Investing in land is good or bad?
Today people start buying land / plots not for using it, but for investing.
Earlier, farmers buy land to expand and increase their Agriculture productivity. Industrialist buy land to construct factories to increase their production and profit. Individuals buy land to live, they build houses and start living there.
But Nowadays, people buy land to Invest, not for agriculture, industry, and living. We buy land in the belief that somebody will buy from us in a higher price sooner or later, like shares, mutual funds.
Here is a true incident of buying a land and its impact, which I witnessed.
Person A bought a plot at Sriperumpudur for Rs.7000, twenty years back. He sold it to person B for one lakh after 10 years.
Person B sold his plot for Rs.3 lakhs to person C, 3 years back.
Person C sold his plot for Rs.8 lakhs to person D, a year back.
Person D bought the plot in the hope that, he will be able to sell it for more than Rs.8 lakhs. When he tries to sell his plot, there are no buyers. Nobody is interested to ‘Invest’ 10 to 12 lakhs.
I am not sure, either people are not interested or not able to invest or a plot at Sriperumpudur is not worthy of 10 – 12 lakhs.
The piece of land involved is a plot sizing 2100 sqft – nearly one ground. There are small and big returns in short and long term for A to C. They did not do anything in the plot they purchased. They did not produce anything from the land. But they got profit for their ‘investment’ by natural and sudden growth of inflation rate in those year.
But, person D seems to be in big trouble. He may get a profit in the far future. But as of now, his money is buried in the land he bought. He can not produce anything from the plot he bought. He can not live there, because the plot he purchased is far away from city and lacking in basic amenities to live.
A,B, and C seems to have profit, but our country is the looser. The amount of money buried in the land now is bigger than the profit earned by them.
If Rs.8 lakhs is spent in a normal way, like buying cloths, going to movie, tourism, food and etc – the money would be rotated with countless people. If it is invested in any industries, it will increase production. If it is invested in mutual funds or shares, there may be risk, but it will increase the production or profit of some industry either directly or indirectly.
Now, Rs.8 lakhs is buried. It may sprout out or not. Person D has to wait till the normal Price Index get increased. He has to pray for higher and faster Inflation rate to get a profit in the future. It may take a decade or more.
Eight lakhs belong to our country has become nothing as on date. Investing in land/realty/plot may seem to be profitable in the long run. But it is a loss as of now. We lost the purchasing power of Rs.8 lakhs now.
If the 8 lakhs is the hard earned – life time savings of person D, he may or may not be able to save such amount again in his life.
I realized these things after buying a land in my native place, not for producing anything from it, not for living there, but for Investing. I have buried Rs.1 lakh, it may sprout out or not. But to get the purchasing power of one lakh, I have to wait another couple of years.
Investing in anything other than production or personal use is a loss to ourself and country. We loose the purchasing power for a while. In other words, investing in anything which has no ‘easy liquidity’, is a loss as of now.