Hello Ladies! I have done my analysis on whether to invest in RE (3BHK residential apartment in Chennai) for rent or park the funds in NRE FD for 5 years. For the ease of calculation let’s say I have a capital of Rs.1 Crore. My investment horizon is 5 years. RE: Buying a 3BHK apartment in an upcoming area in Chennai for Rs. 1 crore will cost me additional 11% of the property value for registration, stamp duty, broker fees, service tax, electricity, water connections, misc fees, car parking etc. Additionally I have to consider maintenance of the property which includes insurance, at least one whitewash during 5 years, rework and patch fixing etc which can be roughly 2.5 lakhs (believe me). So the total cost of the property is 100+11+2.5 = 113.5 lakhs. I will get rent of Rs.25,000 pm average. If I open a recurring deposit account to deposit that rent amount for 60 months with 8.5% yield I will get a total of 18.7 lakhs on maturity. I guess the property prices appreciation is about 8-9% p.a in Chennai (correct me if I’m wrong). Given that I can expect the property price to reach 145 lakhs after 5 years. So the net profit here is (145+18.7-113.5=50.2 lakhs profit). Not incl. long term capital gains tax. FD: Assuming I’m not buying the flat, but instead parking my funds of 113.5 lakhs in NRE FD for 5 years with 8.5% interest and no tax for NRE, the maturity value is 172.8 lakhs. So the net profit is 172.8-113.5 = 59.3. This amount is readily available for me then without any hassle and importantly 100% repatriable. So 9 lakhs or 9% more profit in FD than in RE. Even if the property price appreciates 55%, will there be buyers who will be able to afford 155 lakhs + 11% charges which will be around 1.7 crores? Can the middle class and upper middle class people afford that much then? Please comment on my analysis and put your thoughts too. I’m I missing some key part of investment benefits in RE? I did not consider mortgage (like taking 75% loan) because the interest rate is 10.15% which is more than FD interest. Thanks!
Geminaa, Properties in and around ECR road cost around 3 crores and there are people who afford it. In Chennai specifically, property investment is a good investment if you're looking long term. However, you need to diversify the investment. Don't put all your money in one basket (in case if you're planning to put all your money in that property)
the rent that you are projecting 25k for upcoming chennai is a tad more for a 1crore property unless it is bang on a hot moving area with all the proper amenities. and investment in property and the return on that will never match. and there is surplus supply and lesser demand. already there are many apartments that are left vacant for more than a year and people paying maintenance. a very close friend has a 1600sq.ft flat in a community close to sholz classic with all amenities and has not been able to rent it for 20k.she has been paying a maintenance of 4800 from her pocket. just to give you a picture, though it looks so rosy from the outside. if i was given this hypotetical problem, my solution would be - invest the same in a resale flat in a prime area where i can get the rent. but in this case the other costs wlll increase because of the second sale. I would think of investing in plots. 2/3 plots and later selling of one or two based on my requirement. but again it is a slow and steady road. there is a certain saturation point that has reached even with plots in orr and greater chennai. 50% FD, 30% in a smaller flat in a prime area and 20% in other investments..i would not want the whole amount riding on RE, especially chennai right now. though people say the bubble will happen, i don't foresee bubble as long as we have corrupt politicians, smart investors, and loop holes. we will keep the illusion of a very proper market parameters even if we register the flats in the name of our kith and kin(by builders) to keep it afloat..
Thanks Shanvy for your thoughts. I agree 25k rent is a bit ambitious, but 20k is realistic. Also any thoughts on the appreciation of property prices in Chennai. Also my willingness to take risk is very limited. Hence I'm having discussion from all possible sources. Plots are a bit risky nowadays given the checks to be done and that we are away from the country. I'm planning to diversify my investments. Thanks again for the reply.
Well I think Investing In Mutual Funds is a better option , as the Long Term Investment Key Benefits are Safety of Investment – Zero credit risk Liquidity Ease of transactions Investments in smaller amounts
i know 20k is realistic but sitting in chennai i feel 20k is luck, the right person and things than realistic. if you are a conservative risk taker, then flat is a better option than plot. and do diversify your investment..
Besides Equity Fund, Income Fund , Long Term Fund, Open Ended Fund are also the funds that one can Invest In. Key Benefits of Long Term Funds Safety of Investment – Zero credit risk Liquidity Ease of transactions Investments in smaller amounts A very Important step one must take while choosing a mutual Fund is to know the Mutual Fund Performance That helps us to know the right mutual Fund to Invest in.
