Dear Sir(s),
My new job location will be in Pune. I have an individual house and 3 plots in Chennai & its surrounding area. My wife suggests me to buy a new flat in pune, sighting the reason that anyway we will be paying rent around 10~12k/month so an EMI for a new house won’t be too far from the rent. In addition she said when we want to move to other city again in 5 years we can sell it with handsome profit due to the phenomenal appreciation of real estate property in India.
My side of argument is,
First of all I’m not a fan of buying flat / apartment, I’m more inclined towards buying individual house where the ground also belongs to us. But considering my wife’s suggestion that the new flat will be purely for investment purpose, I quickly did some rough calculation and found below results. Please correct if I’m wrong.
Scenario for buying new flat in pune (values are assumed):
Flat value (incl reg, stamp paper, brokerage) = 60 + 5 lacs
Down payment = 25 lacs
Bank loan (for 11% fixed interest for 20 years) = 40 lacs
EMI (approx.) = 37 K (4.4 lacs /year)
Total payment for 5 yrs = 22 lacs
Total principal paid @ 5 yrs time (approx.) = 5 lacs (Outstanding principal = 35 lacs)
Value of the property after 5 yrs (@12% CAGR)= 96 lacs
Profit I may get = 96 – 35 (loan) – 17 (% paid) – 19 (20% tax)
= 25 lacs
So selling our property after 5 years yields me ‘ZERO’ OR ‘NEGATIVE’ profit considering Utilities, Maintanence & property taxes we may have paid during that 5 years.
If I put that same 25 lacs in a FD (@10%) after 5 years it would become 37.5 lacs(12.5 lacs profit).This additional 12.5 lacs would pay our Rent & Utilities. We may consider ourselves, we lived in an apartment without having to pay any Rent or utility bill for 5 years, plus I will also get tax benefits for my HRA.
So my verdict to my wife is that buying a new flat in pune is NOT a wise decision. Eventually she bought my story (which won’t happen quite often).
Please correct me if I’m wrong.
Regards,
Poovannan