Keep pace with reality and buy a home early so that you can swap for a bigger one when the need arises, says Sonal Sachdev
It is never too late to buy a home. Everyone knows that. But only the wise know that it is never too early. This argument rests on empirical evidence in growth economies where realty prices have over long periods trended up. A home you could buy in your city 10 years ago is unlikely to be available for sale today at less than 200% of its value then.
If this is the case, the starting early mantra that applies to other investments must apply to home buying too. After all, the biggest financial security is your own home. That’s easy to say, though. Walking the talk has its challenges. Buying a house that you’d like to live in with a far from princely salary in your early working years is difficult. Think of this as a present compromise for a future benefit.
If you dream of owning a large home in the city with your salaried income by the time you are in your 40s, buy a home now. Here’s why: a 2,000 square foot house priced at a rate of `16,000 per square feet can set you back a hefty `3,20,00,000. If you take a loan for 75% at today’s rates, that would mean an EMI of about `250,000 and a down payment of `80,00,000. Not many salaried people can afford that today. And if realty prices tread an upward path with salaries trending along at a not exceptionally faster pace, buying that home may well remain a dream.
The best way to keep that dream alive and make it a reality is to keep pace with realty. Buy a house early and keep swapping your home for a bigger one as your needs and income grow. If you do that, buying that dream home can become quite affordable.
To illustrate, suppose you buy a small 700 square feet unit when you start your career, you can easily afford to move into a 1,000 square feet apartment by the time your family gets started by setting of gains made from your earlier investment. If you continue to walk down this path, you may well have enough to see you into that 2,000 square feet dream home when you get into your 40s. (See tables: )
The above argument is a little simplistic because realty rates can swing, you could end up with a rotten apple of an investment if you don’t do your homework or better still you may amass big wealth through ESOPs that will more than see you waltz into your dream home. So, think and research before you leap.