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Why you should buy a house today

Legendary investor Warren Buffet says that his top three investments were the two wedding rings and buying a house.

Abhimanyu Sofat
AdviseSure.com

Most of us would like to have our own home. Buying a home is more of an emotional purchase especially if they are buying a home for the first time. Many a time people delay buying a house to fulfil their other responsibilities such as children’s education, children’s marriage, building retirement corpus. In addition to that, most of time people delay their decision of buying a house on the market prediction that the property price will come down. But, one should consider buying their own house at an early age as it provides social security for rest of the life.

Legendary investor Warren Buffet says that his top three investments were the two wedding rings and buying a house. Though his investments in stocks has given better returns, he prefers buying a house as it has given him best memories of life which will not depreciate in value as the financial investment do. The current market conditions is an opportunity for first-time home buyers to buy a house because of the following reasons.

1. Value of residential property appreciates in the long-run
The price of real estate appreciates in the long run. If one had a choice between buying a new car or a new house, buying a house should be a priority because the value of the house increases in the long run whereas, the value of a car depreciates. Though, there may be a downturn in real estate sector which may drag down the value of the property in the short run. But buying a house for a long term will give good returns in terms of its value. For example, if a person bought a 620 square feet flat at Peddar road, Mumbai in 1995, the value of the property in the year 2016 has reached to Rs. 2.48 crore.



Source: AdviseSure




The above table shows that the price of a property has corrected by 25% in the year 1997. This has corrected the price per sq feet to Rs 8,625 from Rs. 11,500 sq feet in the year 1995. Though, the price of the property declined in the short run, after 20 years the value of the house reached to Rs 2.48 crore.

2. Rental yields improving-

Rental yield is a significant ratio which tells us whether a person should buy a house or not. Rental yield rises if the value of the property depreciates and/or the rent amount increases. Thus, in both such scenarios a person should consider buying a house, a person should buy a house when the property prices are falling or rents are rising. Currently, the property prices are decreasing but the rents are soaring up which are increasing the rental yield.

3. Favourable interest rate-

Since the cost of a house is high most of the people take a home loan to buy a house. Home loan rates in India have declined after the rate cuts announced by the RBI. The fall in interest rates means lower monthly EMI for the home loan.

For example, if Mr. A had taken a loan of Rs. 50 lakh for the tenure of 15 years at 10.50% p.a. he would have to pay ~Rs. 50 lakh as interest. On the other hand, he can save Rs. 5,77,703 as interest if he takes the loan of same amount for same duration at an interest rate of 9.45%. Below table exhibits the illustration on two loans at different interest rates.



Source: AdviseSure

4. Discounts-

The high-interest rate and inflation numbers in the past have discouraged the growth of real estate sector in India. This has built up huge inventory in the real estate sector. However, to increase the sales of newly built housing projects as well as the sales of under construction properties the builders are now offering attractive discounts.

For example, if the price per square feet of 625 Sq feet house is Rs. 10,000, the builder will offer a discount in the range of Rs. 2000 to Rs. 2500. This will take the per square feet price of Rs. 8,000 - Rs. 8,500. Thus, a person can buy a house at a price range of Rs. 50,00,000- Rs.53,12,500 instead of buying at a price of Rs. 62,50,000.

5. Security and pride of ownership-

If an individual has his own home then he will not feel insecure about his family. If a person stays in a rental house there is always a fear that he may be asked to leave the place anytime by the owner of the property. In addition, owning a house gives a pride of ownership to a person.

6. Tax Benefit-

A person can claim deduction of up to Rs. 1.5 lakh per fiscal year on the payment of principle under section 80C of the Income Tax. The interest payable on a home loan is allowed a maximum deduction of 2 lakh under section 24(b). A first time buyer can avail the addition deduction of Rs. 50,000 under section 80EE provided the value of the house does not exceed Rs. 50 lakhs and the loan amount should not be above 35 lakhs, and the loan is sanctioned between 1st April 2016 and 31st March 2017.


7. Shifting cost, brokerage and contract cost

Another very important aspect a person should consider while deciding to buy a house is ‘shifting cost’. If a person is living on rent he has to move to another place after his contract expires, which generally cost Rs. 15,000-Rs. 20,000. In addition, a person also has to pay a brokerage which is generally one month rent. Besides, he has to make a new contract which cost around Rs. 3,000 – Rs. 5,000. These additional costs raise the cost of living on rent.

Conclusion-

Buying a house is a person’s dream. As the Indian economy is growing, the price of the property is also rising. While as the interest rates have come down, it is right time to buy a house as you can save interest. In addition, government is offering various tax benefits on buying a house. Therefore, this is the right time to buy a house.
First Published on Jun 2, 2016 03:19 pm
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