Hi All,

I was trying to calculate the actual cost of a HOME LOAN and buying a flat. The points I included are:-

Interest Outgo of loan
tax saved
Monthly Rent Saved

property/municipal tax paid each year
society maintenance Charges
maintenance cost of flat (painting, repairs etc)
FD Interest lost as the hard cash is used for the down-payment.

In current situation with current rates of Home Loan Interest = 10.5% and FD rates (long term) 9.5% It makes no sense to buy an apartment.

Used an excel to do the calculation.
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  • Can you share the details especially the xlsheet via google docs? So that a lot of people can check and verify it themselves.
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  • Agree. One of my friends had also done similar analysis (as an investor). Unless and untill you get around 10-12% Price appreciation per year you do not reach the break-even.
    However, for buyers who will be staying in the house I don't think you should go only by the financial calculations. As you can't put a value to emotions. :- )
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  • Used an excel to do the calculation.


    Sharing the calculation is more IMP than telling us which software you used!
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  • This was discussed to some extent in a Bangalore thread.
    Reposting below the content. Pls note that the member has not considered quite a few things which has been pointed by other members, but this can be a reference .

    Source: https://www.indianrealestateforum.com/forum/city-forums/bangalore-real-estate/32532-home-sales-going-down/page19?t=34393&page=19
    --------------------------------------------------------
    Lets take example:
    You buy a 75 lac flat and takes 35 lacs loan and pays rest of it from ur own saving or by selling ur flat.
    For 5 years you will pay interest of Rs 3.6 lacs *5 yrs= 18 lacs.
    Principal paid = Rs 3.27 lacs
    Tax ded on it is 45000* 5 yrs = 2.25 lacs.
    U get delivery in 4 yrs and give on rent for 1 yr for 20K.
    Income from rent = 2.4 lacs
    Ur outlay in 5 yrs = 40 lacs+ 18lacs + 3.27 lacs - 2.25 -2.4 = 56.62 lacs
    So total investment of Rs 57 lacs in 5 yrs.
    Very conservative return of 10% annually. Ur 75 lac flat will become 1.2 crore. Total profit is 45 lacs.
    Total money u have after 5 yrs = 1.2 crore - loan pending (35-3.27 lacs) = 87lacs
    Total money after 5 yrs = 87 lacs
    You have an option to save tax on it but no option to save tax on FD.
    --------------------------------------------------------
    If you stay on rent and put 40 lacs in FD for 5 yrs @9%
    Return = 61.5 lacs. Profit = 21.5 lacs. Profit after Tax 30% on profit = 15 lacs.
    Now lets say you save the EMI and put in FD which u wud have paid if u bought flat.
    Total EMI paid = 4.2 lacs (Int + Principal)
    Total money is 4.2*5 = 21 lacs.
    Future value of 4.2 lacs paid every year for 5 yrs = Rs 25.13 lacs.
    Rent paid = 20K per month. Even though the rent increases every yr. I assume it as const. Total rent outlay = 12.5 lacs.
    Total money after 5 yrs = 40+ 15 +25.13 - 12.5 lacs = 67.63 lacs
    --------------------------------------------

    Originally Posted by tipto
    Hi All,

    I was trying to calculate the actual cost of a HOME LOAN and buying a flat. The points I included are:-

    Interest Outgo of loan
    tax saved
    Monthly Rent Saved

    property/municipal tax paid each year
    society maintenance Charges
    maintenance cost of flat (painting, repairs etc)
    FD Interest lost as the hard cash is used for the down-payment.

    In current situation with current rates of Home Loan Interest = 10.5% and FD rates (long term) 9.5% It makes no sense to buy an apartment.

    Used an excel to do the calculation.
    CommentQuote
  • Originally Posted by pratikpr
    Agree. One of my friends had also done similar analysis (as an investor). Unless and untill you get around 10-12% Price appreciation per year you do not reach the break-even.
    However, for buyers who will be staying in the house I don't think you should go only by the financial calculations. As you can't put a value to emotions. :- )


    Agreed ... but now a days COMPANIES don't care for emotions and ppl to keep switching jobs and projects.. many of friends purchased flats and never got a chance to stay in their so called home for more then 3-5 yrs...I am not saying NEVER buy a flat.. what I am saying is current scenario is financially BAD for buying vs renting... Home is not just emotions it is safety and appreciation as well.. a good apartment can act as a pension during old age if reverse mortgaed.
    CommentQuote
  • Originally Posted by honest
    This was discussed to some extent in a Bangalore thread.
    Reposting below the content. Pls note that the member has not considered quite a few things which has been pointed by other members, but this can be a reference .

    Source: https://www.indianrealestateforum.com/forum/city-forums/bangalore-real-estate/32532-home-sales-going-down/page19?t=34393&page=19
    --------------------------------------------------------
    Lets take example:
    You buy a 75 lac flat and takes 35 lacs loan and pays rest of it from ur own saving or by selling ur flat.
    For 5 years you will pay interest of Rs 3.6 lacs *5 yrs= 18 lacs.
    Principal paid = Rs 3.27 lacs
    Tax ded on it is 45000* 5 yrs = 2.25 lacs.
    U get delivery in 4 yrs and give on rent for 1 yr for 20K.
    Income from rent = 2.4 lacs
    Ur outlay in 5 yrs = 40 lacs+ 18lacs + 3.27 lacs - 2.25 -2.4 = 56.62 lacs
    So total investment of Rs 57 lacs in 5 yrs.
    Very conservative return of 10% annually. Ur 75 lac flat will become 1.2 crore. Total profit is 45 lacs.
    Total money u have after 5 yrs = 1.2 crore - loan pending (35-3.27 lacs) = 87lacs
    Total money after 5 yrs = 87 lacs
    You have an option to save tax on it but no option to save tax on FD.
    --------------------------------------------------------
    If you stay on rent and put 40 lacs in FD for 5 yrs @9%
    Return = 61.5 lacs. Profit = 21.5 lacs. Profit after Tax 30% on profit = 15 lacs.
    Now lets say you save the EMI and put in FD which u wud have paid if u bought flat.
    Total EMI paid = 4.2 lacs (Int + Principal)
    Total money is 4.2*5 = 21 lacs.
    Future value of 4.2 lacs paid every year for 5 yrs = Rs 25.13 lacs.
    Rent paid = 20K per month. Even though the rent increases every yr. I assume it as const. Total rent outlay = 12.5 lacs.
    Total money after 5 yrs = 40+ 15 +25.13 - 12.5 lacs = 67.63 lacs
    --------------------------------------------


    If you add the other expenses like maintenance cost, property tax... capital gains tax in case property is sold the RENTING wld look much much better... :)
    CommentQuote
  • Originally Posted by tipto
    If you add the other expenses like maintenance cost, property tax... capital gains tax in case property is sold the RENTING wld look much much better... :)


    As a ball park figure, on a 1L loan, you would repay 1.8L on a 15 year loan.

    Tax saving more or less cancels the tax on FD yield on capital, if invested in FD instead of the flat. So you can disregard them.

    Similarly rental yield cancels the maintenance and registration costs.

    So obviously, on a 10% loan, you need at least 12% just to break even. In 4 of the 5 decades past (except the ninetees), capital appreciation has been much higher than 12%.

    However in 70s and 80s, home loan rate was over 20%. In ninetees it was over 16%.

    So we dont have much to compare with historically.

    But in general, with such inflation and such low home loan rates (in comparison to history), it is inevitable that returns from RE will average 15% plus per annum compounded.


    Rule of thumb is this;

    Return on property = rate of inflation + bond rate = 7+8=15% expected

    Return on equity = rate of inflation + economy growth rate = 7 + 5 = 12%

    Add 10% to equity rate of returns for every 1% lowering of interest rate and subtract 10% from equity rate for every 1% raising of rate.

    In property, add 20% to return for every 1% lowering of rate and subtract 5% from property rate for every 1% raising of rate.

    (here raising and lowering is long term bond yield which is market determined and not repo rate)

    This rule of thumb is based on my own experience and is not given in any book (I havent sat down to check this historically yet)
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  • Well lot of assumptions:

    -Biggest of them all!!!!Property Rates always appreciates
    -Your income will keep on rising
    -You will always have steady cash flow
    -You will sacrifice on a lot of things because of lack of money
    -You cannot switch job in any other city,no matter how lucrative it is
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