Buying my first apartment

The apartment I booked in 2008 for Rs.3000/sq.ft is now going for Rs.4500/sq.ft in 2018 ten years later. A grand CAGR of 4% for a 10-year investment. Even a simple fixed deposit has given higher returns.  Don’t know whether to laugh or cry  at this price stagnation.

Read on for the full journey of my apartment purchase that I narrate with great hilarity whenever friends ask me about it. The tragedy is that the story involves so much waste of money that could have instead made us financially independent by now. I suspect there are a lot of people out there with even worse scenarios than mine so I hope young people reading this don’t repeat our mistakes.

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TragiComedya play or novel containing elements of both comedy and tragedy.

Timeline of Buying till possession- 10 year long nightmare

YEAR 2008: Shortlisting the apartment to buy

So off we went in year 2008 on one of my visits to India to scout apartments in the “IT corridor” because we had heard in the news that those were the “up & coming places”. We quickly realised that it made more sense to look for an apartment in the same neighbourhood where my parents had rented for 20+ years since we knew it intimately. The only problem was that all the completed apartments in that neighbourhood were very expensive . We managed to find one affordable place in the vicinity. The reason it was cheap was because it was a barren plot of land on which no apartments had been built yet! There was only a model flat and a sales fellow handing out brochures with “computer-generated graphics” of the apartments to be completed only by year 2012, four years from the launch date. See below.

Launch Price

The price was too good to pass up. So I booked a 2BHK flat using my savings to pay 25%  mandatory down-payment to sign the construction agreement. I then applied for a home loan for the remaining amount from a leading bank that had tied up with the builder.  We took a lawyer along with us to review the construction agreement to make sure the land was in the builder’s name. Problematically the builder expected to get approval from the housing development authority only in August 2009 meaning they sold apartments without getting the approval to build! But the price and location made us overlook such red flags. I returned to the U.S not realising that the builder was about to take us on a roller-coaster ride for the next 10 years.  I was 27 years old at that time.

YEAR 2009: Dealing with Builder’s mischief

The first sign of trouble came in mid-2009 when the builder unilaterally increased the floor plan size of all the flats and gave an ultimatum to all  buyers who had already signed the agreement : Either pay extra lakhs to keep the same flat or downgrade to a smaller flat or get a refund of the booking amount. We decided to pay the extra lakhs needed since it was all going to paid via loan anyway(!!) and kept the same flat unit as the extra space seemed like a blessing in disguise.

The next update we received from the builder was around August 2009 saying that the building plans had been submitted to the housing development authority and approvals were expected by year-end. This was a shock to us because the builder had earlier told us earlier that approvals will be in hand by now. We could now see the connection between the builder increasing the floor plan size earlier in the year. It looked like they had waited to submit the “expanded” plan for approval.  This meant that the builder would not be able to lay a single brick until the approvals came through from the city.

YEAR 2010: Nightmare begins!

Year 2010 rolled by and we heard nothing back from the builder. Out of the blue in early-2010 the builder called for an owner’s meeting to update them on the status. My parents were excited to go to the meeting as they felt it must have something to do with the city approving the project plan and the project finally moving forward.

I was sound asleep when my mother called from India and woke me up. She was crying and I was scared because I’d told my parents to wake me up only in an emergency. Turns out that the builder called the meeting to discuss whether or not we wanted a swimming pool among other such trivia.  A group of frustrated buyers called the police & T.V stations and got the builder’s executives arrested for zero progress after 1.5 years of booking the apartment. Now my mother was worried that our  booking amount worth Rs.10 lakhs was going to be forfeited now that the builder’s people were jailed. Whew! Thank God. This was not an emergency! I reassured my mother that I’ll make back the money even if it was lost forever and that I was glad it was not their savings at stake and went back to sleep 🙂 The fact I had nightmares in my sleep is a different story 😉

YEARS 2011-2012: Builder breaks delivery date promise

The builder emailed us later vehemently denying allegations against them saying the approvals were delayed due to unforeseen reasons. But by now it was clear that the builder did not respect the buyers very much and would continue to take unilateral decisions tilted in their favour. Approval from the city came in August 2010 a full year beyond what the builder had communicated to us. The foundation was completed only in mid- 2011. So definitely the apartment was not going to be ready by the promised move-in date of 2012 🙂

YEAR 2015: Finally got Possession of my flat

My builder finally handed over the apartment in mid-2015, three years past the promised delivery date and 7 years since we first booked the apartment. By this time I had returned to India permanently, was married and living in Goa. I spent extra money to do up the interiors so I could rent it out instead.

After spending all that money on interiors,  I was forced to give it out on a very low rent because other owners who had gotten possession at the same time were also competitively renting out their units  depressing the rental value.

I consoled myself that at-least the builder was selling the remaining apartments at Rs.8500/sq.ft in mid-2015 making me a crorepati on paper for a brief period.

Year 2015- till Present: Multiple events cause a real estate crash

The nice feeling ended just a few months later when a natural disaster in the city caused prices of real-estate to collapse overnight. Fortunately our apartment complex was not affected physically but its value dropped as a result of the real-estate market crash.

Later with demonetisation & RERA,  the current going rate of the apartment as determined by the market and not the builder is now stuck at Rs.4500/sq.ft

That’s my story of buying a flat for Rs.3000/sq.ft in 2008 and seeing its value stagnate to Rs.4500/sq.ft ten years later in 2018.

Lessons learned the hard way:

1. Don’t buy a house when you are young. Focus on your career instead:

  • I was 27 years old when I booked the apartment in 2008
  • I’m 37 years old now and this apartment saga has been running in the background  of my life for the last 10 years and is still going on.
  • More than once, I did not make the necessary career moves because I wanted job stability to pay the huge outstanding cost of the apartment.
  • It was a waste of time & mental space worrying about ongoing issues with the apartment.
  • Focus on your career and making more money instead of ruining your earning potential by taking up a huge home loan EMI at a young age.

2. Renting is a better option until you are old enough to settle in one place for good:

  • 3% : that is the return I receive from rent after subtracting for property/water tax, maintenance, association dues, annual repairs etc.
  • 2-3% is the rental yield in most parts of India because real estate prices are way too high. You can confirm this by visiting any real-estate listing portal and comparing the cost-to-rent and cost-to-buy for the exact same advertised property.
  • So why not take advantage of this and rent when you are young instead of buying . Invest the savings towards buying a house later in life when you are ready.

3. Save up the entire amount to buy a house instead of home loan EMI:

  •  Most people only save up for their downpayment. Sometimes parents front the 20% downpayment but the young couple is stuck with the EMI for the remaining 80%
  • Instead save up the entire amount of the house rather than take a loan. the returns from such savings will match any real-estate price increase that happens later. You’ll not be “missing out” on any real estate project. Someone will re-sell it eventually.
  • With EMI you’ll be paying double the price of the house. I’ll write about this soon.

4. Buy only a “ready to move-in” apartment that is atleast 3 years old:

  • By doing this, you’ll be buying what you see thereby avoiding the problem of builder delay and poor quality construction. none of that silly business of paying EMI on a delayed under-construction apartment  and also paying rent where you are currently staying
  • In 3 years you’ll see what kind of place the apartment complex has turned out to be in terms of : construction-quality, association, community, amenities etc.
  • In my case, 3 years after possession there are two different associations each claiming to represent owners while the builder is using the lack of unity to further delay promised amenities. These two associations call for weekend meetings every month and my old parents head down there every month since I don’t live in the same city. Plus there is a WhatsApp owners group that lights up daily with security issues, property tax questions, lift repair, playground issues, water quality issues, noise issues, association fights, water-logging, mess by pets, latest surprise by the builder, legal issues etc.
  • My tenants on the other hand are blissfully out-of-the-loop about these issues and I’m envious of them 🙂
  • Bottomline : Don’t rely on the new RERA act to protect you “after the purchase”. Protect yourself by being smart “before the purchase”.  Simply treat a house purchase like how you would buy a car or T.V and buy only what you can see, touch, feel, smell & hear.

5. Live as a tenant in the neighbourhood or apartment complex before buying there:

  • In my parents’ apartment complex many former tenants have now become owners in the same apartment complex. That is the smart way to buy a house. Because you’ll experience all the hidden issues only when you live there.
  • Buy a house only in a locality you know intimately. Don’t go by what you read in the news. Try renting in that neighbourhood for a few years before deciding to buy.

6. Your expenses don’t end with just buying a house:

  • Upon possession from the builder, you’ll only get 4 walls with electrical & plumbing. Even light bulbs and ceiling fans have to be fixed by only you and not the builder.
  • It can cost upto 20-30% of the apartment’s cost to set up the house interiors one-time : modular kitchen,  air-conditioners, geysers, false ceilings, modular wardrobes, T.V unit,  living room & bedroom furniture etc. It all depends on how fancy you want to get and how many rooms you have to furnish.
  • Then property tax, water tax, maintenance,  association dues, repairs and annual renovations add up to the recurring costs. So don’t think you’ll be saving on rent by buying a house.  These recurring costs are like rent only.
  • Expect the house to deteriorate in quality from the state it was purchased requiring annual repairs.  Expecting anything different is fooling yourself knowingly.

7. Buyers should always be skeptical of Builders:

  • Don’t blindly believe any estimate the builder tells you. Definitely don’t make future life plans based on their estimate. Always add a minimum 50% extra buffer to their time & cost estimates.

BLESSING IN DISGUISE

The silver-lining in all of this was that I did not use the home loan I applied for since there was no apartment being built on the ground!  Instead I was setting aside a large portion of my salary each month in anticipation of the payment requests from the builder. As you can imagine I managed to save up nearly the entire amount while waiting for the builder to finish building. This was the second best thing to happen to us: that we did not pay loan EMI. Only problem was I kept all this money in my savings account in the hope that the builder will ask for the money any time. It was stupid of me to not even invest it in F.Ds that can be broken any time. That was a lot of earning potential wasted due to lack of awareness and foolishly expecting the builder to stick to their promised timeline.

What is your story?
  1. Please share your experience as a home-buyer in the comments especially if you took a home loan EMI to buy your house.
  2. Also if you are a believer in real-estate I would love to hear your side because I’m a big skeptic now.

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26 COMMENTS

  1. I’ve had a very different experience myself in buying a home. Even though I bought in a hurry with Dad retiring, I lucked out in buying at a point in 2005 after which real estate really took off. When I do my calculations now, I’ve a notional CAGR of 14% even after the value of the apartment has basically stagnated the last 3 years. In reality it’s higher since I’ve been renting it out for the last 8 years and rent has more than covered the EMI since then.

    Inspite of this, I agree with your point

    – 14-15% CAGR was perfectly possible in Mutual Funds over the last 12 years
    – Though my home is notionally worth a huge amount of money today, I’m sure that when I actually try to realize it, it won’t be anywhere near as easy as selling some MFs. I’ve known folks who took a couple of years to sell their investment houses
    – It’s in Mumbai where I have no intention of moving back to having been away for 13 years now

    With all these learnings, I’m a lot more careful now. I’ve been in Pune 4 years and there’s pressure from my wife and parents to buy something permanent but I’ve been successful so far in convincing them of the benefits of enjoying a rental place.

    When I buy again, it will be will be at retirement after I’ve decided where to stay and it’ll hopefully be funded by selling this one.

    • Wow! those are fantastic returns Anil. That it is indeed a great real-estate success story!
      Just curious if you included the total EMI interest paid while calculating CAGR?

      Actually I also bought the apartment only for my parents 🙂 After renting for 20+ years mainly for my school/college education they decided to settle down in the city itself. Because of my apartment’s endless delays, they ended up buying their own apartment after selling their house in our home-town! That is how I ended up renting out this apartment and I don’t know what to do with it now with the crashed value 🙂

      Profit-booking when prices are high is easy in the case of mutual funds. You simply sell a few units and move the profits out of mutual funds. But in the case of real estate unless you sell the entire house when the prices are high, you can’t book profits. By the time you want to sell it there is no guarantee that prices will be high again. That’s kind of what has happened to me with my apartment

      Rent is one way in which I’m booking profits now if one can say that 🙂

      • That’s an interesting question actually. It motivated me for the first time to sit down and do my complete calculations for XIRR on the Property. Here’s the results

        Plain XIRR assuming I bought it for cash in 2005 (fully loaded with interiors and associated costs) and sold it for cash today – 12.8%
        XIRR using down payment and EMIs only (assuming no Tax shield, no income from rent and no maintenance costs) – 13.1%
        True XIRR(including downpayment, EMIs, rent income for 8 years, tax shield on interest component, flat maintenance charges, large repairs and occasional brokerage on rental changes) – 15.6%

        That’s a pretty good investment by any standard. 3 things worked in my favour I think
        – Since my dad was only 2 months away from retirement when he suddenly decided he wanted to stay on in Mumbai, we were forced to buy a ready to live-in house
        – Interest rates were pretty low then so we were able to negotiate a 15 year fixed interest 9.25% loan
        – We bought at just around the beginning of the big boom in property prices in Mumbai. In fact, it had already started when we bought. Just a year before we bought, the same property was available for 7L less. From 2005 to 2012, we saw nearly 20% YoY appreciation. It slowed down to about 10% from 2012 to 2015 and since 2015, it’s been stagnant.

        If I had to do it again today, I probably wouldn’t take the risk. In 2005, I was paying almost half my salary as EMI so it weighed pretty heavily on me. Even today, I suspect the value. I always feel that when I go to actually sell the place, the same broker will give me a dozen excuses – “purana property hai sir”, “market abhi down hai”, “vastu thoda theek nahin hai” etc. etc. A solid fund like ICICI Bluechip which I have been with since 2010 has yielded 15%+ over the same period. Same return with much less hassle.

      • Thanks for the XIRR Anil! It helped me understand that all is not gloom with real estate all the time in all locations 🙂
        Looks like your rent juiced up your returns. One more reason to buy only a ready-to-move-in house.
        No matter how we look at it, you’ve got good returns: not taking emi at all, taking emi but no rent, taking emi & getting rent.

        I think I’ll also do this exercise at some point including the rent I’ve received. I suspect my rent will juice up my returns above the 4% CAGR in my case. Thanks for the mathspiration 😉

        All said and done, I agree that mutual funds offer the same return with much less hassle, easy liquidity and importantly easy profit-booking. I too will not be taking the same risk again with real estate 🙂 I took the risk only because I was the only earning member of the family at that time. I did not want my retired parents to risk their retirement savings on such a big & uncertain investment. I’m happy that my parents’ retirement was insulated from all this apartment drama.

        Thanks for enriching the conversation Anil!

      • btw.. I just sat down and did the XIRR for my apartment.

        True XIRR : 4.5%
        (no EMI
        periodic instalments to builder over 7 years
        interior work costs after possession
        rent received for 3 years
        property tax, water tax, maintenance for 3 years)

        This was a very useful exercise Anil because I could see how rent received, recurring costs & final sale price affect the total returns.
        I played around with different scenarios like price increasing by Rs.1000/sq.ft which returned an XIRR of 7%
        I was even able simulate the returns for the apartment remaining vacant without rent and selling after a few years
        Thanks for pointing me in the right direction!

        For anyone interested in an XIRR calculator, here’s a ready-to-use excel:
        https://freefincal.com/xirr-returns-calculator/

      • Awesome…I’m essentially a geek so I love such calculations. You should see my Networth spreadsheet. I update it quarterly and it’s got all sorts of geeky formulas built in that give me various return numbers, weights, comparisons etc.

        Keep in mind, another thing that juices up my numbers is the Tax shield. It’s the reason I’ve yet to prepay the loan. At no time has my effective interest on the loan been above 6.5% since I showed it out on rent (initially to my parents and later to tenants) so I always deducted the entire interest. You didn’t enjoy it because you never took the loan but for me, I was borrowing at 6.5% but enjoying a higher rate of return on my investments – especially the one I made in equity.

        Net net, while I don’t think property is a great investment, I wouldn’t say it’s a complete disaster either. Following some of the principles you outlined can protect someone from really screwing it up.

        If you can’t afford these criteria, defer your dream a bit longer.

      • Hi Anil
        I was quite intrigued by your tax offset strategy on rental property bought with EMI and did some research.

        Looks like the Government is about to close this tax benefit in the near future.

        Came across this article from 2017 : “Govt restricts tax benefit on let-out property to Rs 2 lakh. Illustratively, if the annual interest component in the EMI is Rs 5 lakh, the home-owner could earlier claim deduction on full Rs 5 lakh on such property, but now can only claim up to Rs 2 lakh in a year (carry forward allowed for 8 years)”
        https://indianexpress.com/article/business/budget/budget-govt-restricts-tax-benefit-on-let-out-property-to-rs-2-lakh-4504911/

        Now with the tax benefit drastically reduced, real estate is even more unattractive as an investment for the future.

        More articles on this:
        https://housing.com/news/rs-2-lakhs-cap-interest-deduction-impacts-property-investors/
        https://www.livemint.com/Money/11Umu3dt9ylI4brrMhwD7H/From-FY201718-there-is-a-Rs2-lakh-cap-on-setoff-of-losses.html

      • Hi Naren,

        Yeah I’m aware of that. Hasn’t affected me so much because the interest component on my EMI has fallen below the 2L mark now. But I did enjoy years and years of the benefit. As I said, it made a significant difference to my XIRR. In effect, I was borrowing at 6.5% and earning tax free 12%+ on my Mutual fund investments. Even my debt was earning more especially through the high interest period from 2009 to 2015.

  2. Firstly, I see you plan to retire by 45 that sounds exciting 😁

    My story, last year I purchased 8year old flat, it’s the first flat I own, the first rule I put for myself was to buy only an flat which is ready to move as I intended to move immdiately, the second rule buy an flat in a good area so later if needed I can rent it out easily or maybe even sell for a good price…

    Yes, I lived in the same area for a good time and I was in love with that area, as it’s one of the best areas, also I ddidn’ want to buy in a big city as I had got good taste on how miserable the life gets with apartments built in any place with literally hopeless infrastructure around…

    For me the area had to be peqceful and livable, I know tomorrow the same factors will help me fetch a good deal if I plan to sell..

    Yes, maintenance is going to make a dent and I do feel many times rented place would have been great but living in a rented place for about 7years I know the downside, one the rent won’t stay the same and the factor of the landlord may ask you to vacate and we all know it’s such a pain process to find another place and shift..

    Yes EMI depresses me but am happy that I found a good place where I would love to live and done’t buy a flat just for the sake…

    My story 😁

  3. Completely agree. When I sold my flat in 2013 I calculated my IRR and it was a measly 3.8%. I made another mistake in 2014 in buying a new villa that the builder is yet to complete and is now under NCLT for default!!. God help me !!

  4. 1. @mahesh: rented roof ain’t that bad ( things have improved drastically) when it comes to rental specially in metros. The kids also grow up fine . But in the mean time , if you have saved up for ten years ..believe me you will be in much better shape financially. For every 10 people who got lucky with real estate post 2008, 90 have been bitten way to badly. I was also wanting to be one of them to make sure I buy in 2012, could afford the down payment and complete payment by 2018 but resisted seeing the madness. Today flats bought by my known ones across new gurgaon, Noida lie vacant and undelivered and price is lower by 10% onwards of 2012 price. I also see thousands of vacant flats spewed across.

    2. Cyclic nature of real estate is rhetoric .. perhaps this time cycle gonna last longer.. remember market can be irrational for more time than you can be solvent… I don’t see a reason why should real estate price go up.. total hiring by all IT companies combined has dropped to less than 10000 in an year..lakhs of empty flats aren’t bought by end users but hordes of investors.. now add to it plugging of black money..you cant sell with out cash / you can’t buy with out cash but what do u do from the cash ..
    Only property again .. so the logjam is much bigger.. so this cyclic nature will have surprises never envisaged in India before..

    3. At 37 , I prefer to make choices rather than paying emis..yes it’s a battle at home but my spouse has understood some vagaries of this real estatearket and price tag of 1.5 crore is scaring her too..because it’s not adding up. I have tons of colleague saying real estate will increase only..I ask one single question..who will buy the one crore flat for 3 crore..the madness had a spell earlier..but today there are more stories of hands burnt rather than hands winning 😉

    4. My advise..buy home when you have saved enough for your retirmeent and child education..and who knows you will stay in a metro ..why not live in a better condo by paying even slightly higwhr rent but saving 2x in good equity funds.. this maths is far more critical to understand than prevailing emotions .. but the one who understands it does end up sleeping better perhaps..and remember loans are front loaded..

    5. Before buying ask
    a. How would u feel if you have shift city
    B. What if company goes thru a hard time
    C. What if there is a job loss
    d. What if wife can’t work because of child

    The what ifs are imporamt to evaluate because this Indian mentality of ” hume Kuch naho hoga” bites more often than not in such scenarios only

    Sorry to hear your horrid story about real estate but you aren’t alone ..many working hours are being spent chasing this dream too early

    • Thanks for the detailed comment Abhishek!
      It is like hearing the voice of the people who feel stuck with real-estate 😉

      1. You are correct that renting in metros may actually be the better choice since you can rent near your office or rent in a neighbourhood with better schools etc. Your point about the kids growing up fine in a rental is a very important one. Case in point: Not many can afford to buy in Mumbai city. but the kids growing up in rentals in Mumbai turn out fine no? 🙂
      The stories of empty “ghost societies” in Noida are very scary. I feel sad for the folks who invested in those projects. At-least I have a completed flat in hand with a tenant and the society is 80% occupied.
      https://www.livemint.com/Multimedia/VJl2Fu5YQB8Fc5cLmvYDeP/In-Photos-The-ghost-societies-of-Greater-Noida.html

      2. Dude! are you saying “This time is different” for real-estate. damn! never thought of it like that. I was expecting the flat to at-least increase to its “intrinsic value”. Guess that was too much to expect 😉 My only hope now is that when the economy fires on all cylinders there will be more buyers and the value will increase. Sigh! 🙁

      3. I want people to share this blog post with their spouse so they understand the realities of buying real-estate in this country. I suspect that most real-estate purchasing decisions are based on brief & rosy anecdotes shared by peers & elders in the course of casual conversation.
      I highly recommend reading this article which explains how apartments can never appreciate as much as independent houses appreciated in our parents’ generation. https://economictimes.indiatimes.com/wealth/real-estate/where-do-real-estate-profits-come-from/articleshow/58429999.cms

      4. I agree with you that the best time to buy a house is once you’ve finished saving for retirement and child’s education. Who knows where you’ll want to settle down after retirement! Most Indian parents want to gift a house as inheritance to their child but it would be better for the child’s career & earning potential to gift a loan-free college education instead. Without the burden of an education loan, the child can start saving their salary as soon as they get a job and get started sooner on the path towards financial independence and living a fulfilled life.

      • 1. Yes I do believe this time it is different and different to a huge proportion. One of neighbourer bought 2610 sqft in new gurgaon at 1.9 crore.. took loan,(2012),took possession . I checked out same flat a month back and builder has reduced price to 1.55cr.( if I make an offer, I can crack it at 1.4). The total number of flats occupied is 60/476 flats in that society. The launch was in 2009. So simple question, if every one could buy it, why aren’t they moving . What benefit I get from renting 27 km away from my work place and increasing commuting time of our work plus child school unnecessarily. Here is what I did to bring across the point to spouse, I asked her to make the decision after showing her 10 flats and emi amount .. she chickened out.

        So why and how this property will ever be 1.92 crore. Needs 30% appreciation almost …and am important point.. appreciation of 30% for a 65 lakh flat and 1.55 cr flat behave very differently. Because at a buy price of 2 crore, you are literally trying to find buyers of creme la creme and that fraternity may not be buying their first residence or won’t be in hurry and hence decision making would be tough. So practically , if it takes 8 years to reach back 1.9 crore, net net that guy has lost a crore already.

        It’s a Ponzi scheme..flats specifically are Ponzi scheme..because when u go to sell side under desperation, the Murphy strikes way too often. Now a days only story is I want to sell but I am not getting any buyer.

        2. I do pity Mumbai folks who shell out crores and crores for a small 2 bhk.they forget life exist outside Mumbai too and fairly ok

        I believe in last 6 years, lot of sanity also has come to mind of millennials about housing ..

        3. Fending off social taboo: mother in law is pushing me to buy home , I asked will you help me pay emi if I lose my job.

        This is important. Yes it will cause fights at home..I have had many..but logic has started winning small battles at home agaisnt this real estate emotions ..

        It is important to do maths and ask questions … The startegy of staying in same place first is fantastic.. works out really well.. we are too fragile and start disliking things too fast.. flat is something u can’t dislike after purchase right.. but why take risk of buying it first ..this should be frist step.. spend about two years..prices won’t run away now .. they can not..for a good while..

      • From reading the comments, it is clear that Harmony in the family seems to be a big reason why we accept a big-ticket emotional purchase like real-estate. It can be lonely to go up against parents, in-laws, office colleagues and spouse. Easier to just give up and take that EMI in the interest of family harmony and not wanting to look stupid. The few who are breathing easy today are the ones who braved the fights at home to convince their family with logic, math & steadfastness.

        The only good thing with the current downturn in real estate is that all these pressure groups are on the back-foot now. Even my parents now accept that it was not a great purchase in hindsight at that young age (at-least my mother does, but my father still doesn’t!). To help them understand I showed them how even keeping the money invested in Fixed Deposits would have earned more money than the apartment in 10 years. I can break a small FD if I need but I cannot break & sell a small room of the flat! The apartment initially made me swell with pride to be a homeowner before age 30 but now I have no emotional attachment as the hard math sinks in 🙂

        Now is the perfect time for real-estate skeptics to have this conversation with these pressure groups to point out how buyers are suffering. Because these pressure groups are now changing their argument to “with real estate prices so low it is the perfect time to buy”. That may be true, but with EMI the interest portion is almost equal to the price of the house. So the total cost of purchase is double the price of the house. What’s the point of buying a Rs.1 crore house for a discounted price of Rs.75 lakhs when in the end you’ll be paying Rs.1.5 crores in EMI 🙂
        See: https://emicalculator.net/

        Buying a house when you are closer to retirement and ready to settle down has multiple benefits:
        1. You would have saved up enough to buy the house outright without needing any EMI
        2. You don’t need to think of selling the house so whether prices goes up or down don’t matter to you . That is something your children have to worry about 🙂
        3. You are not going to move anywhere for the rest of your life
        4. You’ll be buying the exact amount of house in the exact locality you want to live forever

  5. hi – I may slightly disagree. I think the best decision i took was to purchase a house in my second year of my job. I was super confident of my US travel hence took help from dad and made the purchase. I repaid him with interest. Not only was it a good investment (price has increased now) but i did not have to hunt for a house after my marraige.
    I totally feel bad for you because you had to experience a bad builder, thankfully due to God’s mercy I did not have to go through that experience.
    My suggestion to every fresh graduate starting their career is aim for a “Roti-Kapda-Makaan” as a bare minimum. If real estate is costly where you leave purchase it in your hometown. Yes opting to buy a resale flat is a good option. Keep 10% budget for a basic makeover to suit your needs.BUT purchase a house. Consider it as a NEED for yourself and an investment for your child.
    Cheers -Mahesh

    • Thanks for that contrarian view Mahesh! Glad to hear a different perspective.

      Two questions:
      1. For fresh graduates who may not get the “work abroad” opportunity, wouldn’t it be better that they at-least wait to buy a house after they are married when they’ll have double income? Especially since the spouse might not like the house or locality 🙂

      2. Since you mentioned buying a cheaper house in “hometown”, is the idea that you know your hometown real-estate market better or that you can settle down in your hometown in retirement? This will work only if you have trusted people in your hometown to manage the property no?

      that said, I still am not able to wrap my head around the urgency to “own” a house so early in life especially when renting is much cheaper. Pardon my lack of understanding

      • Hello SavingHabit Team,

        No its not your lack of understanding. It is only a different point of view which is much appreciated.

        Yes, many of my junior team members complain that “Mahesh we dont have money to buy a house in Pune” or ” We dont know where I will settle” My response to them, and it may hopefully answer your 2 queries:

        1- Yes, they will have to wait but they definitely need to start saving for a corpus. Hence say if a starting salary for a fresher, junior employee is in the range of 20-30K they should start saving 5K per month and they should have a decent corpus say after 5 years. I will assume that salary increases year on year (for Junior employees the % is usually high).

        2- Correct, that is a must. I have team members from the State of MP, Nagpur, Norther Maharashtra. I would believe we will know the home town real estate market much better. For example when i purchased my house in Pune i had no idea how the area would pan out. But i definitely know my hometown localities.
        Take help from parents, relatives, cousins (best option) who can help you find a good place. These days we can share videos of flats through whatsapp and get a good feel of the area too.

        All in all i think invest in a house. Even if you cannot buy it immediately start creating a corpus for it. There is no security like an own roof over your head. As mentioned earlier go for resale so that you can get possession/tenant immediately.

        E.g – Say in Goa, you get a decent house (2BHK) for say 40L in Satara.You create a corpus of 5L and take a loan for 35L (EMI ~35K). Rent it out for 10K. You purchase this house in 5 years when your salary goes up to 40K. You get married and your spouse earns another 25K. Typically that is the norm in the IT world.

        Hence net income – 65K
        Rent Income – 10K
        EMI – 35K
        Pune house rent – 15K

        I think with this you have 25K which a family of 2 should comfortably manage. This is just an example.

        Any onsite travel, short/mid/long term will help in closure of the loans drastically.

        Cheers,
        Mahesh

      • Thanks for the clarification Mahesh!
        I understand you now. Yes it is a different viewpoint from mine 🙂

        I did the following math for our readers from your example:
        Age 22: Fresher just joined workforce after finishing college.
        Age 27: Buys house on loan after saving downpayment and EMI can be afforded as a result of salary increments & double income from marriage
        Age 42: Home Loan EMI period ends after 15 years. Loan can be closed earlier if you get opportunity to “work abroad”
        Age 45: If couple has been investing separately for Early Retirement also using extra salary increments then they would be financially independent by now along with a loan-free house.

        I believe most people in India follow this plan only especially “IT people”.
        But sometimes people take breaks from earning or saving money that can affect this plan for example: fresher may have to pay off education loan for first 3 years, wife takes 2-year break after childbirth, IT person might take 2-year break for MBA and 2 years after that to pay off MBA loan not to mention unexpected job loss and health issues for self/parents.

        It would seem to me that How, When & Whether people buy their own house depends on their personal life circumstances, goals & priorities in life 🙂

        Thanks again for enriching the conversation Mahesh!

  6. I exactly did what you mentioned in Point 4/5. I rented in same apartment for 7 months and I know its quality/issue/association beforehand and bought a investor flat in same tower of my choice. Though there many under-constructions going on in same neighborhood, and way beyond my budget and 3-4 years of waiting, I stick to my decision going against my wife and bought well within budget and ready possession. Though after after that, even after living 4 years in it, price are stagnated and hardly any increase, but I have my mind in peace.

  7. Thanks for sharing the details! It sounds like you had a tough time with the builder not unlike in many other developing countries. At least the builder didn’t disappear leaving with a loan on no home at all. A typical story in Poland in the past before the law changed to protect against such criminal activity. Fully agree with checking approvals, neighbourhood, and other factors of the builder. Land ownership is basic but often overlooked by young people. Financial liquidity of the builder is another such essential aspect. I tend to buy from proven builder that build for their own cash, have all approvals lined up and build using quality materials. The associations and follow on cost can significantly reduce your margin. On 4 apartments which I bought outright, I generate 7% return post tax and maintenance fees. But one other apartment is generating ‘only’ 5.6%. That is a huge difference especially since it is the most expensive one of the lot. It’s costing me thousands of dollars a year but I will get this back as a) I got involved in the management and will sue the association for mishandling of funds and cheating and b) I realised there is a market to compare notes so I am building a portal to help people compare maintenance costs to create awareness of costs and how it affects your ROI overall. 1.4% difference on 200,000$ investment is alot and we as owners need to be equipped with the knowledge and tools to fight back against cheating building managers.

    • You are correct! at-least my builder did not run away or leave the project incomplete. I consider myself lucky in that regard.
      In India there are cases where the builder has declared bankruptcy leaving the buyers in limbo or owners have filed lawsuits for poor quality or incomplete construction etc

      In the end, I feel one should have the right mindset for an investment.
      I prefer investments that are liquid and transparent which I can research, purchase & monitor online and sit tight during volatile phases.

      In hindsight, I realised that I don’t have the right mindset for owning real estate which requires your physical presence “on-the-ground” like knowing the locality intimately, its future prospects, dealing with builder mischief, association politics, property tax matters, finding and retaining tenants, performing regular repairs & maintenance, skilfully navigating the buying & selling of a high-value asset etc.
      I understood this concept by reading this article:
      https://www.livemint.com/Opinion/cTXIodOW7xOWCHvxjO6hpM/Getting-that-real-estate-kind-of-feeling-again.html

      Unlike developed countries, the concept of “property managers” is not yet common in India. So I cannot outsource most of the grunt work of managing this property. My old parents actually handle this since they live nearby. I don’t want to trouble them too much so I’ll probably hire a property manager in the near future.

      I’m impressed by your willingness to get involved in your association and take them to court etc. I’m not sure most people have the stomach or time for it. You my friend have that “real-estate mindset” 🙂

      • Very true! Real estate is not for everybody but it is great you tried and found out early. I’ll have a read through the link you shared. Thank you! I have also my parents supporting me but I try to keep it to a bare minimum and so far it has worked well. The developer issues I never expected but I a cannot leave it be, especially since it is costing me money while I am paying his bills (together with the other owners who don’t have the stomach)

  8. hanks for this piece of useful and insightful experiences shared. Really invaluable. That renting is a better option today than owning, is a rarely quoted/accepted truth. But only as long as you have the financial discipline to save and the willingness to change house at short notice. For most of us, the former (forced saving) is often the single largest factor contributing to the decision of buying a house. Not everyone will have commendable saving habits like you guys.

    But I guess you are being a bit harsh on yourself. You were let down by your builder, something that you couldn’t have foreseen initially. When rentals are about 2/3rd or more of the EMI cost, it might make sense to buy a property even on EMI. Remember tax rebates also come into the picture.

    Like share markets, property markets also go through a phase of correction and consolidation before appreciating in the long term. And again like share markets, you can’t ‘time’ your purchase. You can at best take calculated risks.

    No question of believing in real estate. It’s just a necessary evil that has to be taken care of. If you are trying to preserve the real value of your money, real estate and equities are likely bets most Indians will choose. And its difficult to say which is worse.

    WE may have Global Warming at the moment but ultimately it’ll all be ice at some point in time. Similarly, once Indian markets evolve, ultimately capital will be cheaper and return on capital that much more dearer. That makes our task infinitely more difficult 🙁

    • @sydbarett
      Appreciate your thoughtful reply! Thanks for taking the time to read the long story.

      To give you real numbers:
      The current value of the flat is ~Rs.50 lakhs
      Rent in hand I get is Rs.13,500/month ( Rent of Rs.17,000/month subtracting maintenance & property tax of ~Rs.3500/month)
      EMI for the same flat would be Rs.35,000/month ( assuming 8.75% interest rate on loan amount of Rs.40 lakhs after 20% downpayment)
      This makes the rental return about 1/3rd of the EMI
      So renting is still way cheaper than EMI when the property value is at an all-time low. When the property value increases, the rent will be even cheaper compared to the increase in EMI.

      You are bang-on that real estate also goes through a cycle like stock markets. Currently the real estate market is probably at its lowest point. I can say this because ten years back that piece of barren land was going for Rs.3000/sq.ft. Even assuming the builder priced in the future development, I don’t think Rs.4500/sq.ft accurately reflects the subsequent development that has taken place since in the vicinity. That’s just my opinion though.

      You are correct that I am being a bit harsh on myself 🙂 Mostly I feel foolish for wasting so much money early in my life and I did not even take EMI! No point in talking about frugality on small purchases like tea, coffee etc when we waste lakhs of money on big purchases.

      That is why we are recommending “Early Retirement” as a better way to do “forced savings” instead of using real-estate like our parents’ generation 🙂

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