Many individuals altered their financial plans and diverted money into real estate in 2012, say financial advisers The decision was based on two important assumptions. One, they were of the view that there was no point in continuing with equity investments because of the bleak economic scenario.
Two, since real estate prices haven't softened in the last few years, many investors believed that it would now only go up from here. "Most SIP investors saw negative returns in the beginning of 2012.
At the same time, they saw a steady increase in real estate prices. Most investors were convinced that they have to liquidate all their investments and invest in real estate," says Suresh Sadagopan, certified financial planner at Ladder 7 Financial Advisories. "This belief got reinforced by the fact that real estate prices never came down despite the slowdown.
The investors feel they should lock their money in real estate at least now to earn some quick buck." Mukesh Nair (name changed), a financial services professional, owned two houses in Mumbai. Recently, he relocated to Bangalore and bought another house there despite getting a company leased flat. To fund the down-payment of this house, he liquidated all his SIP investments .
His logic: he anyway did not earn any return on the SIPs. Instead , he can buy a property and cash in on it when it appreciates. Now, he pays an EMI of Rs 2 lakh for the three houses and he is the only earning member of the family. "Affordability was never an issue for this investor. But he has no liquid investments and has SIPs worth Rs 10,000, even as he earns close to Rs 3 lakh," his financial adviser says.
At the end of the year, Nair has been proved wrong on his assumption about his SIPs. The stock market has moved up around 27% in the last year. His real estate investment in Bangalore, on the other hand, has appreciated just 5%. But since the property is mortgaged with the bank, he still technically does not own the house or has made any return, the advisor adds.
"SIPs offered a CAGR of 10-15 % last year. Investors who pulled out money from SIPs and invested in real estate have seen a flat growth and lost out on making money in equities as well," says Mukund Seshadri, certified financial planner, partner, MS Ventures Financial Planners.
Similarly, Narayan Srinivas, an entrepreneur invested in a commercial office space in a prime locality in Mumbai at Rs 14,000 per sq ft.
VIDYALAXMI,ET BUREAU
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