DECIDE BEFORE GETTING HOUSING LOAN.A USE FUL MESSAGE TO CENTRAL GOVERNMENT EMPLOYEES AND OTHERS

To buy or to rent?



Deciding on whether to buy a house or to rent one is never a simple decision. In most cases, it leads to a Catch-22 situation depending on the age band one falls into. Still people forget that the question is not whether to buy or rent but when to buy!





Real estate investments have rarely gone through a downturn except for a few extreme circumstances like the most recent financial crisis.





Yet even if you find yourself in a spot where a newly purchased property needs to be put up for sale due to unforeseen circumstances, the proceeds shall most certainly outweigh the money spent.





Here’s a ready reckoner on the parameters that you must consider before zeroing in on a decision.





Forced savings





Time and again, it has been seen that people in the lower age group between 25-30 consider renting a better option as they like to be more mobile.



The first instinct usually with them is to compare payouts for rent against monthly installments to decide whether it makes financial sense.



Since EMIs typically are almost double of the payable rent, owning a house appears a lot more expensive.





“They don’t take into account that while rentals will rise over the years, EMIs will remain constant. So what seems cheaper today may become more expensive in a few years,” says Rajnish Kumar, head of product and marketing at Fullerton Securities, a wealth advisory firm.





Actual cost of a loan is lower





Besides, actual cost of a loan is lower because of tax deductions allowed in case of ownership despite tax deduction on rentals available as well.





Moreover, owning a house is a form of forced savings, even as rent is an expense that drains one out every month. Financial planners say that owning a house shouldn’t be seen as a move that reduces your mobility.





“In today’s times, when renting out one’s house is an easy and safe option, I don’t see why house ownership should be deferred.You can always lease out your house that can easily offset the cash outflow for your accommodation rental at a new place,” says Shuddhasattwa Ghosh, associate director, tax and regulatory services at consultancy firm, PricewaterhouseCoopers (PwC).





Be realistic





One aspect you should always be wary of is that never get yourself in a situation where you are biting off more than you can chew.



Many a times, it has been seen that DINK (Double Income No Kids) couples give way to the desire to own that dream house and end up making an expensive purchase without bothering to think about the future.





“The assumptions, a lot of times are ever-rising salaries, unlimited opportunities, zero dependents and negligible personal responsibilities.





"However, what they do not keep in mind is that once they start a family, they may or may not be in a position to continue earning the same salaries. That is where managing loan burdens can be an uphill task,” says Aditya Gadge, a certified financial planner and manager-marketing and business Development at Financial Planning Standards Board (FPSB) India.





EMI loan amount should not be more than 40% of your take home





As a rule of thumb, financial planners say the EMI loan amount should not be more than 40% of your take home. If you are buying your first house and plan to inhabit it yourself, make sure the return on investment pitch given by the builder or the broker doesn’t fool you.





“In all probability, you will not be selling this property for a long-long time to come and specially not to make investment gains,” says Gadge.





For those living in metros like Mumbai where the intra-city distance could be greater than the distances between two major cities of any other state, proximity to the work place should be one of the biggest determining factors while assessing whether to buy or rent a house.





For example, the two biggest cities of Chhattisgarh, Raipur (capital) and Bilaspur are only 120kms (that is almost equivalent to total stretch of Mumbai) apart, which can be covered in less than two hours. In comparison in Mumbai, traveling 15 km on a good day can take you a minimum 75 minutes and on a bad day can take up to more than two hours.





House property can come to a great use in the old age





Further, with financial institutions offering reverse mortgage schemes, the house property can come to a great use in the old age, if so required.





You must not think at any given time about how much money you can save in the long run if a house is purchased. This can be risky and myopic.





Another caution you must exercise is don’t let the increasing real estate rates and decreasing interest rates fool you in to feeding on the housing craze.



Significant gap between cost of buying and cost of owning the house





“There is a significant gap between cost of buying and cost of owning the house. If you can’t afford the real cost of ownership, no matter how mouth-watering the interest rates are, it just doesn’t make financial sense to hop-on,” says Gadge.



Moreover, in case of individuals who have spotted good business opportunities and would like to trade off their salaried professions for the charms of entrepreneurship, financial planners say having a high loan burden could act as a dampener or in some cases can completely derail the business plans.





Such people can find it difficult to come up with a regular answer to their EMI calls and may never be able to take up the challenge.





courtesy;The Economic Times