How? Buying a house in India is a bad idea in 2019! — Case study
As the world economy is slowing down, and its reflections are in India as well (pretty huge), Is it advisable to buy a house in India? If you are willing to invest your money in a house, let’s see what type of house will be a better option to buy in India in 2019.
The Concept of Indians in Buying Houses
IT (Information Technology) being the white-collar industry with decent and high paying jobs have attracted the moms of India and it eventually brought the IT revolution by making their children (mostly) IT professionals either by their wish or through a push.
Instead of widespread disposal, these (IT) industries culminated in few cities and pulled the entire population to those locations. Due to surplus money and inheriting the western culture of lavishness (in spending), these people have attracted investors to give out the surplus money from their pockets.
The habit of spending will tilt its head towards savings at some point. In India, when it comes to savings or investment, everyone will prefer to opt for a house as it remains first in the society’s bucket list. The accumulated Investors have already brought the values of everything up by a minimum of 50% in comparison with other areas in that province. So, people who wanted to get a house have to spend more money than the actual value in that area.
To understand the concept of “Buying /Investing-in a house”, we should consider the geographical settlement of the place and the developments it will face in & near future.
Buying a House in major Indian Cities
First, whatever the type of house you wish to have wouldn’t be in the city limits. If it’s inside, you’ve to pay the entire budget of the house as the land value (under the table). So, most will prefer a fully furnished house which will be outside the city limits. Here, outside the city limits are the places located at about a minimum of 25Kms and above from the city.
Even in these areas, houses (2BHK, 750 Sq. Ft) with basic amenities will start from 40L minimum and those affiliated with metros will start from 60–70L (values as of 2019). Assume that you are going for a house on the outskirts of the city with the price of 40L.
You’ll be going for a loan with 10L max as down payment (These may include registration and valuations). The remaining 30+L will most probably come under EMI. It’ll come like an attachment for 20 years with ~25k as EMI.
No matter what’s the situation is, you should have to give out the EMI amount every month (else, interest will be added on that). Add an amount of 5k a month as the maintenance charge (minimum).
Adding all the expenses (including interests and maintenance), the final value of the 40L house that you have planned for will end up with a value of around 50+L at the time you have completed your EMI.
After the time of completion, you may think that you are out of debt and settled with an asset worth about 60L. If you think like that, you are making 2 straight mistakes.
- Considering your house (that you are living in) as an Asset.
- Thinking that you will now be settled with free of debt.
House (that we are living in) will never be an Asset
Considering your house as an asset is a mistake because it won’t stop taking money out of your pocket through Maintenance, Insurance, and Taxes. Anything which is taking money out of your pocket instead of giving in is a Liability and not an asset. The house is not an Exemption.
Turn your head to the daily commutes like work, school, college, and even basic shopping. It will consume your time up to 2 to 3 hours a day minimum. With all the wear and tears have taken care of, you’ll be spending about 15k a month. So, instead of putting you in rest after the EMI period, the house you had bought will demand your overtime to work for it for an approximate amount of 1.75L a year.
This is the case for an individual house. If it’s an apartment, you will end up depriving your value spent on that house and time.
Apartments will engulf you apart from the Ments
Assume that you are going for an apartment. The land value it covers wouldn’t go beyond 50 sq. Ft and the construction charges it will cover won’t exceed 25L for a 2BHK APT by a builder. But you’ll be paying more than twice the amount for it.
The maintenance charges will also be high compared with the individual houses. Building life, wear & tears for the apartment are additional hindrances.
These are disputes of those who buy it. Let’s see what type of quandary is to sell after owning it! Resale complexions of a House in Indian cities in 2019
Before opting for selling, you must research the houses that are available to procure and in which segment (in terms of value) in that area.
If you are looking inside the city, you’d be surprised to see the availability of the houses for 3/4th of its original value (if it has bought after 2008). Every metropolitan city in India is filled with ready to occupy houses that were not sold and are huge in numbers (about 50,000 unsold houses minimum). All these procurements are due to abundant supplies overcoming the demand without studying the market.
This (production over demand) is a good sign if it’s an investment-based drive from the capital without borrowed money but, that’s not the case even with a single builder out there. If it’s made from the borrowed money, to gain maximum profits (from a business man’s perspective and to meet the interest rates) the quality in the production unit will not justify the value spent by a client.
If that’s the case for the houses inside the city limits, imagine the production value of the houses which are located nearby metro’s (25Kms away).
These are the cases of buying and selling. What if we plan for something else like renting and making it an asset? The Concept of giving out a House for Rent
This is the long process that will demand more analysis and work than it has consumed for buying and selling.
Due to numerous unsold houses, the rents have not gone high for the past 5 years. No 2BHK house is being rented for more than 15K by a family. Even the sophisticated 2BHK apartments inside the city limits are charging no more than 25K.
But for a house giving out such rents will eventually be bought for no less than 50L. The period for that house to give pocket in your money will be more than for the people who had bought for their use. Because maintaining a house for tenants requires double maintenance for the owners for every period of the tenant replacements.
The amount you’ll be getting from the house as rent will not even be equal to the EMI you’ll be paying. So, you’ll be giving out money from your pocket with the rent as EMI. Some small and compact houses are overpricing the tenants inside the city limits (in crucial areas) but that’s not the case for medium and regular houses. And if yours is located on the outskirts, don’t even think about overpricing because there are a thousand other cost-effective houses which are ready to get rented.
Things like future up-gradation and rivalries should be taken care of too. There’ll be competitions with high wear & tears that needed to be considered. The increase in the area occupied for housing will bring up more houses as options and eventually resulting in shrinkage of rents.
Take the future of the work type into consideration. Because, that’s what would be deciding the value in every aspect! As the IT industry is moving towards AI ( Artificial Intelligence) and production industry towards Automated Robots, the demand for humans in real-time would be greatly reduced through a concept of work from home with Internets help.
The jobs which demand human resources in real-time like service sectors wouldn’t be served with high paying jobs so, expecting a rise in rent is not possible even from that case.
Houses in metro cities are plunging in water crisis and pollution whereas cities like Chandigarh, Gurgaon, and Pune are feasible with 3BHK houses for the rent of 15k-20k.
How to buy a house profitable in India
Despite getting a house on loan or as a Liability, there are methods on how to buy a house profitably and to make an asset out of it with calculative investment.
Those options include:
- Buying a second-hand apartment with the sole purpose of renting; inside or with close city limits. (you can get it for of the first-hand value and still make a good rent out of it).
- Individual house or house which is less clustered inside the city limits for renting and for own use (of course a second-hand one). If it comes with a reduced-price tag, it’s highly recommended as these can easily be transformed into assets.
- Get yourself a rented house nearby city limits and plan for a house in your native or in the area where you are planning to have your retirement. Through this, you can achieve a sustained lifestyle in the city with cost-effectiveness in travel and time expenditure.
If you want to make yourself a home with a simple formula and ready for an elongated waiting period (for saving the amount) check here.
So, after going through all these stats, do you still think it’s a good idea to opt for a first-hand house in the metro’s and its outskirts? Leave your suggestions in comments.