How that dream home is killing Indian Entrepreneurs!!!

The most preferred investment option of Indians is real estate or more specifically buying your(own) house. Whether peer pressure or family pressure or excess cash from working abroad, the first priority of every young Indian is to buy a house. Most of them buy a flat in a multi-storied apartment complex. How wise is this decision is a debatable subject.

There was a time (at least 5-7 years back), the flat price was at attractive level, those who could afford to buy at that time made a killing. But that can not be extrapolated to the current situation. Real estate prices in most cities are inflated and at all time how level now. Then why do people mindlessly fall in that dream house trap. Owning your own house has its own emotional satisfaction but I would be more interested to analyze the other side of the story.

Let us analyze the reasons for which people make that decision:

Pressure from family or peer or relative is one of the reason for people to buy house. We compare all friends or colleagues or cousins owning house and try to catch the bus before its too late. Everybody has bought a house, so should I without analyzing their situation(and compare with mine). I won't go any more details on this, as the reason is more emotional than rational. 

Tax saving may be another reason for buying a new house and also you get more tax benefit for the second house( all the interest can be claimed for tax exemption). So If someone can afford a second EMI or down payment go fort the second house. More over the people who are buying the second house are the ones bought their first house long back(some 5-7 years ago hence they had made killing), so real estate has become the most fascinating investment for them and they encourage everyone to buy house as soon as possible( I'm sure you are familiar with one or more such characters).

The third but most logical reason is, you need your own house for a peaceful living. So is it wise to buy the house which you can rent for one third or one fourth of the EMI? In recent past, house rent has increased in most part of the cities. At the same time, if you put little more effort, little away from the metro stations or the IT parks, decent houses are available at very affordable price(rent).  

Last but not the least, investment, most of the people buy for the capital appreciation. You will find very few people(like me :)) who have not bought a house or no plans to buy, so everyone perceives it as the best investment opportunity. Yes the house price increases in most of the cases, but so as your interest burden(as we loan 80-90% of the cost). All your friends, neighbors, relatives, developer, broker, banker,evaluator,architect are in favor of purchasing that house as they all will be benefited directly or indirectly. Most of them also maintain at least 15-20% higher market price for their own house, like : " I had bought it for 45 Lakhs three years back, now my house worth 85 Lakhs" really? Post an advertisement for sale and check your self. Don't go by the prices quoted by developers and brokers for houses in your area. Only 10-20% people go for an old house and they bargain hard for the final price. Do a calculation of the total cost including the interest and the opportunity cost(down payment paid would have earned some return invested else where). Also its not so easy to liquidate your house when you are in an emergency. So in most of the cases the investment becomes just an unsold one, so you become forcefully long term investor.

The other part of the story is: The real estate is the largest stock of black money, the whole builder, developer, government machinery conspire you to buy you that home and pay loan for rest of your life, I'll write more on this in my next post.

So only thumb rule I would give : Buy the house only If you can pay at least 30% down payment comfortably(no extra personal loan or loan from friends or relatives) and the rent of the similar house should be at least 50% of the EMI you would be paying.   
Regarding the title of the post, If you have a home loan, you can never think of taking any risk to invest your time or money for another venture and you work for the bank whole your life.


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