These days everyone is inquisitive to know about my investment in property and I always raise my eyebrow and shoulder responding that why should i buy an apartment/flat; buying a 1st home or property at the age of 31 doesn’t convince me to take a step further.
The booming sectors reality and banking depends highly on the middle class for their survival as both are inter-dependent and balance each other, but who maintains the balance between them, undoubtedly! Middle Class Salaried Person (MCSP). MSCP these days is very much influenced by the word “investment”, whatever he is earning he want to invest, invest and invest. So from where does this word with ‘I’ originates? Which is seeking so much of attention; but we are spending (ohh! Sorry investing) is really an investment?
Numerous TV shows on different TV channels promotes owning a property as a mantra of getting rich and leading a better life or life style, investment, whatever. They have overhyped the property bazar that everyone is in rush to owne one. Whenever I watch such TV shows I get confused whether they conscious is that everyone should have a home or they are into in-direct marketing housing projects which are actually benefiting builders and bankers. In the process of buying an apartment MCSP is an integral and most important part of Money Supply Chain, so if we remove him who is pretty much influenced from the concept of ownership from this money chain there will be a huge imbalance and it may shake the nation as everything may come to a standstill.
Let’s do a simple calculation. Suppose I am living in a rented apartment for which I pay a rent of 15000 pm EQ 15000 * 12 = 180000 per anum.
Instead of this if I prefer to buy an apartment, and as per my knowledge and survey a decent apartment with a few amenities a little on the outskirts may cost me around 60 Lakhs.
So let’s consider that , I was not a spend thrift and somehow I managed to save some money which may be in any shares, bonds, gifts cheques and with some family support i:e I managed to collect a sum of 20 Lakhs. Now for rest of the money I go to a bank and apply for a loan of let’s say 40 Lakhs, for which as per the current interest rate of 10.75%.
Loan gets approved and all the instalments will be paid to the builder directly as per the agreement.(slab basis)
Now my job is to pay the money to the bank which he is paying on my behalf with the interest of 10.75%, on calculation I found that monthly I have to pay a sum of 40609 as EMI for next 20 Years, and thus increasing my cost of flat to 9746160 apx. 1 Crore which is certainly a very very huge amount for a MCSP.
Now the other part, if I stay on rent for 20 years it may only cost around 4020000 with increment of rent per anum. Which is around only 40% of the total cost which I am paying for ownership? 20 Lakhs which I paid as down payment to the builder, if kept in a Fixed deposit with an interest rate or 11% for 20 years will fetch me around 5919748, above that 40609 that i am gone pay as am EMI if saved even in a saving account for 20 years will give you the same money which you were paying to the bank i:e 9746160 INR.+ interest, So the total cash in hand if you don’t buy an flat/apartment etc. will be around 1.5 Cr after 20 Years. It can be 10 times more if I invest them a little more smartly in SIP’s, let say I invest the same amount 40000 in SIP for 25 years, so after 25 years if calculated interest at rate of 12% I will get a return of 68088262 and at 15% it will give you around 110262432 i:e more the 11cr.
Many individual may argue about the appreciation of the property; you have probably heard an old saying,” "It's only worth what someone is willing to pay". So value after 25 years will be not as much as you have bought, as while selling depreciation and other calculation will be considered which may be or not as per your expectation but as I am not gone sell the same property so I will valuate that property as Nil and I will be under a debt of around 1 Cr. which I have to pay every month for the house where i live, and you still call it an INVESTMENT. Clearly speaking I will be taking money from banks just to repay the bank with more than double I bought from them for nothing.
Adhish Prabhakar
