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Why is Buying a House Considered a Good Investment

Why is Buying a House Considered a Good Investment

In today’s economy, owning a house is made to seem like almost a necessity. So much so that some people blindly buy a house just for the sake of it without even considering the associated drawbacks. This could be a recipe for disaster. 

Like any other investment, investing in a home has its pros and cons. Though generally regarded as a wise move, is buying a home a good investment for you? To answer this question, you need to analyse your current situation and the implications, financial and otherwise, of buying a house.

Why buying a house is a good investment?

1. Financial stability

Owning a house often equates to better financial stability. Plus, the value of property tends to increase in the long term. Even if there’s a temporary dip, the real estate market has historically recovered and recorded steady growth. So, buying property usually pays off in the long run. Moreover, when you have a house to your name, lenders will be more willing to lend. In case of an immediate need, you could always offer your home as collateral for a loan and get the required funds quickly.

2. Tax deductions

You are eligible for tax deductions when you apply for a home loan to purchase a house. Under Section 80C of the IT Act, you can avail of a maximum deduction of INR 1.5 lakhs in a financial year on the principal repayment. This also includes expenses for stamp duty and registration fees. Moreover, under section 24B, you can avail of a deduction of up to INR 2 lakhs on the interest payments of your home loan for self-occupied houses, making it one of the biggest benefits of a home loan.

3. Saved rental expense

When you apply for a home loan, you pay EMIs. With every EMI payment, you get closer to completely owning your house. In other words, you are investing in home equity. Thus, every rupee spent on EMI will have consistent growth and give you better returns in the future. But when you spend the same money as rent, the cash outflow becomes an expense, not an investment. Therefore, even if your rental rates are lower than your EMI amounts, paying a larger EMI will still produce long-term returns as opposed to the rental expense that gives you zero returns.

Why you might not think of a house as an investment?

1. Buying-related costs

You can apply for a home loan to cover 70-90% of your house’s value. But you must still bear other buying-related expenses like registration fees, stamp duty, etc. In India, these could cost as much as 6-11% of your property’s value in total. In addition to the down payment, this may be a huge amount to procure, causing a strain on your savings.

2. Continued maintenance costs

After buying a house, it becomes your responsibility to maintain it. This could involve repairing and maintaining plumbing, electricity, etc. When you buy an apartment, your building manager usually takes care of this and charges you a monthly maintenance fee. With an individual house, you have the sole responsibility, which could make it difficult to handle. An individual house could also mean extra expenses like lawn/garden maintenance, clearing out vents and gutters, pest control measures, etc. In addition to these, you may also spend money on home repairs, appliance servicing, etc. However, you can easily manage them with a top-up loan, one of the many benefits of a home loan.

3. Unpredictable market

In the real estate market, it is difficult to predict when to buy or sell to maximize profit, unlike the stock market. Also, if the property’s location is not prime, it could add to the uncertainty. So the best you can do is buy when the rates are relatively affordable and sell when you can get a satisfactory return.

Choosing the right location to buy a house

Where you buy your house plays a major role in how good an investment it is. If you buy a house in a well-developed and well-connected prime location, you can apply for a home loan much more easily. Other criteria like the property size, the undivided share of the land (in the case of apartments), and the level of development of the locality or city are also deciding factors in buying a house.

To sum up

After carefully considering the multiple aspects of buying property, you can decide if buying a home fits your current financial aspirations. While buying a fully-approved house in a happening locality can be a good idea, only you can choose if it’s the right call for you in your current situation. So don’t hesitate to examine your means and needs to answer the question honestly. If buying a home is on the cards for you, consider getting a home loan to finance it conveniently and enjoy tax benefits. At Tata Capital, we offer attractive and flexible competitive home loan interest rates. To know more about our home loans, contact us today!

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