Whether you’re fresh out of college or an experienced adult, the big question that you must have faced in your life is whether you should purchase your dream home, or just rent one.
Conventional wisdom suggests that buying a home is better. After all, we’ve all heard of stories about how buying a hard asset pays off in the future. But very few Indians actually consider the fact that there are several factors at play whilst investing in real estate.
For starters, you get exposed to the volatile fluctuations in property prices. Yes, property prices don’t always go up. This was particularly visible when ₹ 1000 and ₹ 500 notes were discontinued in a bid to curb black money transactions, and as a result, property prices tanked.
Similarly, you have to maintain the property as you’ll have to get repair works done from time to time, whether its a simple paint-job or a full-blown re-wiring of your home. All these expenses, in addition to property taxes, will be borne by the owner of that property.
Moreover, your investment in the real estate sector needs to yield better returns than a typical fixed deposit to make it worth all the risks that you’re going to undertake. This is another key factor that very few people actually care to look at.
You might have heard people bragging about how their investment in a particular property doubled in 14-15 years, but little do they realize that its returns aggregate to a mere 5% annually. They were probably better off by investing in a fixed deposit that typically yielded 7-8% during 2016.
And lastly, you need to also take into account that after the crack-down on black money, there will be a reduced number of buyers willing to invest in the country’s real estate sector. This could have a grave impact on the sector’s liquidity and bid-ask spreads.
So think again, is buying a property better than renting one? Do watch the video linked above to have a better understanding of it all.