Buying house in India using EMI: a good or a bad investment?
This is probably one of the most important decisions you have to make in life; it will have impact for many years down the line.
So is it a good investment or a bad investment? Let’s analyse.
Image credit: Sulekha Property
Buying house in India: a good or bad investment?
It is a difficult question to answer with 100% accuracy at the point of buying. If you have done enough research and understood its different aspects like future valuation, income generating capacity etc; it could very well turn out to be a good investment. On the contrary, if this house is more of an emotional investment for the sake of owning your first home or because some of your friends are buying it then most likely it will be your bad investment.
Here the analysis revolves around investment point of view. But if you are more concerned about fulfilling emotional need, this may not be useful for you.
Let’s quickly understand what it means by a good investment.
What is a good Investment?
An investment that will appreciate over period of time and also has the ability to generate regular income for you is considered as good investment.
Two major factors to consider before buying a house:
If you are buying house in India consider these two factors with utmost care.
Financial impact on your income:
When you buy a house using home loan, a big chunk of your salary will go as EMI. Since this will be your own house; you will tend to spend more on furniture, decoration and other accessories due to emotional attachment.
Even if you move to a new location and give your house in rent; usually your EMI will be around 3 times rent you will be collecting.
Apart from EMI, you have to pay other charges like parking charges, electricity charges, repairing charges and various other maintenance charges. All these charges will drain your income further.
One big factor that must be taken into account is that when you buy a house on EMI for next 25 years, your freedom and risk taking ability will be reduced to a significant level. For example you may not prefer to invest in stock market even if you can get higher return because of risk it carries. Similarly you may not quit your job you don’t like and start a new venture because of fear of EMI payment.
Resale potential and income generating capacity:
Looking at the current developments in the area you decided to buy a house there. Then there must be significant visibility in appreciation of property prices many years down the line in that place. If property doesn’t appreciate significantly then it’s a bad investment.
Second important factor is potential rent generating capacity. Going ahead if demand of that particular area will be more and people will be willing to pay more rent to stay in that area then take that as huge positive for investment.
If you have zeroed on area then next point given will be useful in reducing your EMI.
Which one is better: ready to move in house or under construction property?
Price of ready to occupy projects are much higher as the risk involves is far less. An Under Construction on the other hand is cheaper but other than the risk, you also have to wait for the unit to be complete.
While the project is under construction, you will also be drawing salaries. Since the payments are construction linked, initial EMIs are quite low. This has an advantage. By the time you get the possession of the flat you would have easily saved more than 10 lakhs considering 3 years’ time frame, something which would have been difficult in the Ready to Occupy plan.
One trick for ready to move house buyers:
One thing which helps, is to buy little old / used property, may be 3-5 years old property. 3 to 5 years do not make much difference in usable life of property. However, usually one can get such property at much better rate than normal market price for new property. Apart from financial stand point you can more accurately evaluate expenditures in that location, infrastructure maintenance, behavior of neighbors etc.
If you are buying house in India or any other place then you must consider about retirement.
When you retire your income will decrease drastically. Unless you have made investments to create passive income sources, you will find it difficult to maintain your same life style. Chances are high that when you retire your daughters are married and your sons are living in a different city.
Your expenditure is growing high with every years passing by. If you are staying in a big city; you may find it unbearable to keep up with growing expenditure in that location post retirement.
If you decide to sell your house and buy a house in a less expensive location, you property must have been appreciated its value and you should be ready to begin altogether new life in completely new location. It’s not really a good option to have at old age.
The best option would be for you to stay in a less expensive place and get monthly income from your house in big city.
If you are planning to buy a house in a city, buy an affordable investment property then stay there for few years, move to new location as your job demands and buy a less expensive retirement house preferably in your hometown later during your job tenure.
When you retire, move to your less expensive home and get monthly rent from your investment property and live happily for rest of your life.
Hope you find above post on buying house in India. Please add a comment below and let us know what is your views on buying a house in India especially.