Answers ( 2 )

  1. I live in mumbai. So i am going to use current prices and statistics for the calculation

    Scenario


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    Price of the House 80 lacs
    Rent for the same House is Rs 16000
    IRR of the property value is 14% (The price appreciation per year)

    For housing loan of Rs 80,00,000 @ 10% over a 20 year tenure EMI comes at Rs 77,000 per month

    Now If I Buy House in Mumbai

    I will pay Emi of Rs 77000 per month
    I will pay for 20 years
    At the end of 20 years the Property will be worth around 10 crores @ 14 percent per annum growth
    If property Grows at 10 percent it will be worth 5.8 crores
    If property grows ar 8 percent it will be worth 3.7 crores

    If I Stay on rent and save the rest of the money

    So if rent is 16,000
    I will save Rs 61,ooo per month on emi
    I assume Savings of only Rs 50,000 accounting for rising rents in coming years
    So you will have total savings at end of 20 years of Rs 5 crores if investment grows at 12 % Per annum which is a challenge in the long run

    Tax Implications in both scenarios

    I am assuming that all Tax savings are at highest Tax Bracket of 33%
    So on rent of 16,000 you will save Actual rent - 10% salary = approx 14500 per month becomes deductible = 174000 annually
    SO tax saving = Rs 57420
    So on paying EMI of Rs 77000 both 80c and Sec 24 benefits are maxed out. But most people already have investments under sec 80C so will consider only sec 24, where the max deduction is Rs 200000 per year
    Tax saving = 33% of 200000 = 66000

    The tax savings are similar with marginally more saving with Home loan

    The house we are speaking about is a 1 bedroom, Hall kitchen house in a mumbai suburb measuring arun 400 square feet in area… Yes it is smaaahl house.

    But from an investment and historical real market growth perspective buying a house in mumbai makes Fiscal common sense

  2. Vaidehi

    It totally depends on your financial status, the need for the house in Mumbai and so on. However, whatever the reason might be, as a middle class/upper-middle-class person, I would suggest that renting out a place is much more profitable than buying a house. Today, in the majority of the locations in Mumbai, the price for a 2 BHK flat is no less than 1.2 crores. If you really want to own a property, I would suggest that you buy it in either Navi Mumbai, Thane or Kalyan. Here, the price is lower and you will get a better return in terms of rent.

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