In India, everlasting topic is buying home vs renting home. If you ignore the emotional factor, renting home will be better choice. In case your emotional factors is high, buying home would be right choice. Economically renting the home would be better option.
Real Estate investments are depend upon futures demands and supply ratio
Major cities like Bangalore, Kolkatta, Mumbai, Delhi and many first tier cities offer apartments. There are plenty of apartments being constructed and ready to occupy in the market. Let us take an example of 2 BHK home rent vs buying in Bangalore.
Here are the calculation of buying a flat,
2 BHK Flat for sale at 70L and loan tenure for 20 years.
Base payment 15 % = 10.5L
Loan amount = 59.5 L
EMI per month Rs.59,000 per month
Maintenance charges approx 24K Rs per year = 2000 Rs per month
Average property Tax per month = 1000-1500 Rs per month
Total EMI comes to approx Rs 65,000 per month for next 20 years.
Hence, total cost of ownership for 20 years = 65,000 X 20 X 12 months + 10.5 L = 1, 66, 50,000 (approx 1.67 crore)
For 1.67 crores, You got your Dream home
“Home for 20 years”, and after 20 years you will have a 20 years old flat in 20 years old society. After 20 years if the cost of your 2 BHK home is say 2 Cr by market value. Secondly, even if it values so. I doubt how many buyers will be interested in a property ageing 20 years for 2 crores.
If you move out of the city, finding a tenant is a problem. A tenant who may convert your dream home into filthy home
Its better to buy a house/apartment
- You can do interiors and customize it the way you like.
- You get social status.
- Land value appreciates in case you buy villa or independent house
- Its an asset after you payoff the loan
- Its not risky like stock market.
- Gives tax benefits
- Emi is fixed. Rent increases every year.
Let’s talk about rented flat,
If you take the same flat on rent or say next door flat, at present rent for 2 BHK is Rs 14,000 to 20,000 rupees all other things including.
Assuming rent increase at 10%, Year on year you will pay rent approximately 1.44L, 1.58 L, or 1.74 L , at 20th year you will be paying 1.44 X 1.1^(20-1)= 8.8L
Total rent you will pay = 1.44((1-(1.1)^20)/(1-(1.1)) = 82Lakhs
Your decision would be rent a home is better than buying a home
Benefits of renting home :
- You can change home any time based on your requirement
- Growing family need a 3 BHK. May future need a villa.
- As your rent grows so will you HRA so more tax benefit? – Apparently rent receipts have more benefit in taxes than a Housing loan.
So what should we do?
Now if you are smart enough you will put some money in Market /Mutual fund etc.(Mutual funds are subject to market risk 😀 ) or SIP Because you are paying only 14, 000 rent and not 60,000 EMI. Assuming you put 40000 Rs in investment for 25 years at an annual return of 15 % or 1.2% a month (buy plot in tier 2 cities, Mutual fund, SIP, Bank FD, PPF) . you can reduce the investment amount as your rent increase. Still by my personal calculations, You can make anything between 10-11 Cr after 25 years depending on your investment choice.
When you get good return , you can buy a villa or independent home
Moreover, after 25 years you will be sure enough where you want to settle down and hence making an investment after 20 years sounds more wiser than investing now in flat.
What is the important point?
People ready to pay monthly 50000 rupees as EMI for their home. But once they decide to continue in rent for monthly 20000 rupees, they are not investing the 30000 rupees in any investment. Instead of investment, they spend the money. They do not save the money or investment .
Renting is better option only if you start the investment immediately
In case you are living in second tier cities, you can buy plot in tier 2 cities or in gated community. In worst case you can start saving in Bank FD or PPF. You do not obey your investment, better to buy a flat. That make you strict with your EMI.
It is better to invest in land than apartment. Smart decision is to rent an apartment!!
The decision whether to rent or buy depends on your long-term goals and how much risk you are willing to take. You can start investing in one Nifty index funds and one small cap index funds for long term. It would give you better returns in long term to own a villa. Strict on your investment plan and accumulate using power of compounding.
Start your investment or buy an apartment. Don’t ignore both.
There are thousands of mutual funds in the market, you can start with anyone to build wealth. If you are unable to plan your investment, buy a flat with loan and start paying EMI. This is much better than spending all your money.
Mutual fund SIP is better than Loan EMI
Loan EMI is better than zero investment. Calculate approximate EMI in case you buy a flat and allocate 1/4 for rent and 3/4 for investment.
Loan EMI is better than zero investment
Top fund to invest for long tern return:
- Kotak Tax Saver Fund – Direct Plan – Growth
- HDFC Flexi Cap Fund – Direct Plan – Growth
- HDFC Focused 30 Fund – Direct Plan – Growth
- ICICI Prudential Bluechip Fund – Direct Plan – Growth
- Quant Small Cap Fund – Direct Plan – Growth
- Axis Bluechip Fund
- Mirae Asset Large Cap Fund
- Mirae Asset Emerging Bluechip-Reg(G)
- ICICI Pru Nifty 50 Index Fund(G)
- UTI Nifty 50 Index Fund-Reg(G)