Why you needn't buy your dream home?

Most people, especially Indians want to have their dream homes as soon as they can. Intense competition among banks (private as well as government banks) to acquire customers means it's easy to get home loans now than before. To add on to that most people believe that property prices never falls. It's a belief...so no amount of reasoning can convince such people out of it.

Sweet talk by property brokers and as-always-polite bankers make it sound so easy to buy your dream home. Here are some of the arguments they use:

Payment of rent is wastage while payment of EMI gives you ownership. Still not convinced - what if we can make your EMI equal to the rent you’re paying? EMI can easily be brought down by increasing the tenure of loans. Now you're speechless.  Next attack: remember you are paying EMI for something which will only go up in value? Think about it. This is the right time to buy a house, believe you me!  Celebrities are paid to convince you that you must have your dream home as if you missing something. Advertisers play on your insecurities of not having your own dream home. 

So why not? And you fall into the trap.

 (Check any newspapers or watch business tvs. Property brokers are always saying: this is the right to buy a home. Really? Well, it helps their revenue targets. They will get their commissions whether your property goes up or down in value so not their concern. Besides, the sale of new homes earns them higher commissions. Banks get interest income and government collect taxes and fees. And you work like donkey to repay your home loans for a home that......  Please don't be fooled by them.)

One of my friends, Mudit Khanna once came to me and announced that he had finalized his dream apartment in an under-construction apartment complex. It was some 40 kms away from his Andheri office. He said, "I want to have a house of my own. What if my landlord asks me to vacate his house immediately? I'm bachelor you know. Bachelor got no rights in these strange housing societies. Where do I go? Changing house every 11 months in a city like Mumbai is a big hassle. You have to see several houses before fixing one. Plus you pay one month rent as brokerage every time you change your house or renew the lease agreement. Then, shifting of your stuff! Very painful, you know!"

“Yeah,” I said.

******

Well, I couldn't get Mudit to drop the idea of having his own dream home. A broker took him to a reputed (yes reputed, please don’t laugh, it seemed so at that time with Bollywood stars endorsing the project) builder, and he at once gave a cheque for down payment as if he won’t get a second chance to buy his dream home.

Everyone supported him saying that it’s a good idea to have one’s own house small or big - nearer or far away. And they all want to do it if they can. Only one of his colleagues who had booked a flat in another project of this builder advised him against it. But Mudit was a true democrat and firmly believed in majority opinion especially if it was what he liked to listen.

The broker assured him that he'd get the possession of his dream home (sorry apartment) in three years. Being a nice fellow and expecting referrals from Mudit, the broker also arranged for his home loan from a private bank. Since Mudit was working for a big corporate house, his loan was sanctioned within weeks. 

6 years have passed now. The builder has already got 95% of the construction-linked payment designed by its crafty legal team to fool salaried class home buyers. Pocketing almost all the payment, the builder has stopped work on the 'gated housing project'- where most urban middle-class households try to find their dream homes given the skyrocketing land prices that make constructing your own house a near impossibility.

Liases Foras says that more than half of the real estate projects across India are delayed by over 12 months and about 25% by over 36 months.

To cut a long story short, Mudit is now paying rent as well as EMI while there is no clarity on when the builder will give possession if he ever gets the possession. And even if Mudit gets the possession, will Mudit be able to drive 40+40 KM a day in pick hour’s traffic? This is how it' happening in Gurgaon, Noida, Mumbai and other big cities.

I asked him, why he opted for a house so far away from his office in Andheri. “Simply because I can’t afford a 2 crore-2 bhk flat in Andheri East,” he said.

“Then why do you need to buy a flat so far?”

“I want to have a house of my own! Won’t everyone want one?”

End of discussion.

*******

Salaried class people have a very good track record when it comes to payment of bank loans or taxes. Banks love them. Tax men love them too especially when they look for additional tax revenues.

Meanwhile, the Mudits of urban India are often stuck in jobs they don't like or putting up with overbearing bosses they don’t want to, but EMI obligation takes good care of that not wanting to and living a very stressful life.

They keep paying EMIs hoping that one day, someday they'll get their dream homes that they'll get interior decorated in the best possible manner, and forget the idea of rented accommodation. Meanwhile, the journey of wait keeps getting longer and longer…if you don’t believe what I say, how about watching these YouTube videos depicting hellish and nightmarish experience of buying dream homes.

Not only that, builders like The 3C Company are forcing salaried class hapless homebuyers to withdraw their complaints at Consumer Courts knowing well that they can't manage both rental and EMIs for long and will eventually give in. Please read the following letter sent by this builder and see how smartly and shamelessly it does.

Well, if you're one of those potential Mudits (Sorry, I can’t do anything about actual Mudits), here's why you needn’t buy your dream home...better rent it out.

1. If you’re an ambitious salaried professional, you’re not going to stay at one place for long. Are you? Willingness to relocate often enhances one’s career prospects when jobs are no longer location specific. So, will you refuse a better job with lots of growth opportunities, just because it’s in some other city? I will not. I guess, you will not too. Thus, unless you have decided that you won’t relocate to another place come what may, you won’t be staying in your ‘bought-and-owned-dream home’ for long. So why to put too much stake – emotional or financial – in that?
2. Are you sure you’ll retain your job for the next 20 years? Are you sure, your job will remain in the job market for the next 20 years? I don’t want to scare you, but the way things are changing, most of the jobs that exist today, will not survive the next 10 years, forget 20 years. Even if it does, the same work will require less number of people. You may get retrenched or fired. So, why to have a long-term liability when life is so uncertain? Better stay in a rented accommodation especially if it’s so cheap to rent in India.

Someone will want to counter me: but one needs a house after retirement. Yes, you may need one but, not here in the middle of the city or nearby suburbs. These homes are unreasonably and exorbitantly priced for the poor quality of life they offer. 

Besides, monthly maintenance charges of these new age dream homes (often dark compact homes with no cross ventilation) applied on the basis of super built-up areas are sometimes so high (Rs. 10 to Rs. 25 per sq. feet per month) that you'll feel that you're living in a rented accommodation. Such expensive homes don’t make sense if y0u can rent them for a year for less than 2 or 3% of their prices. So why over-pay and lose your peace of mind.

Rather buy a nice cottage at some lovely hill station at less than 10-20% of the price of your suffocating city apartment and live in that post-retirement.

1. India has one of the lowest residential rental rates in the world, and with over 12 million unoccupied urban houses, rental is not going to rise much anytime soon. Implementation of Real Estate Act will speed up the completion of stalled housing projects. If not that almost nil demand from end users will force builders to behave and complete the uncompleted housing projects. That will further increase the supply of houses and keep rental from shooting off even if it’s already very low in India: annual rent is less than 2% of property value in most parts of India. While home loan cost 9-10% per annum. India’s housing boom is over for long. Home prices are not going to shoot up at least for next 4-5 years irrespective of what property analysts say. So even if you must buy your dream home, please don’t hurry.

And never buy an under-construction home even if that comes cheaper and real estate regulator is a reality from May 1. Please don’t be illusioned by regulator. Centre has left (for states) all the key provisions (section 18, 40 and 59-66) of the Act un-implemented which are supposed to fix builders’ accountability.

Going forward, builders will use all kinds of influence to get tough provisions of the bill diluted. I may be wrong but the real reason for passing realty bill is not to help buyers, but to bring potential homebuyers back to markets, who have deserted it. Investors, as you know thrive on demand from the end users, so they have left the real estate markets as well. Discounts and freebies don’t seem to be working anymore. With all kinds of money invested in the real estate sector including those of politicians, they needed to do something about it to recover their money. So they did it. Please don’t take real estate regulator so seriously.

Investors, as you know thrive on demand from the end users, so they have left the real estate markets as well. Discounts and freebies don’t seem to be working anymore. With all kinds of money invested in the real estate sector including those of politicians, they needed to do something about it to recover their money. So they did it. Please don’t take real estate regulator so seriously.

If you’re okay with staying in rented accommodation like me, please go for fully furnished houses even if they are a bit expensive. They make it easier to pack up swiftly and move out if needed even on short notice.

Don’t buy and keep too many unused or unusable things which are actually junks even though movers & packers are there to help you packing and unpacking them. So buy only what you really need even if online retailers are giving you offers that you can’t let go. Please remember: 80% off also means payment of at least 20% even if the MRP is not artificially inflated. We urban middle-class people have become used to buy and keep things that we don’t really need.

It’s time to learn about living asset- light lifestyle when sharing economy boom makes hiring (rather than owning) almost everything cheaper. Please don’t buy a car, rather uber or ola it. High priced possessions make you inflexible in moving out and you miss out on bigger opportunities. Worse, as you can see in these videos, you may lose your peace of mind for long even after paying for your dream home.

Please donate clothes, toys and other belongings that you don’t really need even if they are new or almost new. There are so many poor people in our country who need them more than you. And you get a chance to be generous. So, why not?

Please save money and go for exotic vacation every year if you can. With Airbnb and the likes, finding quality accommodation is getting cheaper each passing day. Moreover, travelling makes you rejuvenated, brighter and more productive. Please also keep part of your savings for upgrading your skills/competencies as return on that would be higher than any investment, going forward.

Older homes available for rent in central districts or suburbs of Mumbai or Delhi are well-connected, approachable, airy and with lots of sunlight, and cross ventilation. Maintenance charges are also very low so rental are also low.

Many people don’t let out their properties fearing that tenants may refuse to vacate. India’s legal system favours tenants rather than landlords – so unjust in my opinion. As a result, risk avoiding landlords keep their houses vacant rather than letting them. This artificially reduces the effective supply of rentable homes and pushes rental up.

So be a model tenant rather than a fussy one. Never trouble your landlord, rather give him extra respect for letting their overpriced properties so cheap to you. Always pay rent in time and offer to vacate whenever the landlord so wishes even if that’s a hassle for you. That would encourage even hesitant landlords to let out their properties. That will further push down the already low rental…and you’ll enjoy the benefit subsequently in the form of lower rental.I have been rewarded many times for being a reasonably good tenant.

There is no denying that there are over interfering landlords and troubling tenants. To deal with them, I will advise my readers from IT sector to make a website or an app for rating landlord and tenants the way Uber does i.e rates drivers as well as passengers.  That will encourage good behaviour in landlords and tenants, and make living in rented accommodation easier.

Any takers?

Please share your thoughts on buying versus renting even if you differ from me.  Humans should differ because we're all unique in our own ways. If we're not connected, it's time to get to know each other. You can also get in touch with me on Twitter@RiteshEconomist and@DSmartConsumer

Would love to hear your thoughts about how to make living in rented accommodation hassle free.