My Mom was in the banking industry. At her young age, she moved from telecom to banking because bank employees get low-interest housing loans. Coming to think of it – a woman had changed her life’s path, her career to fulfil the dream of owning a home. Owning a house is such a big deal for the Indians. Her son – I do not own a home yet – when by my age she had achieved her dream. Let see if in 2020 if house as a good investment still makes sense.
South India is just not Madras
I am from South India. Yes, you can call me Madrasi but I want to tell you that all of Madras does not make South India. Also yes, we love curd but that’s not the only thing we eat. I have not tried any spicy or masala rich food anywhere else in India. Now that is cleared let’s move ahead.
The freedom of individual house
While most of our country lives in jail sized apartments depending on their income levels – I grew in an individual house. This means that I have the freedom of walking home in the middle of the night and answer only to my mother – not to the societies watchman. I also have listened to the maximum sound of my speakers with no-one complaining. Slept in terrace without tonnes of dish antennas and water tanks around me. In my garden instead of useless plants, I grow fruit-bearing trees. Living in an individual house is such a freedom that few generations don’t get to experience. If you ask a person from a village he will have more stories about freedom.
But is this all possible in this decade? Probably not but that depends only on us. The decision on choosing a home depends on a few factors. A home has
- to be near to our office
- have good schools around
- is easily connected by Ola and Uber (nobody takes public transport)
- metro water connection
- drainage connection
- a good neighbourhood and few alike.
Some call it basic necessities – I call them luxuries.
When my mother decided to buy a land and build our home in 1992, the area was underdeveloped.
- There were wastelands around
- Snakes used to come into our home
- Illegal liquor manufacture was prevalent
- The office and school were 30 minutes away in the opposite direction.
- There was only one bus which can take me to school which was always crowded.
- We got drainage connection after 5yrs of moving in, till then we had a septic tank.
- The three-phase connection came after 10yrs.
Still it is our home and I love it. My mom’s house is an investment.
Today the valuation of the land and the house is beyond my mother’s imagination. If we had thought of buying a convenient home then we could have never afforded it. Often we make the mistake with maths. Maths never lies. My mom invested in a low-cost land and built a home and believed in the human’s ability to prosper. But today when I wanted to buy a home I have all the above ideas which increase the cost of a prospective home.
The second major point to be noted is inflation. Today the real estate market has been inflated up to saturation. The price will never go up significantly. So buying a home thinking its value will increase will be wrong. So if you have a home for yourself already then that is enough. Buying another home by taking a loan and thinking its rent can pay the EMI won’t work.
Do the math
Let’s imagine you buy an apartment for 80 Lakhs. The EMI per month will be Rs.75,000/-. The rent that anyone would pay even for a 3BHK will be less than Rs.40,000/-. So every month you have to pay Rs. 35,000/- from your pocket to pay the EMI. How is this good math? How is this going to increase the cash flow? The valuation of the home will also not increase beyond a crore. And it will reach a crore after 15-20yrs under current market situation. Till then you have to pay Rs.35000/- every month as EMI. Also, don’t forget the work maintenance of the home + society’s maintenance charges. So buying a second house by taking loan to think it as investment is madness.
This does mean that one cannot take an exorbitant amount of loan for a first home too. I will take a look at my financial situation and will purchase a small home to satisfy my need. And to do that I will first save enough money to pay at least 75% of the cost of the house. Then I will take only 25% loan so I can quickly pay EMI and close it off. The government’s policy of tax deduction for a home loan can come handy here. But to save Rs.3000/- paying Rs.30000/- from my pocket doesn’t make sense at all. So my loan amount will be less.
I remember just one thing again and again. To become financially free you have to have money in your account. You cannot pay banks and become financially free. So to sum it up. I can think of house as investment only if –
- its the only home you own.
- there are no loans on your home.
- the second home has no loans and can earn rent.
- you have planned the loan amount at only 25% of the entire cost, while the rest is paid in cash.