Now consider the calculations:
The lowest interest house loan is today available at 12%. Going with that, if someone wants to purchase the house costing 90 lakhs, the EMI would come to around 1 Lakh Rs, per month for a 20 year long tenure loan. Compare this EMI to the rent you pay if you rent a similar apartment. The EMI comes to almost 4 times the monthly rent.
Let’s not forget that once you finalize the deal of buying the house, your EMI will start immediately. However, you may have to wait for getting the possession of your house for months. In cities like Pune, which is witnessing an 80% shortage of workers, due to the MNS led “Anti North Indian Agitations”, the building work has been severely affected. Possessions are delayed due to labour shortage in construction.
People who have booked the flat are hit in many ways.
1. They have to live in rented flat and pay the rent as their bought flat is not ready
2. No possession of flat, but their EMI payments are hurting them.
3. Some companies have strict policies for claiming tax benefit. The policy says that Home loan benefit can be claimed only if employee gets the possession letter. So even though they are paying their EMI’s, they cannot claim tax benefit for home loan repayment.
Then, suppose you get the possession of the flat. How about the other costs? You will have to pay the property tax, corporation tax, etc. Also remember that your new house is far off from the city, that adds to your commuting expenses. How about the insurance premium that you will have to pay for your house loan, for which your bank is the beneficiary (and not you)?
Then, how about the mental tension of repaying the EMI each month for 20 long years? What if you loose your job after 5 years?
So, buy or rent? The choice is yours! The real estate market is “said” to witness a fall. God knows when it will come, or whether it will come.
| Weigh your pros and cons. Don’t just jump in with your assumptions that may prove to be costly at a later stage. | Table of Contents |
4 comments:
Yes, Shobhit you are right.
Though I am 'Marathi Manoos' i am not in favor of MNS & it's agitation. I have booked a 3bhk flat in pune 2 yrs ago. 95% work is completed but possession is delayed for rest 5% work. the situation is same since Dec 2007. now as per the bank agreement i had to take full disbursement within 18 months, so i am paying EMI and Rent together.
regards
Aniruddha
Personally,
I am NOT in favour of taking any loans ever, to the maximum possible extent. You willbe ripped of your money both ways. What appears to be a tax benefit, is just a loss. As shobhit mentioned, EMI, starts as soon as you take the loan. In the initial period, entire EMI amount goes towards interest payment. Only after some time, some portion of EMI goes towards Principal repayment. Hence, when we dont have the possession letter of Corporation tax receipt because the flat is still under construction, then we cannot get any tax benefit.
I will sugest that instead of taking laons, keep accumulating money till you have atleast 70% of the house price. Then take 30% of the loan. May be it takes years for you to accumulate that much money, but if you can take a costly loan for that period, then better to accumulate money instead of loan.
-Bony
Assumption:
Rent 5000 increasing 5% per annum
house if bought 20 lacs appreciating 5% pa EMI 20000/-
Also rent prices and home prices will appreciate at same rate
Saving denotes what amount will be saved if living in rented house instead of buying and paying EMI Saving =EMI-Rent
Rent per annum EMI per annum Saving (Annual) Amount invested each year from saving
1 60000 247716 187716 100000
2 63000 247716 184716 100000
3 66150 247716 181566 100000
4 69458 247716 178258 100000
5 72930 247716 174786 100000
6 76577 247716 171139 100000
7 80406 247716 167310 100000
8 84426 247716 163290 100000
9 88647 247716 159069 100000
10 93080 247716 154636 100000
11 97734 247716 149982 100000
12 107751 247716 139965 100000
13 102620 247716 145096 100000
14 113139 247716 134577 100000
15 118796 247716 128920 100000
16 124736 247716 122980 100000
17 130972 247716 116744 100000
18 137521 247716 110195 100000
19 144397 247716 103319 100000
20 151617 247716 96099 100000
TOTAL 1983957 4954320 2970363 2000000
Assuming 1,00,00 invested each year with 15% return compounded annually the total value at the end of 20 year 1,19,44,677 (around 1 crore 20 lacs) + 9 lacs that I didn’t invested and spent.
Assuming property appreciated 5% each year house value after 20 years will be 53,06,595 (Around 53 lacs)
Assumption: House cost 20,00000 which can be rented at 5000 per month rent
Rent increasing 5% per annum house appreciating 5% pa EMI 20000/-
My point is that rent and home prices will increase same rate,as it can not happen that one is steady or slow and other is increasing very high,
Saving denotes what amount will be saved if living in rented house instead of buying and paying EMI Saving =EMI-Rent
Of these saving 1 lacs will be invested lon term in equity/mutual fund that can fetch 15% return (though it can be higher but i m taking a conservative view)
for eg. in first year i will save 1,87,716 of which i will invest 1 lac and rest 87,716 i will spend on my lifestyle
i have negated tax benifit because HRA component is not taxed which accounts for 1,20,000 (10K pm) in my salary component.
Rent per annum EMI per annum Saving (Annual) Amount invested each year from saving
1 60000 247716 187716 100000
2 63000 247716 184716 100000
3 66150 247716 181566 100000
4 69458 247716 178258 100000
5 72930 247716 174786 100000
6 76577 247716 171139 100000
7 80406 247716 167310 100000
8 84426 247716 163290 100000
9 88647 247716 159069 100000
10 93080 247716 154636 100000
11 97734 247716 149982 100000
12 107751 247716 139965 100000
13 102620 247716 145096 100000
14 113139 247716 134577 100000
15 118796 247716 128920 100000
16 124736 247716 122980 100000
17 130972 247716 116744 100000
18 137521 247716 110195 100000
19 144397 247716 103319 100000
20 151617 247716 96099 100000
TOTAL 1983957 4954320 2970363 2000000
Assuming 1,00,00 invested each year with 15% return compounded annually the total value at the end of 20 year 1,19,44,677 (around 1 crore 20 lacs) 9 lacs that I didn\'t invested and spent.
Assuming property appreciated 5% each year house value after 20 years will be 53,06,595 (Around 53 lacs)
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