#Vitarkka: In assessment year (AY) 2017-18, there were approximately 4.98 Crore taxpayers across all categories.

In assessment year (AY) 2017-18, there were approximately 4.98 Crore taxpayers across all categories.

Of the approximate 4.66 Crore individual taxpayers, a revelation was that about 8.25 Lakh individuals earned an income of over 25 lakhs per annum whilst 37 lakhs individuals earned between 10-25 Lakhs per annum. A very small number in a country with 140 Crore people.

If you were to travel back in time, real estate was the one possession which was a lifetime achievement for most parents. A legacy if you’d like, which would pass on to the next generation. This however, was restricted to a select few even then. India has been on an economic upswing since 1999 when Prime Minister Vajpayee laid the foundation to connect the country through a golden quadrilateral, amongst several other measures to build the economy. Then came the Y2K era which post year 2000 brought about the technology boom. As they say, the rest is history. People started to migrate from small villages and towns to the cities in India. Sleepy retirement cities like Bangalore just woke up to endless possibilities. The rise of technology gave rise to many industries, one amongst them being real estate. The salaries for this generation was far more than their parents generation. The tech generation had substantial disposable income as a result of high paying jobs.

Prices of property in cities like Bangalore were extremely reasonable at the beginning of 2000. Apartments were being sold between Rs.700-1200 per square feet and plots were priced anywhere from Rs.150-Rs.300 per square feet in upcoming locations. Turn to 2018 and the prices of apartments in these locations are beyond Rs.6000/- per square feet and plots priced exorbitantly at beyond Rs.8000/- per square feet. An over 5x growth on apartments and a 25x growth on plots.

The year 2000 was also completely different from the present moment as many things have changed in these past 18 years. Between 2000 to 2008 there was an amazing opportunity for salaried employees to invest in multiple properties during their pre-launch stage. Using their ability to service multiple EMI’s, individuals made a lot of money in flipping properties. Once apartments, for example, crossed the Rs.4000/- per square feet mark, it became challenging to flip them and many individuals got stuck with second and third assets. The other change was the travel bug where individuals with their disposable incomes began travelling the world. Then came the famous ‘Masterchef’ program and the world of gourmet food in India changed, with so many restaurants and cuisines made available, that dining out became a fixture. In time Swiggy and others like them changed restaurant dining to home dining. The first microbrewery opened in Pune in 2009 which led to a beer revolution in India with thousands following suit. The banks started dishing out loans to buy TV’s, electronics, cars and in no time EMIs were stacking up on credit cards. Disposable income was used to enhance an individual’s lifestyle.

With this data, it’s safe to say that a very small population in India are capable of buying homes. The good fortune is that most of India is now understanding that aping America is not the solution. Therefore, most of India now understands that their parents have a home and that they can at any given time have a roof over their head. Its also valuable for families to stick together and buy an asset (if they so choose to) as their pooled income creates less burden which otherwise would fall on one individual.

Of the 4.66 Crore individual taxpayers in assessment year 2017-18, 4.58 Crore individuals have incomes less than 2 lakhs per month.

However, one thing which is going to change in India, is the way millennial’s live. Micro-homes are coming up in a massive way in suburbs and new-growth regions which would be connected with the metro-rail as well as other modes of transport. The reason for micro-homes is the fact that with rents on the rise, the same money could be invested in owning a compact home which could be, say a 2 room with 1 bath of 600 square feet priced at 25 lakhs give or take. This would give rise to a host of benefits under the Prime Ministers Yojana Scheme and would mean a low EMI for the buyer of less than Rs.20000/- per month. This would be the same amount as the rent paid earlier and would enable the individual to now own an asset.

Sobha, a leading builder in Bangalore, paved the way for many micro-home projects with their Dream Acres series. Having built this on 82 acres of land, the amenities would make the residents stay outdoor more than indoors. Therefore, micro-home developments will have an eco-system filled with amenities which would make individuals want to buy and not feel the pressure of owning a big, plush home as a result of peer pressure. Also, the maintenance of compact homes would be far easier and cost effective. Micro-homes are also being defined by millennials who are constantly mobile, rarely cook at home and are a small family.

One thing to consider however whilst buying any home is that, as the city grows with many projects being built, the resale of a unit is going to be a challenge. Hence, owning a home should only be a result of gaining permanency with a clear understanding that exiting the asset may not be possible immediately and getting a profit on investment may only be possible if there is excessive demand in the location the investment has been made in. That being said, with so many projects being built, investors are going to play a major role in buying up blocks of apartments and putting them up for rent exclusively. This trend will continue over the next decade and beyond.

So the dilemma, to rent or not to rent?

With asset prices remaining flat for the larger part of this decade, its safe to say that reselling a property bought is not as easy as before and getting a profit is definitely a challenge. Hence, all indicators point towards renting as the best option. If we were to boil this down to numbers, say you took home a salary of a lakh of rupees per month, you would be able to put up just 50% of your income as an EMI. With Rs.50,000 as a serviceable EMI per month, you could afford a Rs.50 lakh apartment and would pay this EMI for the next 20 years (if the interest rate was to stay flat at 10.5% per annum). Most projects in technology corridors will be able to offer you a 2 bedroom apartment for this price with decent amenities. You would over the course of 20 years, be paying an accumulated interest of about 70 Lakhs which makes the principal repayment Rs.21000 per month and the interest at Rs.29000/- per month. However, if you were to rent the same apartment, you would get it for around Rs.20000-25000 per month. The one thing which plays on one’s mind, is that the property will appreciate and give a substantial return which would make the interest cost insignificant. However, most apartments tend to deteriorate in a 5 year period and if the community doesn’t focus on maintaining the property well, then reselling the apartment becomes a major challenge. The interest accumulated over 5 years would be 17.50 Lakhs making the asset value 67.50 Lakhs. You must consider that the real estate market was on an upswing from 2003 to 2012 and thereafter has slowed down considerably. So if the market remains flat, reselling would be next to impossible and getting the price one expects, a challenge.

Thus, consider buying an apartment, if you are clear that in the event you are relocated and are unable to sell, that you would be happy to lease it out till you find a buyer. Renting however, gives you the flexibility of relocating without considerable loss and also gives you the advantage of choosing your community. If you buy an apartment and hate the community you live in, too bad as you are stuck with that community till you exit. Renting also gives you the additional income to be able to take your family on holidays and to fancy restaurants and if in the off chance a sabbatical had to be taken or a job changed, then the stress of servicing the EMI does not arise as you can service a rent till such time the next job or business happens.

Raj Kaushik – Vitarkka

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