A recent post that describes the "lucrative investment opportunity" of Indian real estate as a substantial wealth transfer mechanism that largely exploits middle-class ambitions has sparked a long discussion on Reddit.
According to the user, the system draws in politicians, bureaucrats, and businessmen who initially purchase properties at minimal costs. Over time, these assets see their prices artificially inflated through speculative activities and government policies. Eventually, these properties are sold to the upper-middle class, who finance the purchase through considerable loans, extending over 20 to 30 years.
"Wealth moves from the working class to the elite, while banks collect interest for decades," the Redditor summed up his observations.
The cycle results in significant profits for the initial investors, while new buyers are left managing substantial debts, the post says. All this happens even as many in the salaried class believe they are "investing" in a valuable asset. However, they are essentially engaging in a system where someone wealthier has already reaped significant gains.
"The middle class takes on 30-year loans, thinking they’re securing an appreciating asset, but end up paying 2-3x the cost in interest," the post reads, adding that if the cycle ever slows, future generations may realise they have inherited a problematic financial burden.
The Reddit post further shares how the process is exacerbated by the inflated salaries within India's IT sector. "The real estate market depends on these inflated IT salaries to sustain itself – because who else is going to take a ₹3-5 cr loan for a 2BHK?" the user questions.
The IT salaries fuel the market, as they enable individuals to take on hefty loans for properties, maintaining the cycle's momentum.
The Redditor goes on to explain that the sustainability of this system is precariously balanced on the continued growth of IT salaries, which have already reached substantial levels. Indian IT professionals are earning salaries that mirror or exceed those of their US counterparts, despite operating in a markedly different market. Should these salaries stagnate or correct, the pool of buyers for expensive properties could dwindle, risking the collapse of this real estate system, the user warns.
Hence, the illusion of real estate as a secure investment could unravel, highlighting the significant wealth transfer that has occurred from the working class to the elite. "Real estate in India isn’t just an investment—it’s a wealth transfer scheme where the rich print money, the middle class funds their exit, and IT salaries are the only reason this illusion hasn’t collapsed yet," the user concludes.
However, some Redditors disagree with the post. "Prices inflate because the currency is being devalued by money printing. Flats are a better store of value than the money itself. The same reason why stock Index and Gold also go up very close to the growth in M2 money supply. By taking a loan and buying a house - you're shorting the weak currency and going long on a relatively hard asset. That's how you always make wealth in fiat land. People who bought early did the same…," posted one user.
Another Redditor replied to the post saying "the concept of wealth is itself wrong when any middle-class person decides to invest in real estate". "All of us folks who plan to invest into real estate are solely for residential purposes, wealth is something you can generate out of this asset.”