Should You Buy Property Or Not

"An example of good debt is the debt on the apartment houses I own. That debt is good only as long as there are tenants to pay my mortgages. If tenants stop paying their rent, my good debt turns into bad debt."

Robert Kiyosaki

There are two reasons why people buy a property: To buy a home: When you buy a property as a home, keep in mind that the bank only pays 75%-80% of the total value of a loan, depending on bank to bank. This means that if a property is worth Rs. 1,00,00,000, you will still need to pay Rs. 20,00,000 as a down payment. In addition, considering Stamp duty and other charges, you end up paying an additional Rs. 7-10 Lacs as charges. Considering a home loan for Rs. 80,00,000 (80% of Rs. 1 crore) at 8% p.a. and a duration of 30 years, one ends up paying Rs.2,11,32,419. Therefore, for a property worth Rs. 1 Crore, you end up paying almost Rs. 2.11 crore ! A sample Home Loan pie chart showing how much do you end up paying as interest: As an investment: A property can be considered an investment if it is paid for. For example, if you buy a property for Rs. 1 Crore and put it on a lease of Rs. 30,000 per month, you make an annual return of 4%. While many investors will be thinking that the value of their property is also appreciating, if you go into historical data of property returns, you will see it's nothing worth bragging about. Additionally, it's a highly illiquid asset. The chances of you getting appropriate value at the time of need are remote. Further, if you compare the returns of mutual funds (averaging between 10%-15% yearly) to property (~4%-6%), equity offers higher and liquid returns.

This article is not to discourage people from purchasing property, but to suggest investors to analyze the reason for buying property and verify the feasibility of return on investment before investing their savings and earning, and finding the best possible avenue of investment.

Hence, make a wise decision before you commit to a loan that will take majority of your working years to repay and might not offer you the return you expected in the end.