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.
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