house in Mumbai

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House In Mumbai – Is It Worth It?

Are you buying a house in Mumbai? Are you sure that a house in Mumbai is a good investment? Read further and you will know about your investment in a house in Mumbai.

Lets consider a scenario where the price of a house in Mumbai is ₹ 80,00,000. On an average, the rent for the same house would be ₹ 16,000. The IRR of the property value is 14%  (appreciation price per year)

For a housing loan of ₹ 80,00,000 @ 10% over 20 year tenure, the EMI comes to ₹ 77,000 per month

If House in Mumbai is Bought

  • EMI of Rs 77,000 per month will be paid for 20 years
  • At the end of 20 years the Property will be worth
    • around ₹ 10 crores at 14 percent per annum growth
    • around ₹ 5.8 crores at 10 percent per annum growth
    • around ₹ 3.7 crores at 8 percent per annum growth

If House in Mumbai is rented (and the rest of the money is saved)

  • Considering the rent of the place is ₹ 16,000
  • ₹ 61,000 per month on EMI will be saved
  • Assuming savings of ₹ 50,000 per month is made (accounting for rising rents in coming years). Hence, the total savings at the end of 20 years will be
    • around ₹ 5 crores at 12 percent Per annum growth (which is a challenge in the long run)

Tax Implications (in both cases)

If assumption are made that all tax savings are at highest tax bracket of 33%

  • On the rent of ₹ 16,000, Actual rent is saved – 10% salary = approximately ₹ 14,500 per month becomes deductible which comes to ₹ 1,74,000 per year.
    • So, tax saved every year is ₹ 57,420
  • On EMI of ₹ 77,000 both 80 C and Sec 24 benefits are maxed out. But most people already have investments under sec 80 C so will consider only Sec 24, where the maximum deduction is ₹ 2,00,000 per year.
    • So, tax saved every year is 33% of 2,00,000 is 66,000

The tax savings are similar with marginally more saving with home loan.

The house we are speaking about is a 1 BHK house in Mumbai suburb measuring around 400 square feet in area owned by Vivek Ravindranath who did the calculations on a Quora thread.

But from an investment and historical real market growth perspective buying a house in Mumbai makes fiscal common sense.

If you found this article informative, do share it with your family and friends. If you have any alternative calculations, please share your thoughts in the comments section below.

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