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Recently, on a Bengaluru trip, I met Sameeksha a 25-year old IT professional who was thoroughly vexed with renting apartments. She was seriously thinking of buying a flat just to get rid of her troubles. I could empathise with her problems – cranky landlords who didn’t want to rent to single women, restrictions on what she could do or not do in her home, weird society rules prohibiting pets or visitors. All this, after paying a hefty rent of Rs 60,000 a month and a security deposit of Rs 3.5 lakh for a 3 BHK flat which she shared with two others. But once I explained to her what a bad idea it was for her to buy a home at this stage in her career, she decided to put up with the inconvenience for a few more years. Here are the reasons I gave her.
EMI burden
Early in your career, it is safe to assume you would not have a large sum saved up to pay for an apartment in cash. You may need to take a home loan to meet about 90% of your property value. Now, a typical 2BHK apartment in a good city locality would cost a minimum of Rs 1.5 crore in cities like Chennai, Bangalore or Hyderabad.
Suppose you decide to buy a Rs 1.5 crore apartment with Rs 1.35 crore funded by a home loan. The EMI on a 20-year loan would work out to Rs 1.17 lakh at an 8.5% interest. Personal finance thumb rules dictate that your EMIs should not exceed 40% of your income. So this level of EMI would be comfortable only if you make nearly Rs 3 lakh a month.
Now, many people violate this thumb rule and sign up for high EMIs believing their pay would grow over time. But taking on such large EMIs can be a millstone around your neck. With this EMI, you will need to skimp on other little luxuries such as vacationing often or buying a car. If you buy an apartment far out in the suburbs for affordability, your daily commute can be a pain. Instead, it is easier to rent a 2 BHK apartment in a prime city location at Rs 35,000 or Rs 40,000, at less than one-third of the EMI.
Lost mobility
To make the most of your qualifications and work experience, you need to be willing to move across cities. Owning a home makes mobility very difficult, because rents in India rule at a fraction of EMIs. Suppose, after buying a swanky apartment in Bengaluru you get a great job offer from a Mumbai MNC. You’d have to rent out your apartment at Rs 40,000, and shell out higher rent say Rs 50,000 at Mumbai, in addition to your EMI of Rs 1.17 lakh. This can squeeze your finances so much that you may think of refusing the offer. In the early part of your career, it is best to avoid obligations that tie you down to a location.
Inflexibility
Unlike a personal loan or car loan, home loans are taken for a minimum of 15 years, going up to 20 or 25 years. Most home loans nowadays are on floating rates. You may find your EMI or tenure rising after you take the loan, if interest rates go up.
Do you know exactly where you would like to live or work, 15 years from now? Do you know whether you will be single or married, with or without children? Will you need to take care of dependent parents? Covid taught us that life is so loaded with uncertainties that we don’t know what lies in store for us in the next 2-3 years. Taking on a hefty loan obligation for the next 15 or 20 years, can rob you of the flexibility to make life decisions that give you the most happiness. Buying a home when you are young also means that you may need to take on a new loan when you are close to retirement, because your apartment has become old and you want to upgrade.
The time to buy
So when should you buy a home? Buy one when three conditions are satisfied:
You have enough savings to make a large down payment and reduce your loan to say, less than 50% of the property value
You know where you will work and live for the rest of your life
You can pay the EMI after funding investments to take care of your other life goals such as marriage, children’s education and retirement
(Host: Aarati Krishnan, Producer: Anjana PV, Edits: Darshan Sanghvi, Camera: Bijoy Ghosh & V Nivedita)
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