How much would you give for a 1BHK flat in Nanganallur?
My uncle has moved to Nanganallur very recently. He currently lives in a 500 sqft 1BHK flat. His neighbors had told him about the infamous real estate boom and that it would cost about Rs. 22 lakhs to buy the 5 year old flat he resides now. That works out to 4400 Rs. per sqft. My uncle pays a monthly rent of Rs. 5000. Now, here’s my question. Assuming he is capable of buying that house through bank loans, is he better off buying the flat or taking it out on rent? And why? Deal or no deal? What do you think? I’ll tell my ‘paati kanakku’ later 
February 6th, 2010 at 12:01 pm
Assuming he takes a 30 year loan, and of course pays an interest of 15% on that. It does not make sense. Assuming that the inflation is almost 7% per annum for the next 30 years, then the flat would have to show a CAGR of 22% for it to break even.
Assuming that the money was invested elsewhere it would definately show higher returns, maybe 3% annualised if he didnt borrow. He is def better off without taking the loan since it hinges on another idiot buying the flat at a higher cost
PS: Flats depreciate in value since they cannot be altered, but land will def show positive returns.
February 8th, 2010 at 10:21 am
I thought this topic would attract flurry of responses..but find the otherwise surprising.
While considering only the economic factors, I would agree that taking a 20 year loan is not advisable.
But considering the factors like the peace of mind that you get while living in your own house (though pledged to the bank) the interest you pay to the bank is worthwhile.
The negative factors like, the way owner of the house puts his whims and fancies as conditions is a big let down.
February 8th, 2010 at 11:01 am
On a related note, check out this link: Why We Keep Getting Poorer: High-Cost Housingl
February 10th, 2010 at 12:15 am
vatsan,
Tell me at what price will it make sense. If you want to buy, at what price will you buy?
February 10th, 2010 at 12:16 am
Arunmozhi,
Thats true. But even that comes at a fair price, i suppose.
The exercise is an attempt to quantify the seemingly unquantifiable
February 10th, 2010 at 12:55 am
BNB,
Thanks for the link. I am yet to read it fully though..