Transcript of the Podcast
Hi This is your editor Arjun Parthasarathy speaking. The Friday podcast is a value add feature for the followers of Investors are Idiots.com. The brief podcast will select one topic for analysis and will be released every Friday.
This week’s topic is on “ Your investment in real estate has just become riskier”
The exposure of the cosy DLF-Vadra property deals and the accusation that the BJP president took away farmer’s lands may not really implicate anyone. However the effect of these accusations, which have been blown up by the media, may have just made your investments in real estate riskier.
How you may ask? Why should my ownership of real estate paid with my own hard earned money be under threat because of these accusations and allegations? After all nothing has come out of it and nothing might come out of it.
The reason why your real estate investment has become riskier due to the revelations by the IAC (India Against Corruption) is that you may just be owning a piece of land or property where there could have been some past shady deals on the same land or property between the builder, the politician and the government official involved. For example the land sold to you in a highly speculative geography could have seen some farmer selling this land to a developer who in turn bribed the government official to denotify the land. The price you paid for the land and the price the farmer received for the land will have a huge difference, reflecting the windfall profit of the developer, who may have been funded by a politician.
The original owner of the land could have been a farmer or it could have belonged to a tribe or it could have been with a particular community for ages and if these original owners now come up and say the sale was done under coercion and file a case in the court, it can be rest assured that you will never see any returns on the piece of land you own for a long time to come.
Similar is the case with a property, either a house or a flat. The builder who is funded by a politician could have procured the land from a government agency, which in turn could have changed the end use of the land in its records. The illegal change in end use of the land, when exposed will place that piece of property in dispute for a long time to come. No investor will touch a disputed piece of property.
You may have bought a property in an under construction or a to be constructed status. The builder even if he is clean (congratulations for finding a clean builder-it is like finding fish in a filthy pond) will find that the lenders to the project shy away from committing funds given the on going land deal revelations. Many lenders are stuck with loans to builders that have gone bad and no lender will want to increase exposure to the real estate sector. The property for which you made a few payments may never get constructed leaving you with nothing to show for your payments.
It is a good to time to get a full legal opinion on the validity of the piece of property you own, especially if the investment has been made over the last five to six years, when the number of cosy land deals ballooned on the back of sustained rise in property prices. There are many activists out there to unearth corrupt land deals and these could just affect the value of your property.
New investors will just want to stay away from real estate investments until prices fall enough to justify legal risks or until the cloud clears up on the land and property deals. Throwing money at a piece of real estate where there is no price correction despite the ruckus created by crony capitalism revelations is foolhardy.
Thank you for listening in. Have a good weekend.