladesh, Iran etc etc.. for new countries like US and Aus, it was much easier to plan things and keep things clean !

  26. manish sharma says:

    Hi Manish,
    As i am engage inthis bussiness as free lancer from last 2yrs now i have good knowledge of that both construction & sale purchase but even though i ma not earning as other ,i have knowledge of nearby 4 cities in maharashtra Nagpur, Aurangabad,Pune,Amravati. I know the culture of city but even though i am not that much success.Can u Please suggest/guide me.

    1. Guide you in what ?

  27. RK77 says:

    Economic Times report shows that Sensex has given returns of 16% since its inception. Yet there are some MF advocates, sellers, agents who put up calculators on their site showing 20% or more returns to suggest how wealth can be accumulated over a time with MF SIPs without giving actual data.

    It’s difficult to get data older than the year 2000 for dividend paid. However, based on what is available it is worth looking at this:
    Colgate (Face Value 10) with market value 100 in the year 1980.
    Investment cost for hundred shares= 10,000
    Bonus and rights shares would have increased the holding to 5632 shares in Feb 1994 and a market price of 590 per share.
    Dividend earned based on data available (yr 2000-2012) = 701883
    Current value of holding (5632 X 1215)= 6842880

    Total (Excluding dividends paid during 1980-1999) gain= 75,44,713

    That is over 18% per annum approximately for 40 years on a single lump sum investment. Now imagine the wealth that would have been created if SIP had been used to raise the level of investment! I do not know of a single MF in India that has given returns matching or surpassing these over similar periods. Perhaps asking you to name 5 MFs was too difficult a task!

    Quantum Long Term Equity Fund claims to have given returns in 16-18% range over last 5 years – perhaps because they do not give any commission to the MF distributers and do not pay any dividend. Most other MFs from HDFC, SBI, Reliance, IDFC etc that have huge AUM do not even match this over 5 to 10 years period and are unlikely to do so over a 40 years period as they pay commission to distributors, hire expensive Star Fund Managers and churn portfolios to suit themselves, have high establishment costs and are obliged to invest in not so good stocks to show that they are diversified and some times to bil out management of companies known to them.

    1. Yes , I agree to you , Mutual funds returns are over hyped for long term , what you have seen in past might not happen for all the years .. In my opinion we should consider it as 12% only.

  28. RK77 says:

    Not in any blind stock but in Blue Chip stocks – Any of those listed by Ramesh Deshpande and those listed in my posts. There could be many more. A common man should not have any difficulty in identifying such stocks as the relevant information is available on the Internet and in financial newspapers.

    MFs do not sell much these days because investors have realized that they are being taken for a ride as the returns are poor and expenses of the fund reduce the net returns. Fancy names and multiple schemes by every fund house only confuse the investors and fool them. Investor is more likely to lose money by selection of the wrong MF than by investing in few select Blue chip stocks. It is my observation and experience that I have shared.

    I await for the list of 5 MFs that you know of that meets the criteria cited above.

    I repeat my request : please list 5 Mutual Funds that have given more than 18% reruns over the last 10 years / 20 years / 30 years / 40 years in Indian Stock market.

    1. The biggest problem with SIP in stocks would be the volatility and the power to stay with the ups and down’s , that would be huge .

  29. RK77 says:

    Manish, I have followed some of these stocks over the years. Colgate for 40 years. At no point of time the wise ones (analysts and experts) recommended that this should be bought. They always said that it is too expensive. 3 years ago they said that Hind Unilever will go below 200. Similar views have been there for other stocks listed above. The much touted P/E ratio and Book Value were the criteria in 1980s and are used by some even today. Of course there are many more complex ratios and calculations that are used to fox the investors. A simple rule is invest in a Blue Chip that has a simple business model, is well established in market, has little or no debt, has reputed management, rewards it’s shareholders and has a good product with market leadership, has pricing power – a kind of moat. It does not matter when you get in but if you stay with the stock you will earn in the long run. To test my rule I invested in 5 to 10 shares of such companies and got returns of 18% in last 2-3 years whereas the investment in 5 star rated funds from fund houses with largest AUM gave 1.2% returns over the same period. Some MFs even gave negative returns!

    A gentleman called Shubhankar,who writes a blog on Investment for Dummies..,.was the only one to show the 10 year chart of Hind Unilever that indicated its steady upward move in 2010 when almost every analyst was going Tom Tom – sell Hind Unilever. I started buying this scrip on his advice at 240 and it’s price today is no secret. Page industries at 900 was considered too expensive 2 years ago and at 3000 today it is considered prohibitively expensive to buy. Well, buy it today and see after 2 years … Simple business of inner wear, a product that is much in demand, huge untapped market, Brand Jockey is the market leader, well managed company with good track record and so on…
    Yes, some blue chips do disappoint like Infosys, Reliance, Sterlite, Sesa GOA, Tata Steel in the short run but they are likely to catch up over a longer period of 3 to 5 years.
    Mr Ramesh Deshpande may see that there is a big list of Blue Chips, select a few and use Direct SIP to earn returns much higher than any MF! The stocks selected by you belong to this group.
    Best wishes.

    1. So finally you are concluding that SIP in stocks should always beat mutual funds and its suitable for all investors ?

      Are you saying that we can say that sip in a stock on an average should beat sip in mutual funds for the similar long term ? SIP in a any blind stock for 10-15-20 yrs should be a better pick compared to sip in a mutual fund. i am not talking about experts in the field because they can understand and analyse the news and take decisions. we are talking about common people here who dont have time to do things which experts can .

      let me know


  30. RK77 says:

    If one had invested by SIP in any of the Blue Chips :- Colgate, Hindustan Lever, ITC, Nestlé, Asian Paints, HDFC, Sun Pharma, ITC (Many others can also be quoted) during last 10/20/30/40 years the returns in dividends and capital appreciation would have been far beyond those earned by the best MF in India during the same period.

    Mutual funds expenses listed earlier and those related to frequent buying and selling only reduce the returns to the investors. Direct equity investor can also sell off dead stock at much lesser cost. Can you name even 5 MFs that have earned more than 18% in last 10/20/30/40 years in India?

    1. thats a good point, but who knew this earliar ? If things were different , you would be talking about mutual funds being good compared to stocks, what you are talking about is history and you are picking only those stocks which match your conclusion . Do you think what you are saying is a “fact” or a “rule” , which will always happen ? Is it not a risk to do that ?

  31. RK77 says:

    Interesting site. An article written in 2009 continues to draw comments is exceptional and you deserve kudos for your brilliant analysis. Mutual fund returns are exaggerated as the cost of commission paid, 2.5% expense per year, Taxes paid when you sell or buy reduce your effective returns. Also, 10 year returns of 95% of the mutual funds in India are around 10-14%. Some even have less than 10% return per annum. Direct equity investment is better than MFs.

    One of your readers had asked if buying blue chip by SIP is a good idea and you had not approved of that. Well, I think that this is a brilliant idea. If SIP in a MF is good than it is better to invest by SIP directly in a blue chip.

    1. No its not . Mutual funds keep buying and selling stocks and keep the bad stocks out , doing the same thing in a single stock might work differently.

  32. Ram says:

    Any idea if NHB data accounts for Black money? Most properties in India are registered at guidance value which can be as low as 20-30% of actual sale value. Guidance value is updated only once in a while when the government wakes up from a slumber and does not grow at the same rate as a real prices.When I was buying property for self occupation, I really struggled to find a seller who would agree to register at market value.

    I have not seen anything less than 10-15% CAGR for any property in Bangalore based on anecdotal data over the last 20 years. It is even higher at 20-30% for areas that are fast developing.

    1. Ram

      I am not sure about the Black money part ,why dont you start a thread on http://jagoinvestor.dev.diginnovators.site/forum/

  33. madhu says:

    hi.. me and my husband read ur blogs regularly..ur doing a gr8 job trust me.. we office goers dont have time to sit and analyse we we want to invest in a property..all we can do in read blogs like urs and update ourselves.. so thank you on behalf of every1 who have benefitted from ur blogs..

    we want to buy a house.. to stay..can mumbai see a price revision or correction..coz we r looking for somthng in city and that too a 3bhk.. we have to strech ourself and squeese completely dry with the current rates..pple say there may be a correction but in last 6m the prices have only increased.. plz help us..

    1. I dont thikn there can be very big long correction in City like mumbai in short run

  34. Harsh says:


    This is an eye opener article for me – despite being written in Dec 2009.
    My question to you is isolated and hypothetical – please correct me. I will take the example pointed by you – so here it goes again.

    [“The current market value of my flat in Mumbai is close to 1 crore , I bought it at 28 lacs in year 2000. The returns have been Mind boggling 72 lacs in 9 years, i.e 8 lacs a year approx , more than my current salary and now I am planning to invest more in real estate instead of Equity, What do you think” . A not so close friend was discussing his Real Estate portfolio with me.”]

    Now lets suppose this guy sells his house with 72 lacs of profit with 1 crore in hands. As the example says he earns less than 8 lacs per month and he has this house only, he is planning another property though. Now after sale either this guy needs to buy another house or take a rented house. Lets consider he stays in mumbai only and maintains the same life style, in both the cases where is the profit in real sense? He has to invest that money back for living.
    Is he going sit on the cash at the cost of change in lifestyle? What is the future of the money earned? I understand I am considering a closed case, this guy may sell it off and settle in a less costly city.

    My real question is, are profits in real estate hypothetical? Do they diminish after you realize them?


    1. No they do not realise , you made a very good purchase and the city you choose was very different than others , Mumbai is where the rules bend 🙂 . SO in your case I think you made a good money , but the thing is what is the average case . Even in this article we are discussing average . Real estate has done extremelly well and you will get great returns if you care fully choose it and time it properly . Was it on loan ? I think for discussion sake you should open a thread on our forum : http://jagoinvestor.dev.diginnovators.site/forum

  35. Rajeev says:

    Dear Manish,
    Not very sure of your question… However if it is what I think it is, here goes:
    Guidance rates Are the Real Estate rates as specified by the Government. These rates are specified for each area within each city. Sometimes specific properties within a particular area may also have a different Guidance Rates vis a vis the general Guidance Rates in the area.

    Guidance Rates are important as they are the bassis of all registrations of the properties done in the area. Registration of a property cannot be done belPw the Guidance Rates. The problem is that all over the country the Guidance Rates fall hugely short of the actual market rates. This is one of the major reason why real estate deals have a huge ‘Black’ component.

    Why Guidance Rates do not reflect the actual rates for an area? This is a question which has not been satisfactorily answered for a long time. One obvious conclusion may be that it’s a political decision not to alienate the Real Estate industry. But by doing so, the Black Money component increases in leaps

    Guidance rates specified by the Government for a area is used as the basis of calculation for Rsidex of that city. Since the Guidance Rates are artificially depressed, the Residex does not reflect true value nor the appreciation unreal terms.

    1. Hmm thanks for that knowledge ..

  36. Rajeev says:

    Dear Manish,
    Firstly let me compliment you on your research ESP the work done for collating the resdiex.
    However you might like to consider a few things when you write or think about real estate investment the next time:
    a) The Residex is based on Guidance Value of properties in various areas and cities. Now as anyone who ha been in the market will agree that the Guidance Rates are grossly off, at times more than 100%. The reasons for the Guidance Value being so grossly off are numerous and may not be possible to discuss on this blog. Suffice to say that the Guidance Rates and the actual rates are hugely different and the escalation in prices of real estate are not reflected by Guidance rates. Hence the real returns may not have been calculated based onResidex.
    b) As far as the risk return goes, let’s consider the analogy you have drawn between India and US. US of A has 7 times our area and 1/7 our population. The escalation is real estate is always guided by end users. In India even on date, the requirement of housing is immense. This is not to say that there are areas and cities which see huge amount of investment driven real estate price escalation. However usually, prices in Mumbai and cities like Bangalore and Hyderabad are driven by end users. Lete ask you if you can quote any example of when Real estate prices especially residential real estate, which most small investors prefer, has depreciated over a 5 year period?
    c) Investment in Real Rstate has to be based, like any other asset class, on good research and practical considerations of location, builder, cost, affordability and infrastructure triggers in that area.
    d) Finally, most real estate investment decision also need to consider the rental return of the property. The rental return should rightfully be added to the overall return from the initial investment.

    So Mr Manish though I agree on the desirability of portfolio allocation towards equity and the need to balance a portfolio, but your contention of Real Estate giving returns similar to equity or gold, is something I strongly disagree with.

    1. Rajeev

      Thanks for sharing your views . I am not sure what was Guidance value at the time of writing , can you explain that to me .

  37. Ramesh D says:

    Hi Manish,

    Thanks alot for a eye opening article.

    I have thought of a longterm investment in equities by buying only blue chip stocks in nifty with a fixed amount every month.

    1. Do you think this is a good idea?
    2. Blue chip stocks are expensive and what you think their returns will be for over 20 years for stock like L&T, HDFC,AXIs ,BHEL & ACC.

    Kindly guide me.


    Ramesh Deshpande.

    1. Ramesh

      SIP kind of investment in a stock is not recommended – dont do it . Better invest in lumpsum only .

  38. Dharmesh Chitaliya says:

    I like your blog most………..i personally believe if possible kindly do some brief mathematics on Return shown on real estate. i couldn’t understood how 28 lacs flat became 1 crore in Value in 9 yrs and in % its only 15.2 % return.

    1. Dharmesh

      Its calculated like this =(10000000/2800000)^(1/9)-1 = .152


  39. shailender singh says:

    First of all thanks for the wonderful piece of information that you have provided in the article, but real estate return in last 15 years is more as comparision to other investing option . I live in a small city Jind haryana. The HUDA land plot rate was appx. rs. 400/- per square yard in 1996 and now HUDA plot rate is rs. 20000/- per square yard for small plots.

    1. Shailender

      The articles takes into consideration the average returns


  40. bethune says:

    Hi, Thanks for the interesting article, which challenges traditional perceptions on Real Estate.
    However I noticed something contrary when I was trying to do my own analysis:
    Option 1 – Buy MF SIP for 30k per month for 15 years at 15% CAGR
    Result – At the end of 15 years, total amount is approx 2.16 Cr
    Option 2 – Take a ready to move apt for 30l and pay 30k monthly EMI for 15 years
    Result – At the end of 15 years, total amount is approx 2.78 Cr (assuming apt was growing at 15% CAGR)
    If I count a rent of 7500 per month, the compounded value is 54l at the end of 15 years. Even if I exclude about 25l for repair, Option 2 seems to fare much better.
    Whats your view on this?

    1. Bethune

      We have long term return history of Equity , but for real estate we do not know if that kind of return is alreayd there.. best thing would be to discuss it on our forum : http://www.jagoinvestor.com/forum

  41. Piyush says:

    Good write-up. Its amazing to see how people always exaggerate real estate’s potential and claim it never comes down. All the more if its Mumbai. (Wondering how easily they forget the last two such cases). Concepts of CAGR, transaction costs, borrowing cost, illiquidity risk, over-leveraging risk etc seem to be rarely appreciated. And people born in late 70s and 80s seem to think nothing can or will go wrong with them on job front. Weird to think all economic parameters have deteriorated sharply in India, jobs are being cut,salary hikes and bonuses have waned off, equity returns are negative for last 4 years, savings are under stress due to inflation. However, despite all this, flat prices in a town like Mumbai are not just up in last 2- 3 years, but actually a large chunk still thinks it will keep rising rapidly. Guess only time will tell.

    1. Piyush

      While all the points you have raised it really true .. the prices of real estate in reality are not coming down because to too much money supply in real estate from investors


  42. Ranjan Banerjee says:

    hello sir, first of all thanks for the wonderful piece of information that you have provided in the article. i would like to put up a query. what about the rental value. now let’s say i buy a property worth 20 lakhs and rent it out then should we not consider the rental earnings received as a return on the investment. even if one uses the property for his/her own residential or business purposes, then that would mean a saving worth the amount of rentals received.

    kindly solve this query if possible

    1. Ranjan

      Yea its not considered in this example ,we are only talking about the value appreciation on the asset price . .not the rentals recieved .. note that if you talk about the rent recieved , then there are many headaches also which comes along with buying a house like maintenance, tax , property tax , regular follow up etc and at times period where you dont get rent, finding tenants etc ..


  43. truth says:

    A fine comparison but one which has no touch with reality rather touch with ‘trying to prove to yourself’
    Fact is property prices since you wrote article has risen by 40% giving minimum CAGR of 17-20 % depending on city location etc.
    While you expected 10%
    I have 75 lacs cash on hand with me
    What should I do?
    Distribute it among real estate shares and gold
    or just buy real estate :-))))))))))) and remember this is 2012

    1. Truth

      Better get into real estate if you feel it will give you 20% CAGR for next 10-15 yrs ..


  44. Anirban says:

    Dear Manish,
    nice article by you.. whenever we search that return from real estate investment
    we must appreciate your blog..
    but now there is no risk in real estate investment like stock market.. this is my point of view that is because if you watch last few decade real estate market is boom in India & its continuing..
    In Hindi there is one word “soch kar samaj kar invest kar..”
    and also if you think about opportunities..”Knock, Knock.
    Who’s there?
    Don’t be silly – opportunity doesn’t knock twice!”
    so be wise..

    1. Abirban

      Yes .. 10 yrs in real estate has been good , but will that continue for next 10 yrs ? Read : http://www.subramoney.com/index.php?s=real+estate

  45. Mehul says:

    Hi Manish,

    As expected, a post on real estate investment is bound to elicit great number of comments and diverse views as its a very “touchy” issue affecting all of us. I am in the thick of real estate industry, fully subscribe to your views on average returns on real estate over longer term (10 years or so), and have not yet bought a flat for myself!
    However, if one was to evaluate “downside risk” of real estate investment -even if it is leveraged, appears to be minuscule mainly because we have not seen real estate prices falling significantly (except for a (very) brief period during 2008-09 recession (I’ve personally tracked a ready to move in flat in Mumbai western suburb whose price fell 20% in a 4 months period)). There are several irrational and not-at-all-market driven factors supporting RE price rise. That is a different matter. The point is that RE prices are not rational, not driven (only) by demand-supply and hence -do not fall. At least, have not fallen in a time span which will come handy for people making fresh investments in RE and assessing risks.
    I am so eager to hear stories of price drop witnessed in last 15 years and their magnitude as well as the period for which they stay depressed. I am wishing for considerable price drop for the theory of “RE is risky and large ticket size investment for comparable returns” to succeed. Alas, that is not happening and the “risk” mentioned in your theory do not appear on the horizon.
    I will love to hear your views.

    1. Mehul

      “Real Estate is Risky” does not mean that prices of real estate will crash like anything and keep on coming down .. unlike stocks .It can happen but those situations are very rare like what happened in US .

      The prices will keep going up , but the thing is that on a long term basis the price appreciation wont be as attractive as people feel , the short term appreciations make them feel that its possible on very long term basis (I mean 30-40 yrs) .. Read this : http://www.subramoney.com/2011/11/rent-or-buy/

  46. Rohan says:


    Thanks for a wonderful article. I agree whole-heartedly that real estate prices have increased a lot and may be due for atleast a pause. Other than investing in actual housing do you know of any alternative way of investing in real estate (for ex: any realty index funds) ?

    1. Rohan

      No , at present we dont have anything in India where retail investors can participate in real estate investing in small ticket


  47. zack says:

    Hi Manish,
    Stumbled upon this old article after reading your latest post on 4 facts…
    Great article. Not sure how I missed it before.

    1. Zack

      Great to hear that .. what learnings did you take from this article ?


  48. realty1 says:

    Real estate return in India is very high in current scenario in compression to other things in meany ways like rent, resale and more but also take care of very poor liquidity in nature.

    1. Reality

      So what is the point you are making ?

  49. Atul says:

    Hi manish,
    I believe while calculating returns for second home one should consider rent as it is almost 0.4*12 = 4.8 % annually which takes it to 20% as per u r calculations.
    i believe real estate is long term investment so one should consider inflation which dont applies to EMI. as it is for insurance sooner the better.
    One should also consider returns of real estate for last 50 years has always been better than any other instrument in 10 years period.
    EMI also makes u disciplined about investment
    I also believe crises like US are not going to be in India because
    We have much better rules for valuation and repayment capacity of any case.

    But still i believe following points should be considered before doing investment in to real estate
    1 It should be min 10 years horizon
    2 very poor liquidity.
    3 should not cross 33% of your income
    4 should have some other source for urgent requirements(Hi liquidity)

  50. rupesh says:

    real estate market is like hell in india…

    Dubai properties 60% cheaper than Mumbai


    1. Rupesh

      Thanks for that link 🙂

  51. Vikram Mukhi says:

    Hi Manish,

    While calculating the CAGR over a term shouldn’t you consider the rent which the owner will get for the period???

    Thanks for ur so many useful posts, they have helped me a lot?

    Best Regards,

    1. Vikram

      For now , we have not taken that into consideration . We are assuming that a person is living into it , If you consider rent, then u will have to consider , renovation , taxes , maintenance and all ..

  52. Deepesh Chandra says:

    Hi Manish – kudos on great article.

    I am new to your blogs and have been avidly reading your archives. I have a real estate story myself which i know many would relate to.

    I happen to come from Lucknow and coincidently was working there when the idea of buying an apartment or property was seeded in by a close friend. It started an internal battle whether to buy a land or an apartment, with zero affordability .. pure lust 🙂
    Logically I explained myself that buying 2BHK in a high rise posh neighborhood is what I want. I narrowed down a property and cut a deal with the developer to get 10% discount on his asking price as his property was in pre-launch state (typically a total no-no). I paid 10% of the cost as registration and honestly that was all my cash reserve – another big mistake.
    As soon the property was launched and accredited, I was asked to pay 85% which was barely managed by 70% bank loan and rest 15% by shamelessly loaning from parents. They helped me as I was single and approved my “big” decision in life 🙂
    The EMI came to 60% of my take home but bank had no problem as I was working in a bluechip firm and they were more confident in me than I was in myself. I did not worry as I was single and living at my parent’s home.
    The property was due for possession in 2 years. And this was late 2006.
    Few months later, home loan rates started soaring. My 6.75% loan soon became 13% by 2008-09. My tenure increased from 15 to 21 years and I started having jitters.
    For all the good deeds that I did, I got an overseas offer and narrowly escaped nightmare.
    Curtailing my fun activities, I started saving enough to pre-pay my loan asap and worked in tandem with bank reps to convert my loan to better rates whenever CRR came down. (Remember floating rates go up along with CRR but they never come down in that ratio unless you intervene).
    Took me 4 years to pay is off and I ended up paying interest amt in excess of 7 lakhs for a loan of 17.5L … remember in early days one pays on interest amounts in their EMI. Today I am debt free and much more in control of my finances … thanks to online saints like Manish who tirelessly give genuine advice.

    Now the bouncer … the builder had delayed the whole plan due to “recession” (though his entire property was sold out). The management got changed, the company got taken over by other and they “promise” to deliver it this year. With the property price increase …. I am sitting on a break even today … ZERO profit with NO possession of my apartment. I cannot sell it neither live in it, but I sleep better 🙂
    BTW … my Rs. 1000 SIP in HDFC Equity Fund since 2006, gives me 25% absolute return 🙂

    Just like Manish, I do not discourage to buy realty but don’t make mistakes like me. They were crazy, irresponsible and pure luck that I was out of it.

    – Deepesh

    1. Deepesh

      Thats a great story to learn from . Just like you I also dont discourage buying reality , but taking decisions in haste and doing unplanned moves is a strict no no .


      1. Jig says:

        If we start digging , many such stories will come out.
        If person is having cash in hand and have seen builders past ( many ) completed project, should he go ahead for property or still Equity is the way?


        1. Jig

          Which story are you talking about ? Equity or Real estate , both are good if purchased with proper study !

    2. rupesh says:


      where did you buy this property ? Was it in Mumbai or pune ?

      1. Deepesh says:

        I bought it in Lucknow.

  53. Atul says:

    Hi Manish,

    Stumbled upon this old article after reading your latest post on 4 facts…

    Great article. Not sure how I missed it before.



    1. Atul

      Ok , nice to know that , what do you think about the article ?


  54. Vivek says:

    Hi Manish,
    You wont believe i have read 10-15 article today from this site in a day, i am reading whole day, All are very informative. Also i agree with you on this “I do not feel they are justified and the prices are mainly driven because of unnatural demand created by easy access to Loan .” If you get chance visit forum at
    many like minded people have similar view on real estate prices in India.
    Keep writing,

    Also would like to know one thing about FD, do you know if FD matures and by default it is reinvested automatically, so do we get the same ROI as it was when we took or new current ROI.

    Thank you,

    1. Thanks Vivek

      FD will mature on the date as per your requirement , so if you have taken an FD of 3 yrs , it will mature after 3 yrs, bank will intimate you about the maturity


  55. rkrao says:

    you have not discussed the income tax benefits of upto one lac under 80c and 1.5 lacs of interest deduction from total income per annum;please tell us if they make real benefit or it is also illusory.

    1. RkRao

      Tax benefits are good , but its not the reason to buy home , its just an added advantage


  56. harsh yadav says:

    HI manish.

    Indeed a nice blog, and even nicer calculations, ie, even real estate gives u 15-16% CAGR, so gold (or any other investment) is equally good.

    Well, i am new to the financial planning knowledge, and keep on learning to invest in the right direction…


    1. Harsh

      Great, keep reading 😉 . ask questions

      1. harsh yadav says:

        “Great, keep reading . ask questions”

        Ok, here’s d first 1.

        I have this doubt, tell me if i am wrong. I want to buy a car, and i am calculating this way.

        Car – 400000
        bank interest- 12-13%
        inflation – 15-16%

        Does that mean, if i take a loan today, bank will charge me 12% after a year, while economy ( tata motors, maruti suzuki etc) would charge me 15-16% for the same car after a year.

        Going by this, is-int taking a loan much better than saving for that car.


        1. Harsh

          Yes in general that is what it means , but in your case it wont be like that , you have to be concerned with the inflation in car price , which is almost ZERO . The price of cars do not increase with that pace .


          1. harsh yadav says:


            Got u
            just looked at WPI figures and realised what u mean…


  57. jawnsin says:

    manish December 8, 2009 at 12:50 am said to Vinay

    ” People compromise their other life events and daily fun running around meeting both the ends meet . Because the burden of EMI is so high .. they dont take holidays much with their families .. cut on expenses >>>>>>>>>>>>>
    That’s is the most important aspect a person forgets whilst chasing profits.. finally ends a rich…but an unsatisfied person in life…

    1. Jawnsin

      Yea .. I agree with that point . No point earning only and not enjoying


  58. Rahul says:

    That article don’t understand the ripple effect, economy liquidity and deposit rates scenario. Just ask them to read about with newyork and new joursey
    relation in housing market relation for ripple effect. For Economic liquidity, ask them to just think about Banglore, Hyderabad and recent Ahmedabad growth rate. Deposit rates, compare US, EMEA vs India.

    Equity market was down in 2008 from 20K to 8K and gained the same height in 2009 so net impact for long term investor was 0.
    But i heard it caused some high BP, heart attacks for low heart investor. :). There were some lucky people in town who found bottom and invest at that level. If you are that lucky, you don’t need support
    from such this forum

    I am not the crowd pleaser but respect and hear all opinions and my thought is “All educated people should not become slave of analysis and historical statics.”

    Best of luck with investing.

    1. Rahul

      I agree with your points on Economic liquidity and ripple effects thing .. I am still learning on that front .

      For people who are informed and smart enough to judge the situations and make money , nothing can stop them . You make the good point when you say “All educated people should not become slave of analysis and historical statics.”

      Thanks for your perspective .


  59. Rahul says:

    Some points I disagree and I some agree.

    My case, Starting in my career I took very big loan to buy apartment without really analayzing but just to fulfill dream. Now in 10 years, I realize i was able to pay the amount and it appriciated around 400%. My cousin was unable to purchase apartment even after 10 years as he never agreed to take loan and manage pressure but now what he feels more peer pressure from entire friends and family . Now, he still dont have enough money to buy the apartment in the same location. Pressure remains on both side. This is for losing opportunity.

    People who analyze much also loose more opportunity with playing safe stratergy.
    I still see most people feel more safe buying Real estate with or without loan compare to investment in Stock market. It feel safer even it is funded and mortgage by bank. Full Investment in Stock market is from individual but still he dont get sleep in night because it is highly volatile.

    We dont hear lot success story of people made money out of stock market compare to folks talking about money from Land, apartment appriciation.

    I am not sure why do you think prices are not justified in Mumbai. Its demand and supply scenario. Let me give you some data point.

    1) Mumbai population is also tripped in last 10 years of time so; Demand increased.
    2) Folks in US and other developed country gets hardly 4% CD rates compare to investing in PE fund with 12-18% return so; more fund is coming to builders.
    3) Now trend is to own 1 apartment and 1 vacation house/rent apartment so; people earned enough money from improving economy that they can afford two apartments. More demand from local and international market.

    Again, India’s GDP also 700% since 1991 and 250% from 2002 year.

    1. Rahul

      I agree with your points . Last 10 yrs have been good in real estate , The point of the article was that people should slow down and look at numbers before deciding on what they want to do . Nothing wrong in taking loan , just make sure that you take calculated risk and pay things on time . In your case have you thought what would have happened if you lost job in between or the growth was not as much as it was . On top of that last 10 yrs have been explosive in terms of real estate investments .. Almost no one has made huge losses or any loss , so it makes everyone feel that it would continue forever .

      Do you think what happened in last 10 yrs will be replicated in next 10 yr and 20 yr ?


      1. Rahul says:

        Thanks Manish.

        Answering to your question, I feel, real estate market is not yet reach to its peak. I still see lot of headroom in price for another 3-5 years in Tier 2,3 cities. Mumbai, delhi is getting so expensive for industries, IT, Finance and labour forces and this will lead to growth to T2, T3 cities.

        There is another class of people who can invest only in T2 cities due to budget, affordability and potential cost of living savings difference.

        Considering if india manages 7% GDP growth we are still very attractive destination for foriegn investors. We all saw huge salary growth for the same position between 95 and 2010.

        Indian can still digest one more US kind of recession without crashing real estate price more than 15-20% impact. While comparing, Stock market was down around 60%. Think which is better and more volatile?

        When you show me India growth is getting limited Or we at war then its different story but as long as inflation grows, real estate should also see the same inflation which is good for investor but not for renter class.

        I still lot of article where people is feeling so scared about losing job, i dont know why is that. Are we on 90’s decade or what? There are lots of jobs so as long as people have commitments they can see and fulfill dreams. If they lost job, they should have emergency fund for a year or so but it does not mean they wont get the job for another 1 year or so.

        If you guys feel so pressurised with 15-20 years commitment for home loan that impacts your freedom, how can you get married with someone for your entire life :). Just kidding…

        1. Rahul

          Its the way you look at it , you see it from point of India’s growth , GDP numbers etc etc , however a lot of people have a different way of looking at it , one such example is this one : http://www.subramoney.com/2010/02/real-estate-prices-mumbai-and-navi-mumbai/

          Also , I dont see many people sharing the same thoughts as you on this blog and other blogs too . “Indian can still digest one more US kind of recession without crashing real estate price more than 15-20% impact” , Even the reverse is true , from 2009-2010 what gave maximum returns ? It was equity giving around 100% or more . So yes , volatility wise real-estate is higher than stocks .

          Another point is there are enough examples where people find it tough to manage huge EMI, and cant risk too much and if they do , there can be huge debt on them later which they cant handle.

          I would say your points make sense , but then its again an analysis which we all do and a lot of times it doesnt work , we have to wait and see how things unfold in coming years . just wanted to know out of 1000 people you pick random from MUMBAI , how many would share the same thoughts as yours ? Any idea ?

  60. Kunall says:

    Awesome analysis!!! Thanks for all the info…I was about to buy a second home and give it on rent…

    Thanks again

    1. Kunal

      Thanks 🙂


  61. Sharad says:

    I would love to know more about options trading, do let me know how to start…

    1. Sharad

      Why dont u do a small course on options from NCFM , it would be useful


  62. kamaljit says:

    Great sir, but i am already fallen prey to rat race, recently i bought flat for investment

    1. Kamaljit

      Its not that you have done a mistake , real-estate bought for your consumption at good price is a great thing . just that if you are buying it for investment purpose , you should not be of the view that it will always be profitable only


  63. Harish says:

    Hi Manish,

    Your article is a great read as usual 🙂
    But i didn’t understand why the rent received on leasing a property is not considered as an earning by you? (I think someone else pointed this out too earlier)

    Doubling of the price of a flat from say 75 lac to 1.5 crores in 5 years is a 15 % return on investment. But if the flat can also be rented for 15000 Rs per month, thats 15000 * 60 = 9 lakhs.

    (This is a conservative calculation because as the price of a flat moves up, the rent it will fetch will increase too.. most probably in direct proportion)

    I am a student now so do not have that kind of money but I feel whenever the current real estate bubble bursts it would be a good opportunity to invest in a flat around Mumbai and invest the rent received per month in an SIP.. 🙂

    Your blog is a great way to learn finance.. keep it up Manish 🙂


    1. Harish

      I have assumed the situation that a person resides in the property himself, so the returns given in the article are for that scenario , considering that a property is given on rent, you can consider another 2% return , 2% because even if you get 3-4% return , you will have to pay taxes and normal maintenance on the property too .


      1. Harish says:

        Hmmm… 17 % is pretty good returns i guess (if all goes well that is 😀 ).

        I am a registered reader of jaago investor so received your email about the ‘bad side of financial products…’ its been over 2 hours now and i haven’t stopped reading all the links.. thats the kind of addiction I like 😉

        Amazing stuff!

        Thanks Manish

        1. Harish

          thats great to hear, which one do you think was the most unthought among investors ?


          1. Harish says:

            Hi Manish,

            Sorry for the late reply.

            I feel ULIPS are the most over rated and misunderstood financial products. I remember my sister buying some from a relative for 50 thousand. after 6 months she showed up to say that its value is around 65 thousand! my sister was very happy but asked the agent if this amount could go down in the next 6 months.. she gave a grudging yes and my sister’s smile faded.. I wish i could have stopped her from taking the policy then. i have asked her to continue with the policy for now..

            I have noticed that any financial products sold at your door wont be a wise investment.. unless you are the broker.. 😀 let me know what you feel…

            1. Harish

              Thanks for sharing the incident , yes most of the things which comes to us this way are not good 🙂

  64. SANDESH says:

    when residex for banglore is from 100 to 313 (Highest among all cities) why avarage return is only 7% ?

    1. Sandesh

      Looks like you didnt see the full graph (May be its hidden a bit on right side)



  65. prabeesh says:

    I think i am in a confusion here..

    I am 25 year old with a 25K salary. I am planning to take a house which will cost me all inclusive 20L. I am going for a 14L loan and the rest is paid from my savings and my fathers money. I contacted bank and they say with current interest rate the EMI would be 11K for 20 years and my monthly expenses are 10K.

    I don’t expect my salary to grow in substantial amount within few years.Since i only bread earner.Do you advice me to go ahead? I would like to add my dad gets 5K as his retirement money which is put in to his health insurance ,which i feel is good for him, so no other source of income for me.

    My concern is what if the interest rate grow in 2% in 5 years and my salary by 15%,i will not in better position at that time

    1. Prabeesh

      You will be in tight position , You also have to look at some other problems which can arise in between , like you can loose your job , you might not get required raise in salary in worst case suppose there is some recession , There can be a medical or any other emergency which might require you to cough up some significant amount, Also what if interest rate rise and your EMI also goes up .

      You might want to consider increasing EMI (where EMI is less in start and then gradually increases) .


      1. prabeesh says:

        increase my EMI? its already for 20 years you want me to increase it to 25 years,i thought you said not to increase.

        1. Prabeesh

          No , I meant a different thing . there are some banks which have an option of increaseing EMI per year. so instead of say 20k per month EMI for 20 yrs, one will pay 10k for first yr , then 12k for 2nd yrs .. and so on .. EMI will keep increasing , so it suits people who in the start can not afford high EMI payment


  66. N Subhash says:

    Every decision has non financial angles also. What is the psychology of a person as an investor or consumer?Some people tend to review investments at very short periods.The policy does not generally work with real estate or gold or even equity. The people who advocate real estate investment have following assumptions-

    1 It will save you from making wrong investment at other avenues.
    2 It will save you from over spending.
    3 Real Estate cannot be out of favour simply because of so much pressure of population on scarce land resources.
    4 The country has legacy of putting illegal money into real estate which drives the market.
    5 Owners of flats,office premises, factories feel more confident while doing business. In case of rented properties the establishment may get derailed very soon.

    1. agree with you 🙂


  67. rashmi kale says:

    its a comprehensive study n analysis put up by you. i have read many of ur articles n i also want to tell all those blind guys saying just shut ur eyes n inv in real estate , money just multiplies …….. n all taht.blah blah.
    but here, i would like to submit or that tracking residex is like tracking sensex or nifty. a smart mutual fund manager will have stocks from say cnx 200, 500 or even small caps. so that he outperforms whichever the index is benchmarked. similarly ther are smart players who liverage in real estate , find the right property n rite time to get in n get out of investments, doubling their investments in a yr or two…………..

  68. Pankaj says:

    Excellent Work Manish.
    Keep up the good work.

    1. Pankaj

      thanks for your appreciation 🙂 . Keep commenting


  69. ashish sood says:


    Awesome analysis !!!! but still i am not sure what to do ?

    but your analysis can be justifies only if i keep investing in equities or other things and this is where the problem lies.People now a days do not have time to pan such systematic investments and thus buy a property !!!!

    hope u are able to understanding by point ……..

    so if i have 8 lacs today and i am planning to buy a flat in Navi Mumbai of 24 lacs by taking loan of 16 lacs what should i do ?
    please suggest
    also for your info my salary is 40000 per month (expenses 18000 inclusive of insurance and other costs)
    please suggest as it might help lot of people !!!!!!!!
    but i must day i agree with your analysis totally ……..good work


    1. Ashish

      If you are going to take this property for pure living purpose , then there is no much reason to think and just buy , however for investment purpose, this article applies


  70. Shivang says:

    This is one of the best articles i ever read on this blog.One thing i would like to ask you is the way real estate prices are rising in mumbai,it would become difficult for me to buy a flat if i delay.But currently if i want to buy i would have to opt for a loan.So i am kind of confused whether to go for it now or is there any possibility that real estate price might come down sooner or later just like equities.Can you just tell me your perspective on future real estate prices in a place like mumbai where the demand is huge and there is not much space remaining?It will be great if we can have a article similar to Is gold worth buying?I

    1. Shivang

      Regarding Real estate prices in Mumbai , I can not comment on that , because Mumbai is a different ball game , which the prices are already higher , it can keep rising more time, but its not worth the money I feel , You have to look at various things like your job security , will you be working there after 20 yr from now ? Are you find with buying at Nab mumbai , outer areas and travel daily ?

      You seem to not have a look at the latest article , which talks about GOLD : http://jagoinvestor.dev.diginnovators.site/2010/07/is-gold-worth-buying-a-shocking-study.html

      1. Shivang says:

        actually i already read that article and so i wanted to write similar artcile on real estate like is it worth buyin real estate.

        P.S Is it worth buying gold was the best article i read on this forum and got great learning from it

  71. Reni George says:

    hey manish that was a good one of your analysis

    right now everyone is talking the same
    i went to look out for a duplex in vadodara, they told me a rate of 42 lacs which i found it on the higher side by 30% considering the area, the appreciation and the quality, and manish you wont believe it , the next week one of my freind went to look at the same duplex and he was quoted 51 lacs

    really irrational
    lot if NRI money chasing some properties in vadodara

    1. Reni

      Hmm.. yea .. 45-50 lacs in vadodara looks on the higher side i guess 🙂 . You know better there. I think NRI’s wont mind getting the real estate with little extra premium also as they earn more money and are more biased towards settling back in the same place they belong to .



    Very well written. We are now in 2010, July, real estate prices have surpassed their 2008 peak, in places like Mumbai. A 2bhk in Mulund costs between 75-80 lacs. Now the question that needs to be asked is: on absolute terms can I foresee a return of 15% in coming years. if so, then in less than 5 yrs apt in Mulund would be fetching close to 2 cr, does it makes sense in absolute sense. If it does not makes sense then why invest.

    Money that used to flow to stock market, post 2008 has been diverted into land and real estate. Funds parked in Dubai and with other foreign banks have moved back into India and moved to real estate. People not sure about stocks but very sure about realty. This is called mass hypnotism…

    1. Anindya

      15% appreciation would mean flats would cost 1.5 crores after 5 yrs , if they cost 75 lacs today . Thats possible . I didnt understand exactly what you are looking for ?


      1. Sunny says:

        He mean to say that there are lot many factors involved in the appreciation of real estate, the main reason being the builders’ cartels.

        On the other hand, in your calculations, you forgot to add the usability value. If I am staying in this house, I am saving on monthly rentals, which keeps appreciating themselves. To derive real value of a house, that needs to be added (80% of prevailing rentals in that are- 20% kept aside for maintenance etc.)

        1. Sunny

          You mean to say that if a flat cost 40 lacs and they are fetching 15k rent per month , the actual worth of flat is much more as they also bring in some cash flow over the years ? But I think that should not be counted as if you want that rental income , you will also incur that some where else ?


  73. Rajesh says:

    Maindh and Subra has put the point well.

    The return from real estate are Not so real as being made out by real estate lobbies. One needs to see % returns on investment along with risk and liquidity.

    I strongly think the good Mutual Funds has generated returns much superior to real estate.

    1. The Prices being mentioned by Sellers, Builders Lobby are always jacked up and not the real one. Unlike in a MF where the NAV declared for purchase is very transperent. SEBI also closely monitors the MF industry. Is there such transparency and control on real estate…

    2. Secondly, the returns I have compared over varying periods of time in various cities of various data points collected, indicate return of real estate a paltry 6 to 15 % over several decades of investment. FYI, the interest rates were as high as 18 % for a long time up to last decade.

    Whereas good Mutual funds have generated returns of over 25 % per ann. over last 16 years, year on year.

    3. Real estate is really not liquid. Take a case of a person who wants to sell a flat for his major health expenses, child education or such urgent need. Can the flat be sold as easily as a Mutual Fund, where you can get money in 2 days. Also, if part of the investment is to be sold, can it be done.

    4. In real estate, even if one were to sell after several decades, or even a century, one would have to pay capital gain Tax of 20 %, whereas in MF, there is No tax after 1 year ! 🙂

    5. The risk of real estate falling like 9 pins has been seen in the US housing bubble. And India too had seen the housing bubble burst from 1996 to 2002, and in 2008 when it was at the same level for 6 and 2 years resp. What was the holding cost for those who invested in real estate 1995.
    The Current so called boom seems to be of the same nature as in 1995 and 2007 and likely burst and in a big way. This can be seen from the fact that, Most of the middle class or even well paid professional can Not afford a buy a house anywhere in Bombay.

    6. One needs to include the EMI, interest costs being paid out over 20 years which can be several times (2 times in just 10 years and 6 times in 20 years) the value of the initial loan amount. So for 20 lakhs, interest cost alone can be 80 lakhs in 20 years.

    7. Taking the example of a 30 lac home (by the way one can not buy a decent house in 30 L with the current pricing in any metro city) .
    Even taking the best return of 15% minus post interest cost (at least 9 %, likely to go up) and tax (20%) , a net return of paltry 5%. 30 lac home would become 2.65 times in 20 years (1.05 to the power of 20) net 79 lakhs. If ther is no loan and EMI at best return 15%, it would be 4. 90 crores.

    While a good 5 star rated MF would be (at 25% return observed) over same 20 yrs, 30 lakhs becomes 86 times to 26. 02 crores.
    This is 5 times (500 % !!) more than real estate. Is real estate return really better with all the illiquidity and risk ? You be the judge…..

    1. amol says:

      logical explanation!

  74. subra says:

    Real estate over 30 years is about 6-8% return – if you reduce the maintenance, taxes, etc. it should be less than National Savings certificate. So real estate is a SAVING asset, not an investment asset.

    Cannot ride the booms and the dooms – you committ at a time, in a SIP you buy on booms and dooms – the best way to calculate returns is using a sip calculator. Use a SIP calculator, include dividends the index will give u a return of 21%. The gap between a 16% and a 21% over 10 or 15 years is HUGE.

    Real estate taste changes – how many families BY CHOICE live in the same locality for 100 years? Not too many unless it is Defence Colony, Malabar Hill,…can name only a few. So gifting is not a great idea.

    Rental returns are more or less same as dividend return. More importantly you have partial liquidity.

    If properties were such a great investment the financial services industry would have bought it and given it to you for RENT. Not made you buy it. Hdfc has earned money by LENDING, not OWNING. A 30 lac home becoming 20 crore in 35 years is about 12.4% assuming you pay about Rs. 1500 a month for maintenance and taxes. If you assume painting, and repairs once in 5-6 years, the returns will be less than PPF.

    Manish it is important that a big part of the population believes in real estate – it keeps rents low 🙂

    1. Subra

      Thanks for the clarification . I didnt understood well your line ” it is important that a big part of the population believes in real estate – it keeps rents low :)” , What is meant by beleiving in real estate here ?


    2. jitesh says:

      I think Subra has given a valid full stop to this article. Very much true.

    3. Rajan says:

      Not only financial services industry, all the builders are making Flats and selling them. They are NOT interested in giving them on rent, why ?. Because they knew that it takes too much time to make a flat via. loan and give that on rent and make it economical. Subra, I fully agree with your point.

  75. Rahul Kashyap says:


    1st of all, im a great fan of yours, so its puzzling that here i differ from you !

    1. Real Estate returns ( as indicated by the data and general observation) are quite good, around 15-16% on an average. This compares well with equity where one has to invest for long term to get such returns

    2. Real Estate forces a person to save. If one takes a 40 lac loan, he immedaitely puts his expenses in order and starts repaying earnestly which he would not have done if that loan was not there. So, in a way, such loans actually stretches a person’s savings habit and puts him on the saving habit.

    3. Provides security. If nothing else, he would have a house to gift his children !
    If someone has 4 houses, so better ! His children do not have any need to save for a house.

    4. Rental returns are better than dividend returns. I think rental in a good location of a metro can easily give 5-6%, compared to 1-2% dividends return ( on an average).

    5. Considering India’s urbanisation and popluation growth, I think real estate would continue to give returns around 15% easily with little/no risk for the next 20-30 years easily plus rental returns, making the total around 20%. Imagine, a 30 lac home becoming 19-20 crore by the time when one retires ! Perfect retirement plan plus all the rentals !

  76. Deepak says:

    great Manish!

    I guarantee, one day this housing bubble in india is going to blast. There needs a big correction required in real estate industry in india. God bless all buyers buying so called *Cheap* homes for investment. LOL

    there is one good article(instead comments from reader). I would like to post the link here.

    One of the comment posted by “Anonymous” at time 4:03 AM is worth reading


  77. Srinivas says:

    Thanks a lot for your prompt and valueable reply.

    But according to the article, As I understood, I am not supposed to go for second flat. Still your above reply suggets me to go for the flat and give it on rent. To add for further suggetions, currently I could able to save 2 lacs to 2.5 lacs per annum after all my exp, and saving instruments like insurance, MFs etc. What is your best suggestion(s) to me to earn good financial future.

    Thanks in advance again.

  78. Srinivas says:

    Hi Manish,

    GREAT article and I read this at right time. I was searching google about home loan and its impact on new tax code 2011. Then I found out this article.

    I own a 2 BHK flat purchased in the year 2003, and living in that at Chennai. Now its loan is getting over and I have some cash in hand. Thought of getting one more flat at chennai because of below listed reasons.

    – We are interested to go for 3 BHK as we have 2 kids now.
    – To save some income tax as current loan is getting over.
    – Can have another asset in my portfolio.

    But after reading your article I think I may turn back and think twice to invest on second house. Can you please give your insight about purchasing second flat.

    If not purchasing second flat, what are best suggestions to invest the money I have. I am poor in stock market, but investing in some of the MFs and ULIP schems. Currently my age is 40 and please give your opinion on my portfolio.

    Thanks in advance.

    1. Srinivas

      THe best thing would be to go for the flat and give it on rent , and continue in the same house for some more years . Once the loan gets completed or gets less , you can then move to the bigger house . Just make sure that the “need of bigger house” is not self created out of Money availibility . Nothing personal but I really find it wonderful how people keep going on from 1 bhk -> 2 bhk -> 3bhk -> Villa .

      Imagine If you were living in a 1 bhk today and had 1/3rd salary of what you are getting today , what would be your next move ? 2 bhk or 3bhk ? I am sure 2bhk would have satisfied your needs .

      My sentence will not hold if you have your parents also with you along with 2 kids , spouse . then it can be a different issue .


  79. Real Estates in delhi says:

    Really it is mind blowing growrth.
    It will be better to invest your money in Real Estates.
    Best wishes

    1. Not sure what do you mean by that ? Do you mean people should invest now ?


  80. Anand kumar says:

    Excellent, it eye opening article..
    Thanx for this wonderful information…………

    1. Anand

      Thanks for your comment 🙂


  81. Amol S says:


    Article is really logical and makes lot of sense to readers. My experience with real estate. To be honest I do earn very good salary per year but I myself can’t dare to buy a flat which cost be serious amount( in lacks). I already own a home but it’s social pressure from friends/relatives who suggest hard me to buy a flat but believe me I still can’t do daring on that. I really surprise how people can afford buying a flat/plot these days…the real estate prices have no discipline approach in terms of their prices rising each month/year. At the same time I feel bad that needy people can’t afford it as they could just very few years back. I always heard many middle class people saying that “home price have touch the sky only because of software people, its because they earn high and can afford it.” I personally agree with them and at the same time feel bad for that.

    What I like is the sane advice by you : Buy only what you can afford. (i.e. we should not compare to others and buy 3BHK flat or duplex bungalow just because our friend has bought it.)

    Very informative and eye washing article
    great, thanks


  82. Niket says:

    Dear Manish,
    Very good article. People considers real estate as low risk investment because they do not understand the risk. Also there is another risk of “opportunity lost” in other alternatives.
    I would like to share my story here. Two years back I went to search a flat at Pune with 15Lakh in my pocket for the down payment. I liked one but I felt the price of 55Lakh was too much for the flat. I could sense that the builders are making huge profits. I gave up my idea of buying. I borrowed another 10L and invested 25L in one REIT. After 2 years the fund value was 54 Lakh. The flat was still available (another wing in the same premise) at sub 50L price.
    I borrowed only 10L by not buying the flat, other wise I would have borrowed 40L (55-15=40). That left me with some surplus money every month and I could commit another 25L in another PE fund. Now I plan to retire after 6 years at the age of 42. If I invest the fund value (as per promised 25 IRR) after 6 years in some tax saving div fund, assuming 12% div., My monthly income will be double my present salary. I do considered time value of money.
    I am so glad that I did not buy the flat!!!

    1. Niket

      Great to hear that 🙂 .. So REIT are available now ? i thought they are not present yet . Let me know at manish[at]jagoinvestor[dot]com


      1. Niket says:

        Jago Manish 🙂 I have sent mail for you. You look like my friend Ashish goyal, are you Ashu? And using dummy name for the bolg?

      2. Manish says:

        nice out-of-the-box thinking and its important to have that conviction in your strategy. I also did not know REITs are available in India now.
        Can you please email details to me too at mjain[ymail]dot[com] ?
        Though at this stage of frothy market in Indian real estate, I would not really jump into an REIT now! I would rather invest in a US REIT now as they had bottomed long back and now are already on upswing.

        We are name sake! I have lately been hovering around your blog(referred by Deepak). Will post a comment for you in near future. Really appreciable work.


  83. Akash says:

    Its really a great article. First time i have saw a comparison of real estate. Carry On Mr. Manish.

    1. Akash

      Thanks for comment , did you see any article on real estate comparision first time on any site or just this blog ?
      What do you think about this comparision ? what are your views ?


  84. Sanjay Kumar says:

    Excellent analysis! Since last two months I have been planning to invest in real estate in India. Your article gave me another view point. I went thru this page completely today and also most of the related links/sites given in the page. I hope you won’t mind if I send some queries on your email id.

    1. Sanjay

      Thanks , please send me the questiosn . i will get back to them soon . make sure its a general advice and not equivalent of asking to do your “financial planning” 🙂


  85. Rushabh says:

    I think one thing to keep in mind while buying real estate is to be honest with yourself and have a clear mind about what are you doing. If you are buying for yourself and the prices are within your range then you should buy it and not think about some other property that might increase in value but you might not be able to stay there as it is too far. Also lot of people buy a property purely for investment but they tell themselves that we may someday live there or we may need it in the future someday but they have no intention or there is no possibility to actually live there. They are purely buying as an investment. So in such cases it is very important to be honest with yourself and be clear why you are buying it. Also as you said we should look at percentage return not absolute return and also think about risks of putting a huge amount in just one asset.

    PS. I love your blog. your article about PE ratio and finding the overbought and oversold areas have been very helpful. Thank you very much. Keep at it.

    1. Rushabh

      Thanks for your views on real estate buy. Yes each one of us have to be clear with what we want , if we know what we are doing and are comfortable with it . then its a right decision (mostly) .


  86. Panks says:

    May I ask where did you get the data prior to 2007 ? NHB site only has the data of 2007 onwards.


    1. Panks

      I mailed NHB for getting the data . they emailed me the prior data .


      1. raj says:

        Good article with indepth analysis. many of us do get carried away, but sometimes these are also emotional issues. The other reason of course is the black money angle. If I sell somewhere and do not get 100 % white then how to invest? that is the elephant in the room that will never go away. hope it does.

        NHB does not have for many states including odisha, hope they start collecting soon as there is a lot of activity going on in these smaller towns and cities and I am speaking from my own experience

        Thanks for the article. it does help to strike a balance


        1. Raj

          Thanks for your views on this ..

  87. Panks says:

    I was wondering how is the RESIDEX calculated, although RE prices are down but this much in bangalore, I am not sure. I do not see that the prices of Bangalore RE have come down to 58 % of 2007 prices. Is this calculated from Apt. price, Land price, Independent house price ?

    By the way I discovered your blog this weekend, and what a great job you have done. Awesome depth and breadth of information. Keep it up !!!


    1. Panks

      I am not sure how its calculated ,you should talk to the company which calculates it . Thanks for your appreciation . Keep coming 🙂


  88. Mo says:

    Hi Manish,

    I am quite impressed by your article on Real estate. What I liked was the fact that you describe risk trade offs quite well, and clearly explain how leverage would be risky.

    I am an NRI, and am looking for avenues to invest in India. Can we talk some time to discuss options which would make sense for me. What is your IM id ?


    1. manish says:


      Thanks for the comment . My email is manish@jagoinvestor.com

  89. Naresh Narker says:

    I purchased 2000 shares of L&T in Mar 2008 for Rs 521/ today its Rs 1600/

    1. manish says:


      Great .. do you know what is the return you got , check IRR .


  90. Shyam says:

    The general problem with equities is, the price corrections are too sharp and the speculation happens daily, where as in reality, this is not the case,if a piece of land is bought, it can be seen and you have the sense of ownership and we feel that we have control over it. But this can not be said about equities. I saw many listed companies going burst and out of market, we don’t know what happens to the investors!
    In case of reality, even if prices are corrected, at least you know that something is still existing.

    1. Shyam

      what you said is corrrect for real estate is correct. . however what about

      1. Why cant one feel ownership with equityies , just because they are in demat form ? I think thats more of psychological , dont you think ?
      2. Equities have provided more return over long term than real estate so from return poiint there is no issues .
      3. regarding your comment of “you have seen many companies going bust” , yes , thats the problem , but then thats the reason we diversify our investment s in different companies and asset classes 🙂

      Thoughts ?


      1. Shyam says:

        Yes, it is more of psychological, like we feel better when we go to supermarket and buy things, than say buy from a internet site..
        And another thing is that, it is difficult for average investor to research on equities than say in real-estate. Mostly people will invest in the localities/areas which they know..
        I agree that we need to diversify our investments.. but I still feel that the markets are not kind to average investors.. everybody gives the examples of infosys and reliance, but how many such equities are there in the market, which gave good returns over long period of time..
        for an average investor, I feel gold, real-estate, PPF/NSC and may be balanced funds are much better investments than direct equities and equity funds..
        what do you say??

        1. raju says:

          Dear Shyam,

          Fully agree with your analysis. However, will like to add the following for the majority of investors, Not Traders
          1. Investments in Equities like ELSS, MFs and direct equities must be done BUT Never in ULIPs and Thematic Funds.
          2. Whatever the experts on TV say or books recommend never ever invest more than 20-25% of your total allocation to Equities and linked asset class. Though they do recommend that 100 minus your age is ideal percentage for equities, BUT BEWARE, it’s their profession that need to grow on YOUR RISK AND MONEY
          3. Always go for a reputed and reliable brokerage house never ever with your next-door neighbored broker or a low profile brokerage house.

          1. Shyam says:

            if we want to invest for long period, say 15-20 years, I think it is better and less riskier to invest in sensex/nifty index funds, than in any other MFs and equities…

            1. Shyam

              hmm.. Index Funds will definately be safer , but for that long period , it would be a wise choice to invest in pure equity funds , ETF’s and Index funds will still make their place in portfolio but for lesser part , for people in their 40’s it would make sense to have more of index funds then pure equity funds .


  91. raju says:

    Dear Manish,
    Nice and simple calculations in the article, however, sorry to add not practical and far away from real life price movement in Realty Sector. Consider the following:-

    1. The property prices are Arbitrarily Inflated but have you ever been able to find/get under priced property?
    2. Look for the price difference in all the major cities over the last 10/20/30 years and you know what I mean.
    3. Like equity, real estate investments are for long term too.
    4. The example of Infosys story is just a solitary amongst 7000 tradable shares however; there have been hundreds of infosys like examples in realty sector.

    1. manish says:


      The gist of the article was not to discourage the reality investment . I am in favour . I only stressed on two points .

      1. Dont get yourself in a over pressured situation . Buy what you can afford.
      2. Rerturns from real estate are hyped . Average returns are just great and in range of 12-20% in long run depending on the market . We can get similar returns from equity too.


  92. nilesh sharma says:

    hi Manish,

    whats your main business like are you advising cliens on financial planning if yes whats the procedure and how much would you charge

    1. manish says:


      I mailed you personally .


  93. kamlesh says:

    hi thnx for ur advice.
    i must tell u this is the only house we have.
    actually i m confused coz this house is situated in prime location and my family is reluctant to move. they say we will never b able again to buy house at such location…
    as a middle class i dont feel the need to stay in such a pricey house…..
    but they dont understand mkt dynamics… they r from those generation where u buy a property and hold on to it forever…
    whts ur view on realty estate in near term?
    can it crash like 30-50% in 2 yr… if economy really goes bad…

    1. manish says:


      If economy goes bad then definately Real estate prices will tumble by 30-40% . Real estate in india is anyways over valued .

      How ever if you are staying in that house and comfortable with it . then then better not leave that place, stop calculating your profit and loss incase market goes up and down . Regarding second house i would say take a home loan and invest , this is because you want to specualate on prices which is again dangerous .


  94. kamlesh says:

    hi i own a flat in vashi which is worth 60 lakh outright. i have no loan on it now i bought it for 18 lakh in 2003 .
    i hear all this realty crash coming in usa and world economy going in turmoil….
    i follow peter schiff and gerald celente on you tube…
    if US goes down it have bad effect on our economy as well so
    i was thinking may i sell this flat buy other flat say in panvel for 26 lakh ( same 921 sqft area)
    and put my 30 lakhs in fd in three different bank on monthly income plan at 7% for two yr .
    invest that monthly intrest in gold via etf .
    wait and watch how things turn out ..
    m i making too much speculation ….
    whts u r view on this ?

    1. Kamlesh

      I think you should go with your plans , but i have different reasons . My main point is diversification . If this home of 60 lacs for residential purpose and you should not do anything and just keep living there . however if its for pure investment purpose , then i would suggest sell the property in Vashi and reinvest in property at panvel and then invest rest of the money somewhere else like GOLD ETF’s , equity funds , FD . The idea is to spread it in different things so that the impact of some thing doing bad does not kill the returns . The risk would come down doing this .

      The main thing you have to look while selling the real estate is the value . Make sure that the amount you are paying for panvel flat is right . It should have potential for rising .


  95. nilesh sharma says:

    sorry one more thing taking home loan gives me two benefits for prinicipal and ineterest pay and the oppurtunity cost of loosing this apart from incurring rental exp

    1. Srinivas says:

      I understand your situation and concern of buying a house. No matter any product gives great returns but having own house is a different experience and piece of mind.
      But make sure it won’t ruin your life by make some intelligent/patience decision because home is a hard asset.
      1. Distinguish your need by want. Ask your self Do I need 2BHK or Do I want 2BHK?
      Many youngsters in big cities are opting single BHK as less cost, short family; even if parents/friends visit…it will be a short visit…
      2. Are you planning to settle in the same city think after 20 years?
      3. If your EMI is for 25 years, How are you sure of income for 25 years. what is your preparation.
      4. Any loan, formula is
      50% is your down payment and 50% loan
      and EMI should not cross 40% of your net take home
      5. They are always people who are bankrupt, who need money urgently ….you can negotiate better deal.
      6. Keep looking for better deals and do home work…quality of work/locality/papers….taking delayed good decision is better than quick bad decision.
      7. No investment is worth if your peace of mind is disturbed.

      1. manish says:


        Very nice points from your side 🙂 . I liked 5th point ? Do you have good experience in Home buying thing . Would you be interested in writing your experience , some points on this topic , we can guest post it on this blog 🙂


        1. Srinivas says:

          I have learned from others mistakes. Many of my friends having taken loan and each are facing different problems. That made me to read and understand more on this.
          Most of the people feel friends are buying home, home prices will increase in future…they feel left out and hurry for the same without doing home work and suffer for rest of their life.

          I would like to share my experience and come up with an article. I will start writing it from today itself. I will take few days to cover all points.. we can guest post it…
          Thank you :).

      2. amol w says:

        Srinivas, those are really valid points and each point holds a importance. In my case, I am living abroad and earning quite satisfactory amount. I already own nice home in pune but because of social pressure( or you can say as comparison with my friends who are buying homes) I was feeling as if I am not doing anything…and was worried that I must act and buy some flat as soon as possible. But after reading this article I strongly thing that I should do enough homework about my need Vs. other available investment option. In other words I was disturbed with the feeling that I want to do proper investment.
        Your last point opened up my eyes. “7. No investment is worth if your peace of mind is disturbed.”

        thanks for that
        god bless u

        Amol W

        1. Amol

          I agree , the 7th point is the essence of everything . We do financial planning for peace of mind and not for getting 2-3% higher return than anyone . Financial planning is not a way of going ahead compared to some one else . its an exercise to find out everything about yourself . its you vs you .


    2. manish says:


      wait for the analysis , I will do it in coming days .

      1. Srinivas says:

        I found one such analysis here…
        Take a look

        1. manish says:

          Nice analysis ..

          I will also come up with something in some weeks


  96. nilesh sharma says:


    going by what you mentioned should we mean that one should not buy a flat by taking loan but then what should we do am working in an mnc earning around 8 lacs p.a. can you pls suggest me what should me my appraoch as dont take loan but what abt hike in property price and later on it would be difficult for me to buy that pls help

    1. Nilesh

      Note that I have never mentioned that “You should not Buy Real estate” . The only point the article tries to make is

      1. Real Estate returns in long term is good , but not as great as they may seem to be
      2. Dont take loan more than what you can comfortably afford

      You can definately buy a flat if you can afford it . Make sure the EMI outgo is not more than 40% of your take home salary . Apart from that make sure that you buy your first home for purely living purpose . Dont look for 3-4 BHK which you can not afford . Better settle for 2 bhk , whose EMI you can afford even if you have to take a slight salary but tomm .

      What is the cost of Flat these days which you are looking for yourself . Which city ?


      1. nilesh sharma says:

        hi Manish,

        but my worry is that everyone is telling me to buy the flat in pune as prices are rising and later on it would be difficult to afford one so going by the popular choice i am looking for a 3 BHK flat costing around 45 lacs and atleast 30 lacs of loan req for that so is it feasible to wait for another 4-5 years in that case how do i cover my self for the rising real estate prices, am in a dilemma, pls suggest

        1. manish says:

          ok , This is classic case of Buy Vs Rent situation . the first question you have to ask is do you need 3 BHK ? Cant you do with 2 BHK ?

          A person should buy the first house considering affordability . I know the temptation of buying 3 BHK because after 4-5 yrs its prices may double , but if you buy a 30 lacs Rs BHK house to day it will double to just 60 lacs and not upto 90 lacs incase of 3 BHK . Seems like a loss of 30 lacs 🙂

          We should gradually move in our life for everything . Take a smaller flat first which seems enough for you and which puts your cash flows in control . you also have other stuff like regular child education , other amenities in life which you have to meet . Taking a high cost house which will put a lot of pressure on you which is more than what you can/should take is dangerous . it will be mentally painful thinking about “what if .. what if” … things .

          Other thing is Real estate over long term shall not beat Equity . So what ever you put as EMI in Real estate, you can always invest the same money montly in some good balanced fund or Debt oriented Mutual funds if its 5-6 yrs and some good Equity diversified funds if its more than 10 yrs. The money will grow at better rate or atleast same rate .

          So the main point is, the first home you buy should be for pure residential purpose and not as in investment per se . Later in life upgrade to a higher cost one . Need first , luxuries later .

          Its tough seeing other friends and mates buying costlier things than you and then profiting from it more than you , and it may seem like you are not the bad side . But you will atleast not be broke with thing turn ugly.

          Just like everything in life , taking logical decisions is painful, so is in your case 🙂

          Did I do just bakwaas or was it helpful ? I am not sure if I even answered you .


          1. nilesh sharma says:

            hi thanks for the details its very useful but my query still remains unanswered, even if i decide to take 2bhk question is shud i wait for 3-4 yrs and then buy it with lesser loan or take loan now and pay emis. you said that you can invest the proceedings in MF etc but i dont hv 30 lacs to invest thats why needing loan and i can accumuate 10 lacs by redeeming investments and gold. so in this case do you advice keep residing in a rented flat at 9000 p.m. and whatever savings i generate invest in MF etc and then accumulate some wealth ver 3-4 yrs then buy a flat but then what abt the price of that time how can i cover for that or do you mean that investing in MF etc will provide me the same return as real estate so as to offset this can you pls show some light with examples as this is the case with almost all the indian employees, i dont whether i have been able to explain you properly or confused you pls suggest

            thanks for putting up so much time

            1. manish says:


              I have to come up with the comparision on Buy vs Rent . Will happen soon . Regarding your query in particular we cant/should not time the market in real estate . Obviously prices will rise in future too .. but then you have your savings in hand and that will also grow with the coming time if you invest it wisely


  97. rishabh parakh says:

    Hi Manish,

    i just happened to visit this site while reading articles on the money quest and please take my sincere appriciation for writing such a useful and all those things which people do not think of or rather do not want to think, as it goes nobody wants to apply Common Sense the rare commodity, am a charetered accuntant based in pune and dealing with major IT cos and their employees and have been advising them on similar lines what you have started here i,e. its great and all the very best will surely like to call you sometime and meet also

    rishabh parakh
    moeny plant consulting

    1. rishabh

      Thanks for the appreciation . Yes I agree with you that the biggest issue is that people do not want to try to think at all . Its not that complicated as people think 🙂

      I will mail you my number.


    2. Thanks Rishabh

      I will contact you on your cell 🙂


  98. rishabh parakh says:

    Hi Manish,

    i just happened to visit this site while reading articles on the money quest and please take my sincere appricitaion for writing such a useful and all those things which people do not think of or rather do not want to think, as it goes nobody wants to apply Common Sense the rare commodity, am a charetered accuntant based in pune and dealing with major IT cos and their employees and have been advising them on similar lines what you have started here i,e. its great and all the very best will surely like to call you sometime and meet also

    rishabh parakh
    moeny plant consulting

  99. Ram says:

    Interesting article by Manish. I would like to relate little amount of life philosophy in to this discussion. The basic living of all human beings in this earth revolves on three primary needs 1. Food, 2. Dress 3. Shelter. Rest may be varying between needs & wish list. All the earnings made are either spent (for the needs & wishes) or saved. In simple words, if X is the income and Y is the spending and the balance Z is the savings or deficit. Now, the trend is emerging in a different dimension to the savings in the form of investment and the investment has taken a diversion by creating a dept, leverage whatever way it may be called.
    As long as the investments are made out of the savings of the real income and not based on future income or by creating dept or any other form of speculation, then real estate will be the safe and secured form of investment and will yield highest return logically as it is a spending converted into a saving and as an investment too. Any other speculative investment on real-estate will be unsecured to the highest order and will yield the least return as it is really a spending.
    Philosophically, no other investment can beat a need based real estate investment (spending)



    1. Good one .. thats was a nice point and discussion .

      As far as people understand the fine line between their need and wants , what he does is fine .


  100. Ravindra says:

    I dont know about RESIDEX or any other mathmatics. But If i can afford a house for residential purpose today it is best.. The EMI you pay is equivalent to your HRA (for government employee.). and after 5 years your salary will be as good that you dont care about the EMI you are paying this looks like free. This I can say after watching more than 100 people take home loan from my office around 2003-2004 now the prices of the same house is triple. I dont calculate what CAGR it has given but roughly 6 years back if i managed to buy a house with Rs. 8000 EMI now I have to pay Rs. 24000 EMI..which is not possible to afford..
    I dont understand who is buying these houses far away from the city wit a price of 50-60 lakhs.. Even if u add your transport (petrol for the car) it comes to be a good amount.

    I am seriously thinking to buy a residential house but…. the prices are too high and location is 15km from my office… I dont know what to do in such situation.

    1. manish says:


      We have not at all said here that its not a good idea to buy real estate . We are just talking about the returns . Any time is best to buy a flat if you are considering to buy it for living purpose .


  101. Raman says:

    Hi Manish,

    Your articles are superb. Personally, I have invested in land (with some of the money that I had earned). I am also of the opinion that the house market will burst in the next three or four years and I could possibly buy at that time, when I have a good amount that can be paid as down payment. Moreover, with such a poor infrastructure (not even roads are available), I wonder why the prices are so high for a house in an apartment when you don’t get to own neither up nor below the apartment.

    1. manish says:

      Raman , Let me post the new article on clarification . I have to agree that customer service is really bad .. but dont feel bad at your money going .. they will get back soon . I have talked to the company representatives and they are sorry for this . the huge response and traffic has just messed up their system and they are working on it .. I would suggest that you expect some delay from them in reply and over all process .. but dont get a feeling that you are cheated or your money is wasted ..

      Wait 🙂


  102. manikk says:

    im very much impressed abt this article..keep going manish………:)

    1. manish says:


      Thanks for your appreciation 🙂


  103. Chirag says:

    A brilliant master piece article by you Manish 🙂

  104. anon says:

    Good article, you’ve given the investor some points to think about before investing in real estate. But I think some points go in favor of real estate too
    You can always rent your house, so investing in a house becomes equivalent to investing a good growing company which gives dividend too.
    The trend in India has been that property rates almost always grow over time which makes it a safer bet.
    Also the appreciation in property varies from place to place and at many places you can have very good returns on your house.
    It’s safer to invest black money in a house than in stocks.
    The negative points
    Buying a house is more cumbersome.
    Maintenance is high as compared to stocks.
    It’s not a liquid investment, one may have to sell it in loss if he/she needs money urgently.
    Overall I think stocks are better over house for investment if you use some common sense while buying stocks.
    In fact at this moment I think a housing bubble is building, builders are building more houses than the demand, we may see the burst in may be 3-4 and definitely in 5yrs. But whether the prices will then become less than today I don’t know, may be you can say something on this.
    Overall if one want to buy a house for investment I would say buy it at the outskirts of your city, there you’ll find cheep houses and overtime as the city will grow the price of your house will appreciate more than those in the main city.

    P.S. I am not an expert in either real estate or stocks, these are just my views which may be completely wrong.

    1. manish says:


      You have good points ..

      As you pointed out the process of buying House and overall work you have to do is tedious , So if one if ok with that they can look at buying Real estate . But I would personally prefer mutual funds (not stocks) and other simple instruments like ETF’s or Gold Etf to grow my money . Real estate for personal purpose of living will be used by me , not as investment .

  105. Manish says:

    I am glad you found the article good 🙂

    your points are valid .. however after new tax code comes into picture , the tax benefit will go away ..


  106. Subhash Nathuramka says:

    The article can be rated as good considering that it has been written by a person who is not a finance professional. Purchase of real estate is a hard core finance decision which has so many non financial angles. I would suggest the following aspects to be included-

    (a) Angle of personal tax planning- sec. 80C benefit, long term capital gains benefit, interest on home loan deduction etc.;
    (b) All proprties are not the same like gold or FD. Certain properties can fetch higher returns. In some one can lose money also;
    (c) Property is relatively illiquid asset as compared to gold, FD or share. It has more maintenance cost also. However it has more prestige value. It provides credibility to an individual particularly who is in business or profession.

  107. Mayank says:

    Hi Manish,
    Excellent post! Though i have some questions..

    I agree to a certain extent, house ownership is a big ticket gamble – if gone right has large payoffs. however with Indian growth story intact, cases of loan default are few and far between.

    And as everyone expects the BRIC nations to lead the world out of recession, i dont think the US kind default panic situation is here in the foreseable future.

    Given this backdrop, i fail to see why we would have a property market crash, infact have been waiting for it since 2006.. Agreed prices in certain pockets would have dropped more however on a whole as your data shows prices have dropped less than 5%. Hardly a crash i would presume. Plus as they say in stock market, things should consolidate before they rise again… Looks to me like a consolidation phase on Indian Reality.

    On a side note I would really like to know Financial planning for retirement – target 40 years.
    Kindly suggest what investment can provide continuous income plus appreciation to cope with inflation. High yield stocks / commercial real estate…


    1. manish says:


      I appreciate your views but I personally think you are getting little over optimistic . India was a growth story since 1992 , then still in 17 yrs of time frame we have got not more than 11-12% return in real estate .

      You might have heard the good part of the story only, but real estate sector internally is not that strong as it might look : see , http://www.shyamscolumn.com/2009/12/q-real-estate-investment-woes.html

      Supplies are way too much compared to demand .. I am mainly talking about out side city limits and not exactly inside 🙂 .

      For retirement .. you should mainly look at Mutual funds for iniital some years and then start using PPF too ..

  108. Harsh says:

    Excellent post………..well backed by data though data might not be accurate but give you the direction…..my feeling was same…….however never did the analysis…..but belived free market gives you the early indication of where the things are moving…….with real estate companies stocks fell so hard in 2008-09 crash one could have gussed where real estate market is going…..also real estate as such is a sticky market and not as liquid as stock market hence will take time to bottom…….my belief is in India we may have bottom of real estate market somewhere in 2011-12…….i live in mumbai so somewhat disappointed with the above data……..only mumbai real estate has not shown signs of coming down…..Hhhhhmmmmm

    1. manish says:

      Thanks Harsh

      I feel Real estate Bubble will burst around same time as you think , but will catch up soon .. So it would be deep and fast 🙂 . my opinion (which does not matter)


  109. manish says:

    Yes Arun

    Thanks for your appreciation .. its helping me to get motivated and write more .. so keep commenting


  110. Arun says:

    Good one !

    Real Estate is a over-hyped investment. And this should break the myth 🙂

  111. abhishek says:

    really a nice article . i agree with u that the demand in the real estate sector is created out of leverage which will have a consequential impact in near future.
    awesome article dude waiting for the next one

    1. manish says:

      Next one will come soon .. What do you want to read on .


  112. Mahesh says:

    Just a thought.

    How much Tax Benefits on Home Loan bring down the EMI ( indirectly ) on 20Lakh, 25Lakh, 30Lakh home loan. I am sure it is based on the slab/Interest that you pay… Does Equity stills scores over ?.

    How about buying a Home in a good locality now, even if we end up paying 30K as an EMI, the value of 30K tend to decrease over 5,10,15 years down the line due to inflation? and who knows if we ever get a chance to buy a home in that locality ( think of HSR, Jayanagar in Bengalore )later due to non availability of sellers…

    Why people think, instead of paying rent, buy home now which might help to reduce the EMI/Years from loan over long term?

    I did not run by numbers… just a thought..


    1. manish says:


      nice points . So buying on loan will obviously save tax , save rent , but then you are exposed to big debt now , If you can afford it , great .. if not .. then its a bad scene ..

      Buying house has its share of bad points .. Maintenance , big EMI , you cant move here and there much like you do in rented (loss of freedom) .

      EMI will be constant over the years (more or so) .. But then its too long tenure too


  113. NKanani says:

    Hi Manish,

    Great article. (similar timing as of Shyam’s column – Real estate investment woes!) Personally, i feel more freedom in rented apartment – you are free to move out and go to a new place any time 🙂 – you can increase or decrease your rent payments. i had been paying 8200/- per month, and shifted to a larger house (about 1.5 times as big) for 8500/- ! Now, this is similar to having a ‘prepaid’ mobile account – you can change your plans as opposed to postpaid ones!!

    Buying a house is good, but with home loan, it is something less convenient. After coming across your blog, i am most of the times evaluating mutual funds and started investing! Thanks for your articles.

    1. manish says:


      I have the same views like yours .. I better invest my money is something i am more comfortable and live in rented apartment and buy my own when I have enough money .

      Goodluck ..


  114. Amit Goyal says:

    Hi Manish,

    Really nice article. Can you also do a cost to cost comparison of buying your house on EMI and living in rent vs continuing to live on rent only and investing the amount (EMI-rent paid) in equity for say 20-25 years time period. I’ am sure it’ll be very beneficial for all.

    1. manish says:


      Its on the way 🙂 .. patience 🙂


    2. I’d done one long ago – it’s valid for the calculations even today – at:

      I considered an optimistic scenario: Renting a 45 lakh worth apartment for 25K per month – that is the same as comparison of staying in a house on rent at 25K versus buying a 45Lakh house. Today, a house worth 45lakhs will not rent for more than 15K, unfortunately.

      Cash flow wise buying not very viable (rents at current yields of 2-3% are too low for it to make any sense) If you rent, you make substantially better returns – the cash flow situation on the above is nearly 53 lakhs better in 20 years!

      I’ve considered things like tax savings for renters, for principal repayment, for different downpayments etc (the excel sheet is free to download)
      .-= Deepak Shenoy´s last blog ..Taxes: Still Not Reflecting An Upturn =-.

      1. manish says:

        Wow .. That was some great analysis .. I plan to do some analysis myself on rent vs buy , let me prepare it with some of my ideas 🙂 .

        Thanks for stopping by here and give your expert comments 🙂


      2. Rajan says:

        Dear Deepak,
        I tried your excel sheet. Its reaglly great !

        The just observe an issue with in the calculation of the Investment Analysis. In the First page [Summary->B 11], Bank Rate of deposit is NOT used in the calculation. Any change in that Bank Rate of deposit value is NOT reflected any where in the results. Kindly do the needful to fix this BUG.

        1. Deepak Shenoy says:

          Thanks – It was for a diff purpose, and I’ve fixed and uploaded that now

    3. Rajan says:

      I have seen a good calculator to decide whether to buy or Rent. Here is the link.

      1. Nice link


  115. Vivek Rastogi says:

    It was a good article Manish. I understand and was planned for buying a flat with my all deposit into down payment and the emi will be equal to my rent what i am paying. But I thought that if in future there is no job security then how it works. Now I dropped my plan and will plan buy a flat after 2 years. When I will have enough money for down payment.

    Please let me know whether my decision is correct.

    1. manish says:


      Looks good .. the reason you have dropped your decision is good . So you have to evaluate your Job scenario .. If its 95-100% safe and you are in good position at your company , May be you would like to reconsider the plan of buying , At the end its all about Cushion at the back.


  116. very informative article, well supported with statistics!
    in fact the statistics were eye-opener..

    do read the article ‘reality of realty’ which we have linked on our blog, originally published on valueresearchonline
    .-= indovesting authors´s last blog ..how emerging markets will grow in 2010 =-.

    1. manish says:

      Thanks 🙂

      Nice Article 🙂

  117. very informative article, well supported with statistics!
    in face the statistics were eye-opener..

    do read the article ‘reality of realty’ which we have linked on our blog, originally published on valueresearchonline

  118. “I dont know how that is calculated but a common sense way of calculating it is to take a sample 0f real estate plots/flats in a area (for example 1000 units) and calculating the appreciation in value from last 6 months .”

    The site that you linked to says the following:
    Actual transactions prices considered for the study in order to arrive at an Index which will reflect the market trends.

    1. manish says:


      So it means that I was correct . Right 🙂 , even if they were not .. I guess the sampling mathod should be a better one .


  119. vivek chowdhry says:

    Nice article manish.
    Everytime i read ur articles in this blog it give me knowledge.
    Thanx for this eye opener again.

    1. manish says:

      Thanks Vivek 🙂


  120. TIP Guy says:

    Hello Manish,

    At an outset, it’s a great article, and I can understand the work that went behind it. You hit the nail on its head by quantifying the rate of returns (which is very similar to equities). I am assuming that the “real rate of return” would be less after adding maintenance, taxes, interest on capital, etc.

    One thing that I would like you to think about (and perhaps add another post) is the objective of buying a house or an apartment.

    In my view, this is where most of us middle class gets trapped into. I cannot understand, why people think buying a house for their own living is an investment. I just do not get this. House is place to live, enjoy with your family, give them a shelter etc. That’s what we work hard for, eat, live, enjoy, and have comfortable life. You cannot measure everything in terms of money or investment.

    In my view, housing should be considered as an expense. The benefit of buying it on loan (vs. renting) is someday you will own it. And that someday you will have more out of your salary for other things. By buying a house, all you are doing is keeping your money with yourself in future (instead of giving to others in rent). People tend to forget that 10 years down the road, if they sell and make 50% extra, it has no meaning. It is because to find a similar place to live, most likely, they will have to pay the whole 150% (i.e. 100%original+50%extra). Where is the profit?

    The moment folks realize it is an expense; it is more likely that they will restrict their EMI to 35%. Otherwise, they get trapped it is an investment and are happy to pay to more for this easy money. This easy money and concept of credit is great, only if one knows how to use it. This easy money is not free, we as consumers pay a lot in hidden interest and fees.

    So the house where you live, is not an investment. In my view, all it is, is preserving your capital (and not giving it to somebody as rent).

    We should be careful in understanding the US real estate as an example. We don’t realize, it is a subprime real estate burst (not a bust of US real estate). Because there was cheap money, people who did not need a house, bought it, hoping to flip. People who earn 50K bought houses for 500K. Again, as Manish pointed out leveraging beyond their means. And those are ones that got burnt. More than three fourth of the population happily lives in houses and apartments. Nobody is on road. We tend to dramatize the impact. It was an artificial demand fuel by cheap money, which is now correcting itself. And this is the third time in last 100 years or so US real estate is getting burnt. So message from US real estate is only that “don’t leverage your self”.

    Manish, what would be your view on what should be the max EMI as a percentage of earnings?

    Best Wishes,

    1. manish says:

      Yup . I agree that house is not a pure investment if its considered for Living purpose .. somewhere its price will appreciate and you have your big money locked into house which you can use if things get worse .

      As you correctly pointed out that “US subprime cricis” teaches us that we should not over leverage ourself beyond our risk apetite .Nice points from you here .. I Will definately come up with more things in next set of Real estate articles 🙂

      Regarding % of salary as EMI . I am not sure about exact percentage and also i am not sure if its right way of seeing it .. The only thing one has to consider is that it should provide enough cushion to the person .. Even if it increases to the max limit .. the person should be able to manage without psychologically being hurt .. BUt if you ask for 1 number i would say max 45-50% of Take Home .. What do you think ?


      1. Kingshuk says:

        A general thumb rule for affording EMI is < 30% of your take home salary. That way, you can arrive at an amount that you can comfortably take a house with. For example, a person whose take home salary is 1L, he can afford 30K EMI (after his expenses and other investments) and provided he can shell out 20-30% as down payment for a house, he can afford a house in the range of 40-45 lacs.
        If the house is for own use, then the point of returns are moot, but it also may not be bad for a second house as investment.

        — Kingshuk

        1. Kingshuk



  121. tejas says:

    Hi Manish,
    great blog. i agree that RE in big cities like Bangalore etc down with hardly any takers. this is true for even independent houses and sites. i myself know a few desperate sellers with no takers. what surprises me is the scene in small cities and even in remote villages. it has appreciated by a lot here too. you might say its just the quoted price and no takers for it. but thats not true here. transactions also taking place. i have no idea why someone buys these. there are so many people in these places sitting on crores of money. last week i had been to one my friends place and there was a potential buyer for a junk piece of land for about 50 laks. it doesn’t even have roads. i have no idea why he is buying..

    1. manish says:


      Might be they see the potential in that land . Well thats a different thing from what I have talked about here . Land can have different valuation than flats . but still overvaluation is something which may be the case with Land too .. 🙂


  122. Dr Mohammed Ali Khan says:

    Nice article Manish
    The truth is that in India, real estate is rigged in favor of the builders. The rental yield is still one of the lowest in the world. The industry itself is unregulated & opaque,compared to the the equities market which is relatively transparent and regulated by bodies like the SEBI.

    1. manish says:

      yup .. You are right about rental Yield .

      Let me compile more on this and come up with an article .. thanks


  123. Akhil says:

    Hi Manish,

    Nice article. What you said about risks and returns are completely true.

    In India, I feel Land(site or flat) is bought more for emotional reasons rather than financial with “Mera ghar ban gaya. Ab koi tension nahi hai life mein. Settle ho gaya mein” kind of justifications. And it is sold only as a last resort like shifting base to the US or shifting to another city permanently or some major health issue in the family. Even in such cases people make loans to meet their ends without selling their land. It doesnt matter if there is a temporary dip in the land’s value as it is considered a long long term investment and there is no time frame fixed like I want to sell my land by 2012 or 2015.

    Where as in equities, one would consider one’s stock price to keep appreciating each day. And one keeps changing one’s portfolio often. And in India we haven’t felt a major real estate bubble yet (as per my memory) and so investment in land is considered very stable and safe. For now, with the kind of growth we are experiencing, with home loans available, with tax exemptions on home loans, our age, our earning power, success stories of friends, of relatives, I am sure everyone would consider investing 30 lakhs in land(in prime localities, with home loans) more sane that investing say 10 lakhs in equities. And it is best if one can identify a good area, a city which has good future growth to buy a land in.

    I think Real Estate is here to stay atleast till we are hit by a US 2008 kind of a housing bubble. And it is really not justified if one tries to buy land for say 10 times their current salary. They will be very badly hit in such cases. Rather than invest close to 50 lakhs in Central Bangalore, I would prefer to invest 7-8 lks close to the airport if its only for investment purposes.


    1. manish says:

      I agree with you . “Real Estate is here to stay atleast till we are hit by a US 2008 kind of a housing bubble” , nice comment ..

      This is true , Thats the reason I feel that people who will invest today in real estate wont get more returns than 10-11% max . Thats my feeling , which does not matter .

      Emotional reasons for buying is ok , but overdoing it is not ..


  124. Srikanth says:

    hi manish

    great article. opens some hitherto closed eyes on investment topics. i own a website for a layout I intend to stay in, in bangalore. (www.bsk6.in). with due credits to you someday I will put up this article there with the link to this page for people to understand the reality, and not just realty 🙂

    .-= Srikanth´s last blog ..Airtel, once fairTel, now unfairTel – shortly finishedTel =-.

    1. manish says:

      Srikanth .. why not . Just put a excerpt and a link back to this article . no issues .


  125. Swathi says:

    Good article Manish.As Ronak said above, Indians mostly try to start thier family in own house than a rented one ( I am not an exception). Most of the middle -aged employess (25-35) who are newly wed or with new born kids would like to settle in own houses as early as possible. Owning a house is a milestone in India.So the anxiety for own house is understandable. As you rightly said, people have to buy something which they can afford, not what they want.

    1. manish says:

      You are right . I understand the temptation of buying a home as early as possible . but I dont see any problem personally to live in rented home for quite some time like 6-8 yrs and then buying my home . Now we are entering into the topic of Financial Planning . People who might have planned everything in advance are better off here because they have a plan and they know how and when they are going to buy and how can they buy ..

      Without Financial planning we are in middle of no where , doing things randomly here and there .


    2. Rohit says:

      What do you mean by “indians” mostly try to start there family in there own house ?
      I think everybody in this world would want that. You dont want to keep changing homes with your family every 2 years.
      Or unless you want to spend you life in same rented apartment which your landlord doesnt take care about.

      1. Rohit

        I wanted to day that the shift in thought is happening now a days in India from last 8-10 yrs, when “Not owning” your own house seems give a feeling to everyone that they have done some crime or left out in the race , which is not exactly true . I was trying to point out that .


  126. Sankar says:

    Hi Manish,

    Very good article. You discussed only about the return. I see some people writing about the risk involved in equity. I am very sure that there is huge risk involved in buying real estate. When people writing about rent, they should think about the interest paid to bank, maintenance charges(exorbitant without any facility, mostly compulsory and maintained by builders) and one time charges like furnishing the house and its depreciation. Now a days, no body is thinking about infrastructure and the quality of construction. My friend was working with reliance energy. When there was a flood in mumbai,he was part of rescue/rehabilitation team from reliance energy. He visited some apartments in mumani without power. There are worst cases. One person newly married and telling that last one week he was not able to have his first night due to power cut. One 65 years old person residing in 11th floor of the apartment, coming to ground floor for taking one bucket of water for going bathroom. These are all some chilly examples, but still we need to think a lot about this. Because we are buying house to enjoy/improve our life style. As you said, day by day my intention to buy house is getting diminished by the seeing the cases in the market.



    1. manish says:

      Yes Shankar

      Many flats which are not from good builders have issues like under-quality . See the video i have given link in this article . Even good builders who have good names are not delivering on time and what they have promised .


  127. Ronak says:


    There is no doubt that equities are by far the better investments than real estate, gold or any other form of investments.

    As you mentioned the about downside of home buying, there is also a much deeper downside of equities investments. Most of the average people do not have high risk or even a medium risk appetite. They see stock market as a speculative medium.

    I guess the reason common people who prefer to buy a property than investing in stocks is mainly to protect the money they have earned the hard way.Most of the people who are first time home buyers(aged 25-35) have saved the money by working hard for many years and they do not have that risk appetite or the knowledge (read courage) to put the money in stocks (investing in mutual funds is a different issue, as it can be done in SIP manner). Though the real estate also poses a downside risk, it is still less riskier and more reasonable to take the first step in investing than equities. But those who have good enough knowledge to play in equities, they must first get the maths correct and then select the better option.

    And one of the reason for most of the young people to buy a house is to start the family. We Indians by far are more emotionally than financially attached to our house. And We are also not “programmed” to stay in rented place for long. That said, one must only buy soemthing which is affordable to his/her and only if he knows the costs and strings attached with the home buy.


    1. manish says:

      Well said ,.

      Emotional buying is a problem . We go with the Trend . I understand the Joy of buying a house and owning it ,. it gives a sense of Pride and satisfaction and I love it . I am not against it . as far as you know that you are doing the right thing , go with it .

      But the problem is that primary reason for most of the buyers these days are

      – “Lots of tax saving”
      – “Fast value appreciation”
      – “comparision with other mates”

      And all this at the cost of “leverage” and “a lot of burden” . I know people who have their EMI as 85% of their salary , thats HUGE !! ,.. Not at all recommended .


  128. pattu says:

    Great article. Well timed for me because I was considering buying a flat as an investment. Now I will think twice and buy it only when I can really afford it

    1. manish says:

      I am glad it helped you .. So what are your plans now !! ,.


  129. Srinivas says:

    Hi Manish,

    Good analysis. Many people think like “I am left out, every body is making money in real estate”. One of my friend purchased plot and built a house with huge loan of 60L. he never thought about job security and family expenses for the next 30 years. When the news of layoff started, his life was hell. Now he is 35 year old and his last EMI date is two years after of his retirement.

    I would like to say people to understand their needs (not wants), never compare with anybody. Plan things based on your income. Live happily.

    1. manish says:

      Srinivas ,,..

      Nice , This is an example which makes you everyone feel better . In the same example , if prices would have crossed 30% – 50% more … It would have turned out to be an example which makes us feel bad . So we have to understand the general case and have to logically think about everything ..

      Buy what you can afford and not you wish for , I would prefer to live in 1 BHK for some years and then go for 2 or 3BHK after I have some money and I can afford it , rather than buying a 3BHK which I cant afford and constently worrying about “What if’s” in life .


  130. Vinay says:


    Nice article. It gives a clear picture to compare the return with huge investment in real estate with other investment. Seriously, this gives an idea, tat real estate is not only the best investment. But, if I need to wait for affordability to buy a property, I think, I am taking a risk.

    Ex: Couple of my brothers bought a land & constructed a duplex kind of flat 3 years ago. They also asked me to have one flat on it, which comes around 15L. I don t want to invest that much by loan, but now, it has appreciated to 33L. Now, I can afford to 15L not for 33L, even I can’t find any flat in that area for that price, either I have to move very far from city (with little more price) or I have to go for home loan for around 35L.

    Even if I have invested in equity or gold, when I need a home I have to invest most of my investment+profits (provided the risk & loses) unless real estate bubbles out. Also, the monthly rent also increasing too much, which has become almost equal to EMI… Considering these factors, most of people are under pressure, what you say?

    1. manish says:


      again as I said , we are not talking about specific cases here, we are talking collectively . Apart from that you are saying this because in your example you have lost the opportunity . But there are cases where people have invested in a flat at 40 lacs before 2 yrs and the prices are now 35 lacs . these people can also talk about their bad experience .

      Imagine a case when you would had taken a loan that time and suddenly markets were down + interest rates might have increased to some rate where it would make your EMI cross your limits .

      So always there will be some good and bad cases which we cant link to the talk we had on this article .

      Did i answer your query ?


      1. Vinay says:

        But the case of loosing the money in real estate is very rarely heard today… but as you said it may grow in future if huge no people are taking loans more than their affordability. I agree with that point. People should not be taking loans more than their affordability or by calculating their salary hikes of future years. You answered my question & makes a clear point real estate is not the best investment. Thanks Manish.

        1. manish says:


          Loosing the money is not the only loss we should consider .. even if a person makes some profit , still it can be bad .. People compromise their other life events and daily fun running around meeting both the ends meet . Because the burden of EMI is so high .. they dont take holidays much with their families .. cut on expenses which might have increased spend on their kids and other things which increases bonds like going out .. etc .. These are small things , but matters ..

          Monitory profit is not the only thing one should consider ..


          1. Amol S says:

            This is one of the finest reply. I always want to convey the same to my friends too who are under the umbrella of getting wealthy by taking huge loans beyond their capacity and sacrificing on many small things in order to clear of the loan amount.

  131. Jitendra says:

    Dear Manish,
    A very good article indeed.
    In India, most problems stem up from comparing to others. Poorly educated guy, making lacs of Rupees in real estate, gets so much attention that people forget that the other options such as equities are also equally good.
    And the less is said about real estate the better. flat prices touching A crore Rs .. I really wonder sometimes who must be buying these flats and a single flat is worth it ? (Considering that owner neither owns the land nor the sky below or above the flat.
    All this has resulted in dissatisfaction for the medium class people who can not afford / or has to compromise hugely with their lifestyle.
    What I like is the sane advice by you : Buy only what you can afford. (i.e. we should not compare to others and buy 3BHK flat or duplex bungalow just because our friend has bought it.)

    Regards and best wishes,


    1. manish says:


      Nice to have your comments on this topic , Most of the people buy flats thinking they can afford it , but they are wrong , Might be they never face an issue , but still the situation they are in is riskier 🙂 and not recommended 🙂


  132. manav says:

    What you mentioned as second category of people, I call them people who “talk numbers”. They do not understand maths, and neither are interested in talking maths.

    I have a LIC policy (a 11 year old mistake), which my father would not let me surrender (or make paid up). His logic is very simple, the policy gives me 40K every years. And at the end of term I will get X Lacs back. So how can the policy be bad. I have tried convincing him, by showing on excel that returns after 11 years is a measly 6.2%. But he is interested in numbers and not maths.

    On a different note, while doing the calculations for flat one should also consider the rent value in CAGR calculations.
    Personally i feel 15% from a safe investment like flat is a okay return. I would consider equity more riskier investment. The only benefit with equity is you can start small and diversify easily.

    1. manish says:


      I can understand 🙂 . People from different times didnt had things which we have today and they read all type of bad things these days that they want more of safety than returns . They trust old crappy mosquitos which has sucked blood out of us only to make them healthier 🙂 .

      Anyways .. Choosing some other product over equity is a personal choice and thats perfectly fine , Just make sure you diversify and know what you are doing .
      This is your first comment , are you a new reader ? Lets catch up sometime on chat 🙂


  133. Anshuk says:

    Hey. Read this one.. nice analysis.. Really love it when some one clears all the crap with numbers/proofs..

    1. manish says:


      Thanks for the appreciation 🙂 , This is your first comment , are you a regular reader . Ping me sometime to discuss things 🙂 . This to know you 🙂


      1. Taranfx says:

        Bangalore is totally going different fro other metros in those graphs
        .-= Taranfx´s last blog ..HostGator $25 off Discount Coupon =-.

        1. manish says:

          Yup .,. Thats based on data from RESIDEX .


          1. Niket says:

            This fall for banglore is due the unprecedented sharp rise and all nonsense hype about the sillicon valley of India and all, and talk of new international airport etc.

      2. ashwin says:

        Reading all your articles I want to add my comments which are my point of view.
        if you buy flat for your self use it cannot be consider as investment its a liability for maintenance and loan emi. so there is no point in discussing returns on it.so as per me if you can afford you can buy flat in best locality,close to your office and by reputed builder .you can go for loan as per your risk appetite and without thinking about returns continue staying in it for long term.so in longterm it will definitely create your assete after repaying all loan with interest.
        if you r buying second flat then you have to think lot i.e. rental value,loan amount,interest outgo.
        if you r buying newly launched project then consider location,builder reputation and rental value of property. so i will still prefer real estate over equity.
        as per me equity gives return only in long term and if 5 yr we consider as long term its a huge time and we really cant hold shares for those periods as lot changes happens in your life by that period ,inbetween share market crash and u think returns are negative and u exit once market up ,ending making no profit. u really need guts to pass through crash period and if you withdraw inbetween all purpose of equity lost. also people dont even see annual report before buying shares they just invest on roumers or friends tips or some big brands.hoping they will earn more in long term.in mf nothing in your hand ,fund manager decides your faith so its like you r paying him for losses also.anyway if you have knowledge and time to study fundamentals of company then only invest in shares. otherwise somebodys profit is somebodys loss.intellegent always wins.
        considering above i will suggest u can create asset by investing in real estate faster.no bank will give u loan to invest in equity. so your equity portfolio net worth remains small as you are investing your money availlable to you. in case of real estate u r taking money from bank wchich is chepest loan available.so you can leaveraged with your loan and invest surplus money in equity side by side so your portfolio will grow.

        1. manish says:

          Ashwin .. Your views are appreciated

          All we are talking about here is that Returns from Real estate is much hyped and even less than Equity in same time frame . So each person has its own preference of investing or not investing in Real estate .

          So If you have the risk appetite and ideas , you should go ahead and invest . People who do not should wait or look for alternatives 🙂

          Thanks for your insights 🙂


          1. ashok says:

            I bought a flat with outrite money and didn’t take loan. This is not a investment its just my need.Everyone needs atleast One Flat to settle with family so I bought. But please tell me it is good idea or bad idea by not taking loan when you have outrite money.

            1. Ashok

              Dont worry to much on that .. you have made a right decision , but its generally suggested that you do maths and compare the two situation (loan or no loan) . there are tax exeptions which might help you save some tax

              Also its said that a little part of loan if taken can help you in scruitining .. Bank make sure that the property is fine


        2. Subhash Naik says:

          All the discussions are really interesting but the additional 2 aspects black money and taxation when considered in property deals give a interesting twist to the whole mathematics. Property then suddenly doesn’t look all that great unless you have loads of black money piled under your bed.
          I will give a real example with the working below ;
          A friend of mine brought a flat for 20 lacs in 2010 in a Mumbai suburb. The flat is ready to go for 1.3 crores or 130 lacs ( compounded annual return of 11.5 %) but that is when somebody is going to pay in white. Buyers are offering at max. 80 lacs in white ( compounded annual return of 10.4 %) and the balance 50 lacs in black.
          This 80 lacs will be taxed at 20 % for long term gain tax if he keeps the money and post tax amount will be 64 lacs ( compounded annual return of 6.93 %.) The only way to avoid tax is to reinvest in property or else go for specified govt. bonds. Now remains the 50 lacs which has again to be invested in gold and property in black money.

          In a nut shell if the seller wants to keep the money he is left with 64+50 =114 lacs ( compounded annual return post tax is 10.59 % = 6.93 % white + 5.41 % black ). He might have made another 15 lacs in rent (2 to 2.5 % of value invested after expenses) which after considering 20 % tax will boost the returns to 64+50+15 = 129 lacs ( compounded annual return post tax is 13 % = 7.59 % white + 5.41 % black )
          All these calculations have ignored the transaction costs,registration costs, loan cost if somebody has taken a loan , property agents cost etc.

          This same money invested in index funds which are passive and relatively safe funds the same money of 20 lacs with a conservative compounded annual return of 12 % would have given close to 141 lacs and this is all white and not taxed. Phew…… There will be some costs associated with banking which will be minimal.
          Property will give profits only in certain markets which are underdeveloped and have growth potential. All said and done these places are again tapped by real smart investors. Typical middle class flat purchasers are generally very very late to join the party. The other scenario is people with real black money who want to put it in property because their money is anyway lying idle and wasting away. Even they have got avenues to lend in informal money markets……..hope I have not put people to sleep….

          1. Hi Subhash

            I read your comment fully and you are very right that returns from real estate are not always as simple as it sounds . When we do deeper comparitive analysis , only then we know how it works and what is right and wrong .


      3. Mahesh says:

        Hi Manish,
        Your analysis on real estate investment returns is quiet amazing. The way you explained with help of charts and numbers is impressive and it made it clear that investing in different asset classes like equity, proved equity MFs and gold is on par with real estate invesment. Now a days, most of the people have few myths about Real esate investment and feel that, this is the only avenue which will give more returns and make their protfolio uniquely diversified.

        I really enjoyed your way of explanation. I am a regular reader of your blog…. keep blogging.

        Cheers, Mahesh

        1. manish says:


          I am equally glad to have you as reader and look upon interacting more on different posts and creating an atmosphere of learning . Thanks for the wise comments .


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