Co-founder of Zerodha and well-known for his unusual opinions on investing and money, Nikhil Kamath, has made an unexpected announcement: he has bought a property. Kamath has been a strong proponent of renting over buying for a long time. He has argued that renting provides more flexibility and is more cost-effective than buying real estate. His choice to buy a house has reignited the age-old controversy: Is renting preferable to buying?
Credits: Money Control
In a recent episode of his podcast, “WTF is with Nikhil Kamath,” the real estate titans Karan Virwani, CEO of WeWork India, Irfan Razack, Chairman & MD of Prestige Group, and Nirupa Shankar, Executive Director of Brigade Group, discussed Kamath’s change of heart and went into great detail about the ongoing discussion about renting.
The Appeal of Renting: Kamath’s Long-Held Stance
Kamath has long been a proponent of renting due to its flexibility and the ability to avoid the hefty financial commitments that come with purchasing a property. For many years, he argued that renting provides the freedom to move without being tied down to a specific location, which is particularly beneficial for individuals with mobile careers or lifestyles.
“There are plenty of advantages to renting,” Kamath has often pointed out in past discussions. “It allows you to live in better locations without the burden of long-term debt or significant upfront costs.”
Credits: Hindustan Times
Renting also offers more liquidity compared to owning property. In Kamath’s view, investing money in more liquid assets like stocks or gold, which can be bought or sold quickly, provides greater financial flexibility than real estate, where capital is often tied up for extended periods.
Why He Bought a Home: The Drawbacks of Renting
Despite his strong advocacy for renting, Kamath recently revealed one major drawback that led him to reconsider his stance—lack of control over how long he can stay in a rented property.
“The thing with renting, of all the advantages it has, there is one disadvantage: you don’t have foresight as to when you can move out of the house,” Kamath said on his podcast. “I had to move out of a house, whereas I might have liked to stay longer.”
The unpredictability of rental agreements, often subject to the landlord’s terms or market shifts, pushed Kamath to explore the stability that comes with owning a home. Having control over one’s living situation, free from the whims of property owners, ultimately became a significant factor in his decision to buy.
Illiquidity of Real Estate: Kamath’s Continued Criticism
Despite purchasing a house, Kamath remains critical of real estate as an investment, particularly due to its illiquid nature. During the podcast, he pointed out that properties, especially high-end ones, can be difficult to sell quickly without suffering significant financial losses.
“I hate the illiquid nature of real estate,” Kamath stated. “Places like this have fewer buyers, and if 10 people decide to sell, the price goes haywire. Pricing is very arbitrary in nature.”
Kamath contrasted this with the stock market, where the large volume of buyers and sellers creates a more stable pricing structure. Stocks and commodities like gold, he argued, provide a safer investment because they are easier to liquidate without the risk of steep discounts.
The Hidden Costs of Buying: Stamp Duty and More
A prominent critique of property ownership leveled by Kamath is the cost of purchasing a home. In addition to the high mortgage payments, there are a lot of extra expenses that mount up, especially stamp duty, which can account for five to six percent of the property’s total cost.
“I can buy and sell in the stock market without having to pay 5-6% stamp duty,” Kamath said, lamenting the inefficiencies of real estate deals in comparison to other investing options.
Because of these hidden expenses and the property’s lack of liquidity, Kamath is dubious about real estate as a sound investment.
Buying to Rent: A Risky Proposition?
In addition, Kamath questioned the viability of purchasing real estate for rental purposes, which is a popular method of producing passive income. He clarified that rental property profits are frequently overestimated, particularly when interest rates and inflation are taken into account. This is especially true for services that offer short-term rentals, such as AirBnB, where residences might not always be fully occupied.
Kamath stated frankly, “I don’t think anyone makes money from buying and renting a place.” “When interest rates and inflation are taken into consideration, the return on investment is minimal.”
