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Does buying a 90 lakh apartment make sense as an investment ? |

Does buying a 90 lakh apartment make sense as an investment ?

At 30 years of age should you buy that 90Lakh(1500 sqft) Apartment in a large city ?   Is the question which many of my friends have asked me over the last 2-3 years and each time i wanted to tell them it is a foolish thing to do because …. But held myself back  and advised them to really think if is makes sense  allowing them to commit hara-kiri. Most of my friends tell try to justify this as retirement planning  , i think that’s a convenient justification  . Today after reading the wonderful article on <Children in parents ego trap> i felt that this needs to be examined in several lights (Practically as well as from a Finance point of view)

Buying an apartment at 30 years  thinking that you are making an investment towards retirement planning  is almost akin to buying a car and using it for the rest of your life , the car will simply not last long enough. Let me explain

  • If you decided to buy  a  90 Lakh apartment(1500 sft)  for which you have made down-payment of  30lakhs  and the rest of the 60 lakhs is own loan it would mean that you will pay ₹59k EMI over 20 years . This means that the total cost of apartment would be  Rs 1.4 crores(towards EMI) +1.3 crores (30 lakhs down-payment earning  compounded interest of 8 %). Thus the apartment costs 2.7 crores Rs in practical terms and not 90 lakhs as u imagined . This is the most important aspect which is missed in investment i.e people always say i paid 90 lakhs for my apartment and now it is valued at 1.5 crores  and boost about it to friends.
  • Average Life expectancy of Indian male is now 68 years , since this is the average across people living with access to lower income and healthcare level , it would be safe to assume that you and ur wife would live for 75 years. You may live longer , but hey am quoting statistics here :)
  • Average life of a RCC structure is 30-40  years, with enough focus being given on maintenance of the building else  it would be much lower at 20-25 years .  This means that when u are 70 years and still statistically can live for another 5 years your home may not be livable ! or worse you may need to spend money out of your pocket for repairing the home to make it livable. This is the reason why flats are never to be seen as investment opportunity because the value of the building starts to depreciate fast  in fact most bankers start depreciating the value of the building in 10 years !
  • Now come to the value of land (undivided share of the land belonging to you) i.e if the building is demolished and sold how much will your share be worth !  . As the building as such is not worth anything after 15-20 years only thing that is valuable is your share of land.  From my personal experience and discussion with several of my friends who  own apartment i understood that a 1500 sq ft apartment  would mean  that you get an undivided share of 600 to 800 sft (depending on project having open amenities like garden , swimming etc) . So the valuable portion of what you have invested in an apartment is only 800 sft (higher side), which means that when you are investing  Rs 2.7 crores towards the 800 sqft of land this translates to Rs 33,000 /sqft in real terms.  Now what is expectation of the land prices after 20 years ?  Will it be more than Rs 33000/sqft  if so by how much more ?  i will leave the judgement to you … If Mumbai was a benchmark i think it is possible that in a city like Bangalore we may have a rate of 33000 Rs  in a normal locality of Bangalore after 20 years . So it really is not an investment as there is no returns or returns if at all would be very low !!!
  • Also when we consider the practical issue of flats aging and needing to be demolished . Imagine what would be the situation then ? You need to get all the owners together to agree to demolish the building before you can sell the land to another developer . Each owner would have his /her own dynamics so getting all of them to agree to a common terms will be a big challenge. I know this has been done in Mumbai where apartments over 50 years have been demolished and the land sold to new developers , but imagine the hassle of doing this when u are old !

So what is the practical way out, should one not invest in an apartment at all ?   I think it would be simpler to do the following

  • Stay in a rented home  during most of your working life (say till u are 55) => Lets calculate  what this means . Lets us assume you  would spend 15k to rent a apartment of your choice(similar apartment to what you can buy) . Assuming rental inflation of  5% each year you would end-up spending 85lakhs over 25 years. This way you always get to njoy the best maintained properties without the hassles of owning it !!! , but you dont own any asset ..:( . Yes that is a downside but upside is that you have only spent 85 Lakhs as against 2.7 crores , so you still have 1.9 crores in net savings as opposed to a home purchase !.
  • Now when it time to retire i think of 2 real options => Move to another city (tier-2 or tier-3) . Remember that 25 years down the line most cities will have all infrastructure that we will take from granted in a major metro cities , so moving to tie-3 town does not mean you are compromising on any thing at all in terms of life style , but yes properties there will be much more lower prices than the major cities. So buy an apartment with your corpus of 1.9 crores …
  • Second option would be to continue to stay in rented home , but of lesser requirements i.e move into a 1 bhk instead of 3 bhk now . Anyways kids will not be around then :)

I am sure these options may be sounding outlandish and too idealistic , but what am trying to highlight is that your 90 lakh apartment is not an investment !!! At best it is a way of saving money up for long term. The same objective can be achieved by putting money into stocks, fixed deposits over a long time. To give you the prespective , it is believed that over long term 20-25 years equities offer 10 -15 % returns thus instead of investing into an apartment you can save up a bigger corpus from the same money spent towards EMI. I can understand the emotional angle to own a house is also there but my point is that we should never mix up the emotional parts and the financial parts.  Purely from financial point of view i think buying an expensive apartment  (90 lakhs +) is akin to buying a lottery and hoping that you make much more than what you have paid for !…

To discuss more you are always welcom to write me @ avinashmkb78@gmail.com …


Avinash MB




  1. So if at all I need to satisfy the emotional side of me and purchase a flat say in a tier 2 city which is developing now, would it be ideal to buy for 30lacks (12 downpayment and 18 loan). The value has increased 1.5 times in last 1.5 years and the construction is yet to be completed.

  2. 1. The EMI comes to 50.2k(compounded monthly) or 50.9k(compounded annually) at 8% over 20 years.
    2. You cannot just add the EMI’s at different times as the economic conditions are different. (Different salary, inflation, etc.)
    3.The present cost of the apartment is still 90 lakhs.
    4.The present cost of rent of 15k at 5% rental inflation (which I think is less and should be close to the compounded interest) and interest of 8% is 15000*12/0.03 = 60 lakhs.
    5.Now you say I get 33k per sqft after 20 years.
    The difference between the present costs of an apartment and those of rent is 30 lakhs.
    This 30 lakhs becomes 1.4 crores (compounded annually) or 1.48 crores (compounded monthly) at the end of 20 years. This is the amount you will be able to save if you had not invested in an apartment.
    6.Now if I have invested in an apartment, I’ll be able to sell my apartment land at 2.7 crores (at 33k per sqft) or a little less.
    But my returns are way more than the 1.48 crores that you saved by being on rent!
    This translates to 58 lakhs (compounded annually) or 55 lakhs (compounded monthly) today instead of the 30 lakhs you save by not investing in an apartment.

    So this essentially means that investing in a 90 lakh apartment does make sense (at the rates you have mentioned, at least).


  3. 15K per month + rental inflation of 5% per year will amount to 85lakhs over 25 years. Why compounding is not considered here?

  4. this article makes no sense at all. the flip sides of staying in a rented apartment all you life are not mentioned. is it soooooo easy to stay in another person’s apartment??? u cant really renovate much if one wants to. there is a risk of being thrown out anytime…
    very bad article!

  5. Good Read, However I have seen the value of the apartment value still going up, The apartment that I rented out some time back was purchased by my owner for 14 lakhs was sold for 34 lakhs after 8 years, thus the logic of value of the property depreciating is little tricky. I feel the value will still go up and even if the same goes up by only as little as 8% per years at year 20 the value will be 3.8 Cr which is still decent.
    Also an apartment in the 90L range today can give you a min rent of 25K, and will fetch you a monthly rent of 1L after 20 Yrs keeping in mind that rent will go up by approx. 8% Year on Year.
    Overall I think its not such a bad deal. What say ??

  6. Nice article.. I agree to most of your points and believe that house is more emotional than economical decision. You have missed an important point. We get HRA benefits so the effective interest is not as high as you have calculated

  7. Hi

    It’s good to note that you’ve shown your analysis with computations and figures…

    I appreciate your viewpoints and would also like to share with you the fact that the average life of any building is minimum 50 years…

    Moreover, i agree tht the Rs 90 lakhs apartment ultimtely costs Rs 2.7 crore… But think of the value after 20 years…

    If you see the rate at which property has grown in the past 20 years, assuming the same rate of growth it wld be worth minimum Rs 10 Crore… 10 crores is still a conservative figure, may be more than that as well…

  8. My thoughts exactly! many people I know buy up apartments for “investment”, to sell them off after 4 years at double the price. Another thing that people do not take into account is inflation. If you sell your flat at double the money after 4 years, you will notice that prices of everything else will have doubled too. So you will be left with nothing much extra in value. It does not make sense toiling one’s entire life to pay off a home loan to make someone else rich!

    Living in a rented apartment makes lots of sense financially and also gives peace of mind. Broken pipes/tiles etc., owner will fix it. Free of cost! And nobody can just “throw” anyone out just one fine morning. And there are almost infinite number of floor patterns, localities and structures to choose from if you decide to rent. Also, you never get tied down to one place. If an opportunity arises elsewhere, you just pack up and leave! This “living in one’s own house” is just misplaced vanity. The house does not belong to you, it belongs to the bank. And they really can throw you out anytime they want!

  9. The rent part is a bullshit argument –
    1. You will never get a apartment that worth 90L at a monthly rent of 15K. At present time, I think the rent would cost you a minimum of Rs. 25-30K.
    2. more over a 5% annual hike in rent is minimum that is mentioned in the agreement. Actually the hike can be 10-15% or more.
    It means, a rented apartment with a rent of 25K, 10% annual hike will cost around 3cr in 25 yrs….

  10. That’s called the difference between myth & reality. Myth is always ideal(which you wanted to show here, even you made some serious calculation mistake which were point out by the readers in their comments), but reality is real.

  11. Another aspect that needs to be factored in the decision making process :

    Tax benefit on interest and principal repayment of home loan which is substantial especially for people in higher tax brackets

  12. Why have you not considered tax brackets. Also the ratio of rental Vs apartment cost is not good. If you want to rent an Apartment with the cost of 90 Lac the rental is no where less than 30K per month esp in Bangalore.

  13. Dude, there are a lot of aspects to consider when you are doing this. As said, IT exemptions, Pre-closure, ability to resell the house off in a few years etc etc….and further the most important – for what reason a person is buying a house…

  14. All those arguing for buying the apartment at 90Lakhs does forget one point. Will the City be suitable for living when you reach ur retirement age. WIth the level of pollution increasing and the life style we have, we may not live to see our retirement too. So why invest and waste money and get tied up with a small budget left after spending on the EMI for the rest of your life??? Better Enjoy life to the fullest. After all you have only one life and let it not be wasted!!!

  15. The value of the apartment appreciating to 10 Crores and all is ridiculous. My salary was a meagre 10,000 10 years ago and I earn 1 Lakh now, but 10 years ago it was as good as it is now!!! People are missing the inflation factor. Just don’t go blindly with the amount of money you make, because its not its actual worth!!!

  16. Having a house is always an assets.

    If you are talking about Mumbai,then go and check yourself what is the rent in Mumbai?

  17. Rent calculation done by the writer of artical is totally wrong. It seems he is a young blood with no clear vision and experiance.

    Following should be considered.

    1. Rent is increased by land lord at a rate of 10% every year. You have considered this as only 5%.

    2. When you change your reneted house you have to money on brokerage, rent agreement, reloaction (movers and packer). In general broker take 1 month rent as brokerage.
    3. You spend some cost on maintainance of rented house too. For example every time you change your house, you have get your tatasky, RO, AC… and lots more.

    I did a calcualtion considering following point:
    Starting rent of average 2/3 BHK is 18000/- per month in a city where you mentioned the flat cost as 90 Lakhs.

    I am taking 10% increase in rent every year as this real figure what landlord is asking. I can understand after few year the magnitude of 10% will be a big amount. But be sure this increase in rent rate will not come down below 10%.This means in 2020, i will be paying double rent amount that of 2013. In 2013 i am paying 18K and in 2020 i will be paing 36K.

    In my calculation, I have also consider brokerage, movers and packers, deduction in security amount given back by previous landlord and other thing which every person living on rent can imagine. In general we live in rented house of 2 to 3 years. Landlord dont want you to stay more than that.

    So to get the annual rent cost, i will multiply monthly rent with 13 instead of 12. This will cover all broverage, movers and packers,deduction in security amount by previous landlord, installation cost and processing fee for your home product like tatasky, AC,RO, Fans, Internat etc.

    I know we will stay in same house for 2-3 year but i have averaged out cost coming from above all factors and hence i have taken 13 months in a year instead of 12 months. Hope every one understand my point.

    So starting 18K rent with 10% inflation and 13 months in a year, Total rent paid in 25 year is coming to Rs. 23013212/- which is 2.3 carore.

    Finally atfer 25 year, you end up paying 2.3 Carore as rent with no asset of your own.

    I am pasing result of my excel calcution, hope this come correctly foformated on this site.

    Year Monthly Rent Annual Rent
    2013 18000 234000
    2014 19800 257400
    2015 21780 283140
    2016 23958 311454
    2017 26354 342602
    2018 28989 376857
    2019 31888 414544
    2020 35077 456001
    2021 38585 501605
    2022 42444 551772
    2023 46688 606944
    2024 51357 667641
    2025 56493 734409
    2026 62142 807846
    2027 68356 888628
    2028 75192 977496
    2029 82711 1075243
    2030 90982 1182766
    2031 100080 1301040
    2032 110088 1431144
    2033 121097 1574261
    2034 133207 1731691
    2035 146528 1904864
    2036 161181 2095353
    2037 177299 2304887

    Total rent paid 25 year = Rs.23013588/ (2.3 CR)

  18. And over and above most difficult thing is to find a 2/3 BHK in 18000/- metro. I am taking 18 K as minimum cost. I am paing 18000 K in delhi for “2+ study” and I am sure a new tanent searching for similar house will het in 20K+.

    You have spend your weekends (see i not writen weekend, it is weekends) or to take leave from office to find your “RENTED DREAM HOME” and to relocate.

    I cannot understand you writer of artical thinks that living on rent is better than owning your house.

    One more thing.. A rented house will always be a HOUSE, but a owned house you can make it HOME.

    So decide you need a “HOUSE” or “HOME”.

  19. Only suggestion from my side to all buyer of appartment is to “dont spent more than 50% of your family income (Your+wife) on EMI”. Remember your wife have may have to leave her job for universally known reasons. SO go for EMI which will pay now as well as does not become problem in future.

  20. I feel really bad when i see old parents 60+ living alone in a grand apartment(3 BHK 90 lac :))and fighting with the fast pace life of metros , because their children are not with them …. son is abroad, daughter is married abroad…. it is better to invest money in some 2-3 tire cities where you can live with peace without spending much …better to have land and your own house. everlasting value and no depreciation at all,complete independence and flexibility.

  21. Good thinking. But some of the parameters are not calculated properly.

    For example, rent of a 90 lakh property is much more than 15k. It should be atleast 25k to 30K. I think you want to compare apple to apple.

  22. Anshul though i appreciate your knowledge of maths , i seriously suggest you a course in economics as you intend to suggest that rent will become 1.7 lakh in 2037.

  23. Nice post Avinash…definitely a value-add…I appreciate Anshul’s perspective on the rent agreement, but think the sarcasm was undeserving

  24. To Avinash’s analysis, I would like to add that one needs to add an implicit “ownership”/”security”/”freedom to do what one likes with the property” premium which I think is and should be priced into an owned property

  25. Hi Avinash,
    Decent effort mate!!You got the so called old aged, mature and financial big shots like Anshul thinking.
    And you pushed them to the point where they even got personal with terms like young blood and all. Cheers to that.

  26. This kind of thinking I was carrying from 2008 onwards and I didn’t buy anything till 2013. Now I have bought an apartment at 45L including registration.30L is loan and 28k is emi.interest part will come 3Lper year. Even if I am selling it after 50 L after one year, I am at profit. Because if I didn’t buy this I would have beenn ending with paying rent of 13-15k which cost arround 2 L.If we consider rent as a loss, 45+3=48L-2l=46L+INETREST ON DOWN PAYMENT ( 15L)1.5L = 47.5L will give me profit

  27. Excellent write up. Justifies why it does not make sense to buy apartments which are prices more than their obvious utility.

  28. If your apt appreciates in value in just a few years you can easily sell it. Just because you bought one doesn’t mean you have to keep it till you retire. India is one of the top countries in which real estate values have soared and still keep increasing. Of course the city, locality, amenities etc. come into play when we talk about real estate.

    Also, a rent of 15K is very less for an apt costing 90L.

    There are disadvantages of buying an apartment but not exact due to the reasons you have mentioned. If you buy and rent it out the headaches with the tenants etc. are bigger issues than purely the cost.

    Another important point to consider is what if you pay the 90L (or at least close) you have saved up towards the apartment and not take a loan then the logic you are talking about does not apply at all.

  29. Rent calculation misses an important point(loss of interest earning if invested). Rs.15000/- rent with 5% rental inflation and 8% interest loss totals to rs.1.3crore. Also the interest loss for the initial deposit amount(10months advance) amounts to 7L.

  30. I support staying in a rented house till an age and once you feel like retiring move out to smaller city, may be a village too. By that time all amenities will be available everywhere. Many of you calculating the interest and other things, remember its rented place, if the rent is increasing, just shift to a new place, don’t stick your ass to one rented place. Shifting to a new place doesnt cost much with so many movers and packers competing with each other. Most of all is the PEACE OF MIND. No property tax, no monthly commitments, no fixing the tile and tap. However, during this time till you buy a property ensure that you invest your earnings properly to grow your investments. End of the worklife, make a nice bungalow in a nice place and enjoy the rest of the days with family.

  31. Staying in Rent gives more freedome, in terms you can shift whenver you want, if job get changes to distant location or some other reason. Moreover apartment value after 6, 7 years remains stagnant. If you are building own independent house, then it will appreciate, otherwise as time goes apartments will loose its value

  32. Actually wat happens after studies after the age of 28 we have to marry and afterwards wen our future children would raise the questions dat why we are leaving in rent

  33. Let us think logically. Are you implying that the landlords are not including the cost of maintenance, taxes, and profit while deciding what rent to charge you? Why will any one invest money at a loss? So, if you rent, implicitly you pay for all the costs involved plus profit of the landlord. When you buy it, you save at least the profit part of the rent.

  34. Very interesting article. I do think that the rent would be a bit more for a apartment that costs 90l. Still the most important thing about renting is that you are not living in debt for the rest of your life. If you invest the difference between the mortgage and the rent in a mutual funds or in your own portfolio of stocks than you should have enough capital to buy 2 such houses in 20 years time without any loans. Remember that the real estate bubble in india will burst and we should see real estate prices fall under the reasonable category. It has already started bulging at the seams.

  35. The title and the article don’t really match.
    Would I buy an apartment that costly for living- Probably yes.
    Would I buy a “second” apartment as “investment” if I already have one- Hell no!!!
    Many of the comments give examples where a property worth 30-40 lakh appreciated and they got a profit selling it. Agreed. Prices in that band are increasing. However, do realize that the cost of a 90 lakh apartment will not rise by the same percentage, because there are not many buyers in that band.
    Also, the prices of homes (and rents) will not continue to rise by the same percentage for 20 years. Eventually (maybe in 10 years), the rise will slow down, once the prices reach a certain price point where the salaries of people don’t permit any higher rents and the demand for very high rent apartments achieves a plateau.

  36. you should never add up the total outflows to arrive at the net investment. For instance, you should not consider the 2.7 crore as total cash outflow. This should be discounted to present value and should be compared to the PV of the rental outflows considering you stay in a rented house. That said, I totally agree with your point that equities give more return than real estate over a long term.. Further, the real estate may not see the same rate of growth in the long term (atleast in tier 1 cities) once they become too un-affordable to the middle class people

  37. This i call a jobby mindset…buy a apt..pay emi…n thn wait for it to appreciate in value, why cant we think big here , why cant we simply aim to earn more, why cant we dream to hv a bunglow of our own…in a place where we like.Its not beacause we dont hv money its because we have stopped dreaming, we are leaving paycheck to paycheck.n if u dont dream u cant hv vision, if u cant hv vision there is no internal compelling reason for u to do something extra rather than leaving on paycheck to paycheck,Guys common this is one life we got we deserve bettr thn jst a 3 bhk apt for which also ee hv to work our ass off n then still hv to worry if our job goes how will i pay the rent..we deserve better than this but for that u first hv to hv vision which will come only come ehen u strt dreaming again…ur vision will guide u to bigger things in life..

  38. I am very happy by reading this article actually i opened my mind by reading your suggestion definitely i will follow this suggestion
    thanking you sir

  39. Well the analysis seems stupid to me.

    I agree that buying a piece of land is way much better investment than buying an apartment, but buying an apartment is better than staying in rented flat.

    Biggest downside of staying in rented flat is that you lack freedom, their is insecurity of have to leave the current place of stay, every time you change your place of stay you have to give fat deposit amount and moving your stuff is a hassle.

    yes you pay more in EMI, well usually the double of what you own, but then I guess its better to pay your loan early and even if you dont pay, the amount you pay as interest is tax-free.

    Idea is don’t carry the EMI to full term, try to fulfill your loan as early as possible, so if you take a loan for 20 years, if you can pay it in 10 years you will save lots of money.

    The price of apartment doesn’t rise with much speed, also I believe one should try to sell apartment in a span of 10-20 years of when it was built. after that the return value would be much less due to wear and tear.

    but hey I am not an expert.

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