As we all know the real estate prices have sky-rocketed in the last 2/3 years in India. I have had a hit and a miss in the real estate.
I bought my flat in 2003 for Rs.1100/- per sq.ft in Valasaravakkam, a suburb of Chennai. Today, Purvankara is quoting Rs4200/- per sq.ft in the same locality. After discounting for the age of my flat, the appreciation is around 3.5 times in the last 4 years. I think I was lucky to have bought a flat in 2003. When I look back on the decision I took in 2003, I think it was a wise decision. Even while buying the flat, I hesitated to go for a big ticket loan and limited it to Rs10 lacs and 2BHK and a no-frills flat.
This is an example of where I really missed making some big bucks. In the same year of 2003, I was introduced by my friend to a land promoter and I went and visited a piece of land near Porur Junction. The developer was willing to sell 2400 sq.ft (1 ground or 5.5 cents) of land for Rs3.3 lacs at Rs137.50 per sq.ft. As I was looking for a flat at the same time, I decided to invest the money in a flat rather than buying a ground of land. Hold your breath, today the plot of land is selling at around Rs.950-1000/- per sq.ft (Rs20-24 lacs for a ground). An appreciation of more than 6 times!!!
Why I am writing this today?
In hindsight, I feel I could have bought both the flat and the land in 2003. I would have easily got my housing loan raised to Rs13 lacs instead of Rs10 lacs and spent the additional Rs3 lacs on the real estate land. If I had done that in 2003, today I could have sold the piece of land for say Rs20/- lacs, settled by housing loan of Rs10 lacs and left with cash to the extent of Rs9-10 lacs. That was a very wishful thinking.
What I have learnt from this incident?
1. When I took the housing loan, I never thought my salary would increase so much in the next 4 years. My salary has increased beyond my imagination in the last 4 years and now it looks stupid to me on the amount of housing loan I have. But honestly I didn't have very high visibility on how my career would progress in the next 4 years. Not many of us would have had 4 years ago, I guess, on their salaries, their progress in the career etc., So thinking too much into the future is not going to help in a great manner and the future is always unknown!
2. I am not risk averse but at the same time I dont have an appetite for high risk ventures.
3. Flats dont appreciate like land!!!!
4. If I am planning to buy a flat in the near future, I would also buy a piece of real estate along with the flat. May be, after 5 years from the time I purchase a flat, I can sell the real estate and repay the full or atleast part of the home loan.
Lets illustrate it with an example:
1. Cost of the flat - Rs30 lacs
2. Margin money - Rs4.5 lacs (15% of the property value)
3. Additional margin to meet the real estate demand - Rs1.5 lacs.
4. Total margin required - Rs6 lacs
The additional margin of Rs1.5 lacs is used for buying a piece of real estate. Lets assume that it appreciates by 20% a year for the next 5 years. At the end of the 5 years, the initial investment of Rs1.5 lacs would be worth Rs11.16 lacs. This would help us to prepay either the full or partially the home loan.
When I go for my second housing loan, I will definitely try to implement this!!!
The above illustration is based on 20% appreciation in Real Estate which is being witnessed currently. It may or may not be sustained in the future. This is not a professional financial planning advise. Therefore, I suggest that you make your own decisions or consult your personal financial planner.