“Why have you not taken a housing loan?”, is the most likely question that pop-up to you by family, friends, or colleagues. Several reasons will be put forth to commit you into a decision. My house is valued at twice the price I paid to buy it. Rentals are a waste of money and the same expenditure can be turned into an investment by purchasing a house. Income tax benefits are significant and it is simply an irrational decision to not commit to buying a house.
The decision to buy a house is as complex as deciding to get married or have children. Going by the cliche that today’s young are borne in the age of the internet, well versed with technology, and collectively inclined to question the norms you may choose to ignore the option of owning a house ever in future.
It is natural for us to prefer present over the future if we go by behavioral economists research findings of how humans make decisions. Yet, buying a house is not devoid of benefits. And when emotions and feelings are involved the definition of ‘benefits’ is also qualified.
I decided to buy a house when I turned 35. I was literally forced to buy one by the high tax liability on my annual income, emotional pressure from aging parents, and the tactical benefit of owning a ‘let out house’ compared ‘self-occupied’ one. Further, I was aging and if I further delayed owning one, I am not eligible to apply for a home loan. I had no savings to even pay for the margin money which is not less than 20% of the value of the house I chose to buy. I applied for a personal first. The loan was disbursed by the banker backed my salary account with them and no debt outflows. I was ready with the paperwork to apply for the home loan as well. By the time the CIBIL was updated with the personal loan, 90% of the sanctioned home loan amount was in the builder’s bank account who convinced me to buy a 2000 square feet house in a tier 3 city in India.
My cash flows were constrained the month after the loans were sanctioned. A fixed outflow that is equivalent to 50% of my monthly salary towards rent outflow (courtesy of buying a house outside of my hometown), personal loan repayments, and home loan repayments. As predicted by a well-wisher, ‘You will soon fall into the habit of debt and learn, by force though, to manage your other aspirations.’ And my rational head on my shoulders reaffirmed, ‘No assets are built without an equal liability.’
I managed to reverse my decision 5 years later when the income tax laws permitted me to do so. My capital gains of 30% were wiped off by the interest component of my personal and home loan. In fact, I was at a loss of Rs 18 lakh approx. And luckily this was offset by the income tax savings, I made.
So a zero-sum game for me as an individual. But a win-win for my banker, real estate developer, and Indian economy.