In India, owning a house has long been considered a badge of success, stability, security, and status. From family conversations to financial goals, real estate often takes center stage. Yet, for the middle and upper-middle class, this deeply emotional decision can come at a significant financial cost — particularly when funded through long-term home loans.
While there’s no denying the cultural attachment to home ownership in India, it’s critical to separate emotional satisfaction from financial logic. Real estate, in today’s volatile and urban-centric markets, may not always be the wealth generator it once was — especially when viewed through the lens of personal net worth. Even during earlier decades like the 1970s, real estate returns in India have typically not exceeded 8–9% CAGR (as per 99 acres.com figures). Over any long-term period; the perceived wealth gain is often magnified due to extended holding durations rather than exceptional annual growth.
Emotional Decision or Financial Trap?
For illustration, consider the case of Rohit, a 34-year-old marketing professional in Pune. After years of diligent saving, Rohit decided to take a home loan of Rs 70 lakhs to buy a Rs 90-lakh 2BHK flat in Pune. The loan was taken at an interest rate of 8% for 20 years, resulting in an EMI of approximately Rs 58,551. His take-home salary? Rs 1.25 lakhs per month. This results in nearly 47% of his income being committed to EMIs for the next two decades.
By the end of the loan term, Rohit will have paid nearly Rs 1.41 crore in total, with Rs 70.5 lakhs of that being interest. Meanwhile, property prices in his locality have barely moved. The current market value of the same flat is around Rs 1.1 crore—yielding just modest appreciation over 20 years.
Now, imagine if Rohit had instead invested Rs 58,551 every month in a mutual fund SIP yielding 12% annually. His corpus after 20 years would be around Rs 5.85 crore—fully liquid, tax-efficient, and maintenance-free. Fixed Deposits and Liquid Funds offer stability but yield lower returns (~Rs 2.9–2.5 crore), falling short of inflation-adjusted growth. Rohit’s flat, with modest appreciation to Rs 1.1 crore, shows how real estate lags behind financial instruments in returns and liquidity.
This isn’t an isolated case. Emotional buying—fueled by social pressure, FOMO, or the sentimental “apna ghar” dream—often blinds people to financial practicality. Many end up buying homes in every city they live in, resulting in multiple flats across locations. Ironically, they still find themselves renting a third home due to job transfers, children’s schooling, or convenience—locking wealth in illiquid assets they rarely use.
Real Estate Works for HNIs, Not for Salaried Classes
Now here’s where the picture changes. For High Net Worth Individuals (HNIs), buying real estate does make strategic sense — but the underlying reasons are very different.
HNIs typically:
● Buy without loans — avoiding the compounding effect of interest payments.
● Have diversified portfolios — real estate forms only a part of their asset allocation, not the core.
● Buy for luxury, legacy, or status, not necessarily for return on investment.
● Absorb market fluctuations due to better cash flows and liquidity buffers.
Take the example of Mr. Sharma, a successful entrepreneur in Mumbai who recently bought a Rs 15-crore bungalow in Alibaug. His motivation wasn’t ROI. It was lifestyle enhancement, family retreats, and long-term legacy creation. Since he didn’t take a loan, there’s no EMI pressure. Even if the property appreciates only marginally, the value he derives is non-monetary.
For HNIs, real estate is a lifestyle asset — and they can afford to treat it that way. It’s not always about financial returns; sometimes it’s about emotional dividends, privacy, or exclusivity.
The Return Myth: What Are You Really Earning?
For most people, especially salaried professionals, the case is very different. Let’s compare with mutual funds, gold ETFs, and fixed deposits:
| Investment Type | Avg. Return (10 Years CAGR) | Liquidity | Risk |
| Diversified equity mutual funds | 11-13% | High | Moderate-High |
| Gold ETF | 9-10% | High | Low-Moderate |
| Liquid mutual funds | 5.5-6.5% | Very High | Very Low |
| FDs (5+ years) | 6-7% | Medium | Low |
| Residential real estate | 3-5% | Very Low | High (illiquidity, legal risks) |
|
References: i. AMFI Scheme performance, IIBF researchii. Data from AMFI on Gold ETFiii. Data from RBI regarding FDsiv. Real Estate-NHB Residex Index |
As per a rental yield report by Magicbricks, in most Indian cities, rental yield — annual rent as a percentage of property value — is shockingly low at 2–3%. That means a Rs 1 crore flat generates only about Rs 20,000–25,000 per month. This doesn’t even cover EMI interest or property maintenance. Compared to even a conservative fixed deposit or liquid fund, the return on capital employed is negligible.
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Debt Trap in Disguise
Home loans are marketed as wealth-building tools, but they can become wealth destroyers if taken for the wrong reasons. Long tenures (20–25 years) coupled with interest outgo often make you pay double the property price. Meanwhile, your mobility, investment flexibility, and mental peace get compromised. With rising interest rates and stagnant property prices in several markets, buying for investment through loans can damage your debt-equity ratio, limit credit eligibility for future goals, and reduce overall net worth growth.
When Real Estate Does Make Sense
Consumption Purpose: If you're buying a home to live in and can afford it comfortably (ideally EMI < 30% of income), then go ahead — it’s a lifestyle decision, not a financial one.
End of Loan-Free Retirement Home: Some may invest in a retirement home in a low-cost city or hometown. That’s strategic, not speculative.
Tax Planning for HNIs: HNIs may use real estate for capital gains exemptions under Section 54 or asset parking.
Luxury Purchase by HNIs: When affordability isn’t a constraint, and real estate is bought without debt, it can serve emotional, lifestyle, or legacy purposes — not just ROI.
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Conclusion: Real Estate is a Luxury, Not a Shortcut to Wealth
For most Indians, real estate is a luxury disguised as an asset. When bought for personal use within limits, it offers emotional comfort and lifestyle value. But as an investment — especially with borrowed money — it often underperforms safer, more liquid instruments like mutual funds or even gold ETFs. HNIs can afford to treat real estate as a luxury. But for the middle class, buying property through EMIs under the illusion of investment can be more of a liability than a wealth builder. Before you sign that loan document or dream of becoming a landlord, ask yourself: Am I buying wealth, or buying a burden?
(The writer is a certified financial planner and founder, True North Finance, a financial and investment planning firm based in Pune.)
Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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