Is Real Estate a Good Investment? VI

Correction: Years from base date for Japan should be 1980 and not 1985.

From the graph, it showed that house price in Japan soared 100% from 1980 to 1990. After the bubble burst, Japan suffered from a massive economic depression which lasted 15 years until 2005 which we saw there is a sign of economic recovery. Still, house price in Japan does not recover from its peak. In 2005, it signifies the depression of nearly 40%, this means if you bought a house for $ 200,000 in 1990, your house is worth $ 120,000 in 2005. This is a scenario if you bought with hard core cash. How about the one who highly leverage with housing loan? The consequence is more drastic, the real estate that they invested still in a group of “Negative Equity”, meaning that even you sold off the house, you are still in debt and need to repay back the balance to the bank. That’s the impact of leverage, in contrast to the one who always persuade you for the “Power of Leverage”. They are right in one point: Leveraging could shorten your investment return IF the market is booming; when the market burst, you not only lose all your investment but you would be in debt as well.

While in Australia, Britain and US, the average house price since 1995 registered a handsome return of nearly 150%. If you laid the investment since the beginning of 1995 and bought the house which priced $ 100,000, your investment worth almost $ 250,000 in 2005. The return could be higher if you are buying with highly leverage housing loan. While the house price for the past 10 years gave the investor of that time a handsome return, do you think it will do the same for the next 10 years, or it will show the same trend as Japanese backed to 1990? The answer? Only God knows…

“Any indication for you?”