As everybody knows the maximum returns a residential property in India (bought with a loan and rented out) can produce is 7.0% to 7.8%, much lower than a bank FD and way lower than the consumer inflation (about 10%). [Personally, I think most countries manage their inflation numbers and would add another 1-2% to the inflation number to arrive at the real number].
So, does it really make sense to invest in a house and lose money in the first few years? I would say, YES. India is a socialist country (with several leakages and protections) trying to pose as a emerging free economy. As, global factors act increasingly on India and force the country to improve tax collections and cut subsidies - we are in for a 7 -12 % inflation path for the next 10-12 years. Hoping, that these around 10% inflation rates adjust in to capital prices of property, say, once in 3 years, we should be looking at returns of 14-17% annually on property, which should be decent enough. And, where 80% of the funds come at the lowest interest rate. I think, home loan interest rates in India are the lowest and actually negative because inflation if measured properly will be 12% and the home loan rates are 10.5% which is negative 1.5%.
Unlike US, where rental yields can hover around 7-9% compared to mortgage loans of 3.5% and present a exciting business, India is a capital + rental yield economy where part of the return is stuck in the capital appreciation. I agree, US house prices also have been rising rapidly well above their inflation of 2%. The rise has been devoid of fundamental reasons like booming economy or inflation and has proved to be a death bite for many in the financial crisis of 2009.
So, does it really make sense to invest in a house and lose money in the first few years? I would say, YES. India is a socialist country (with several leakages and protections) trying to pose as a emerging free economy. As, global factors act increasingly on India and force the country to improve tax collections and cut subsidies - we are in for a 7 -12 % inflation path for the next 10-12 years. Hoping, that these around 10% inflation rates adjust in to capital prices of property, say, once in 3 years, we should be looking at returns of 14-17% annually on property, which should be decent enough. And, where 80% of the funds come at the lowest interest rate. I think, home loan interest rates in India are the lowest and actually negative because inflation if measured properly will be 12% and the home loan rates are 10.5% which is negative 1.5%.
Unlike US, where rental yields can hover around 7-9% compared to mortgage loans of 3.5% and present a exciting business, India is a capital + rental yield economy where part of the return is stuck in the capital appreciation. I agree, US house prices also have been rising rapidly well above their inflation of 2%. The rise has been devoid of fundamental reasons like booming economy or inflation and has proved to be a death bite for many in the financial crisis of 2009.
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