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The wiser decision

  • Published at 03:34 pm April 28th, 2020
The wiser decision

According to the Forbes billionaires list for 2018, 10% of all billionaires made their fortune from real estate

For ages, the pursuit of life for many citizens of Bangladesh have been to own a piece of land that they can call their own. It is the “Bangladeshi dream.”After the turn of the century, this dream went through a little bit of modernization and “land” became “real estate,” incorporating apartments into its fold alongside plots.The scarcity of developable land in city centres and its ever-increasing value— which continues to this day —prompted people to buy apartments or flats instead of land.

Whether for living purposes or as a source of investment, real estate is always thought of as a good path to take. And there is some merit to this frame of thought in contrast to keeping money in a bank or investing in some other venture.

Invest or save?

Saving money is always a very good idea, but it should never be the end goal for any individual — only a means for betterment. Acquiring assets — be it property or otherwise —usually takes a substantial amount of money. For many, that means saving little by little until that can be achieved. But once the required fund is ready, it should be invested instead of keeping it stored in a bank. Yet, a significant portion of the population aims to create fixed deposit accounts for various lengths of time with their money instead of investing.

While it is true that such a course of action has numerous financial benefits for the account holder, there are several drawbacks to this as well which many people do not realize.

Inflation is the primary enemy of any currency. As the prices of goods and other commodities increase, the real value of currency per unit gradually decreases — leading to less and less buying capabilities for money. As per the Bangladesh Bureau of Statistics (BBS), the country’s inflation rate stood at 5.46% in February 2020.According to WorldData.info, between 2003 and 2018, the value of the taka depreciated by about 183.8%!So, for instance, if the price of a loaf of bread in 2003 was about Tk15, that same loaf of bread would have cost around Tk42.57 in 2018.

In comparison, if the same amount — Tk15 — was kept in a bank in the form of a 15-year-term fixed deposit at a 7.5% interest rate with half-yearly compounding interest, the final payout during maturation would be about Tk43. As a result of inflation, the actual value, even after a 15-year fixed deposit, would be about the same amount as it was originally deposited — leading ultimately to having to spend more to acquire the same amount of item.

But by investing the same amount of money into something concrete and reliable like real estate, the final payout, if necessary, would be much higher. There is a common saying, at least in Bangladesh, that the value of real estate never depreciates — and this is almost entirely true. Except for a very rare few cases, the prices of the properties going down is unheard of mainly due to the fact that real estate is more or less a limited commodity. Sure, more apartments can be constructed if necessary, but you cannot make more land — which also limits the number of apartments or homes that can be built. As a result, property prices have gone up significantly over the last few decades.

Land prices around Dhaka, for instance, have increased unbelievably—by as much as 2,400% — since 2000. So, if someone had invested in a piece of land in Dhanmondi around 2000 that was worth Tk50 lakh, that property would now be valued at around Tk12.5 crore! And that is just the land itself. Any structure would add value to the property as well — as it always does.

Apartments enjoy a similar sort of appreciation too, even if not to the same extent as land.The demand for apartments has been huge since the early 2000s. It is the “go-to” choice for property purchase today. The rapid development of infrastructure, construction of amenities and facilities, and affordability of apartments have made them a popular choice. Even if someone does not have several crores to spend on a few kathas of land, they can surely be the owner of their own property, even in the heart of Dhaka, by spending a few lakhs.

The growth of apartment prices is not as steep as land— yet it is, nonetheless, quite remarkable. There has been a steady growth in apartment prices all across the board.Two 800 sq ft apartments located at Chayabithi Eastern Housing of Basabo were sold at Tk20 lakh in 2002 — which puts the price per square feet of the property at around only Tk1,250. In comparison, according to data from Bproperty, the average square feet price of apartments in Basabo during December of last year was around Tk5,305 — an increase of about 324.4%!

By this comparison, if a person had invested Tk15 in real estate in Basabo in 2003, that asset would be valued at around Tk63.66 today.

Property or stocks?

But if profit or an increase in value is the ultimate goal of investing, why not invest in stock or something similar with high-yields instead of real estate? For a lot of individuals, real estate is the “safer bet” due to its stable nature. Whereas, there are countless events and experiences of investments going under in a matter of years if not in months, there is hardly a story of an investor going bankrupt due to real estate. It is, after all, sturdier than the rest.

With proper study, knowledge and preparation, success and profit from real estate investment are possible.According to the Forbes billionaires list for 2018, 10% of all billionaires made their fortune from real estate.Although, that percentage has dipped a little in a 2020 list to 9.36%.

In contrast, even though investing in stocks can lead to rapid success and more profit, it is also much more volatile and riskier. Very few outside factors impact the real estate industry. And even if it does, the effect is minimal almost all the time. However, the value of stocks can fluctuate a lot, even in a single day — leading to loss or disaster for unwary investors. The stock market also requires a tremendous amount of knowledge — much more than necessary for real estate — if success is to be attained. But even then, success might be out of reach. Risk mitigation has always been one of the core arguments for real estate investment over stocks.

Additionally, real estate is a tangible asset, unlike stocks where an individual buys a tiny piece of someone else’s organization.A property owner has something concrete at their disposal, and they are accountable for it. They can be the sole individual to reap the benefits of this investment — which is almost impossible when there are hundreds or thousands of stakeholders.Then there is also the fact that real estate investments have the benefit of diversification — as in, whereas the only options at someone’s disposal for stocks is to either buy or sell.

For real estate, a person can buy a property with the intention of “flipping,” rent if there is low-demand, lease or sell if the price is right — not to mention that a property can be of personal use.

Speaking of rent, the ability to generate a passive and regular income is also a fundamental benefit of property investment. This is an asset that, when rented out, can deliver regular cash flow. Even if real estate investment itself is hard to liquidate, this particular characteristic is crucial for those who are looking for a steady source of income. And if the need arises, the property can be leveraged to fund something else. Also, unlike stock owners, real estate has certain tax advantages as stocks are considered as “income” but property as “assets.”Lastly, stocks are also vulnerable to inflation — which, as mentioned before, real estate is almost free of.

All in all, investing is a very personal choice of matter. Opportunities do not always come knocking on someone’s door. That is why it is so important to answer when it does. If history has taught us anything it is that if someone has a taste of success at least once, more will surely follow. Real estate investment has been a preferred choice for generations — both for profit and for personal use. It is still the “dream”, and many would and should choose to pursue it.

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