The Perils of Buying a Home

THERE ARE PERIODS when buying a home can be the great­est bargain of a lifetime. Take, for instance, the beginning of the mil­lennium, around 2002 or so. Those who were lucky enough to invest in a flat saw the prices go up manifold. Not just the price of the property, if it was on loan, the owners saw the rent they were receiving catching up to the EMIs they had to pay, making the investment run pretty much on its own steam without any extra money needed to be put. Unfortunately, such real estate manna from heaven is the rare exception.

This week, the property consultant firm Anarock came out with a report that said EMIs had risen 20 per cent in two years for affordable housing.

Between 2021 and now, floating interest rates had gone up from 6.7 per cent to 9.15 per cent and, the Financial Express article on the report also said: “Home buyers are paying an EMI of Rs 27,300 in July 2023, much higher than Rs 22,700 in July 2021.”

Typically, those who buy affordable housing are mid-income regular salaried folks and the EMI is the biggest component of their expenses. They also then have the usual business of living—food, education of children, medicines, and so forth. If you have to eke out `5,000 more from your salary for the loan instalment, something else must be given up. For someone earning a salary of say, `50,000, that is something important. And that is why buying a house is just a bad idea for most people.

Indians think house prices are always going to go up but that is not true. Oftentimes, as even during the recent long lull in real estate, they just stagnate for years. The big leaps are fond memory now and, even in future, given the vast inventory of unsold housing in most metros, you would be lucky if prices keep pace with inflation.

A few years ago when interest rates hit bottom, people bought over-priced flats that seemed manageable to pay off but now the burden is turning into a cross. At some point, it will become unbearable and then the house so proudly purchased will have to be sold off. Perhaps, they might get away unscathed but if the same amount of money had been put in another asset like gold, or even a fixed deposit, they would be richer instead of poorer. A wise general rule is that a house ought to be purchased but only if one can afford it and only as a place to live in, and not as an investment.

Most people however think of it as both, which is where the problem begins. In an investment, the time you get in and out matters and we just don’t consider it with houses.

Living on rent has the pain of renegotiating every 11 months with the owner or shifting frequently but it is a small price to pay for not having your life upended with a loan you cannot afford.

EMIhomemiddle-income grouppersonal financereal estate