Yes.Yes. I know Bro. I know it. Rent is not the yard stick to calculate the returns. It is the appreciation in the value of the property. Do I look so stupid not to know it? But listen to me very carefully. You will know the reason for my skepticism.They bought it for 80L. How much is it worth now. Rent is not the way to calculate return on investment. If you get 1 crore now for an 80 L apartment bought 3 years back, that's not a bad investment
For what ever appreciation you are talking about, there is also a depreciation, inflation, lack of demand, over supply, devaluation of rupees etc., that may happen during a course of time. If you take in to consideration all these things apart from the interest paid on the Bank loan, you are going to land in red at the end. Also do not forget the melt down of US housing sector a decade ago, which led to millions being rendered bankrupt, innumerable Banks collapsing and closing, and the US and Global economy nose diving in to an unmanageable recession. It took them nearly five years to recover. The housing sector has not yet recovered.
Let me take my own example. For my son I will use the word 'I'. I spent Rs.20 lacs of my own money as down payment and took Rs.60 lacs loan from SBI, to make it Rs.80 lacs. That was three years ago. Now you say that I can sell this flat at Rs.1 crore. Where did you get the figure Rs.1 crore? Some people are trying to sell their apartments there and they cannot find a potential buyer even for Rs.90 lacs.
Here is an offer for you. Sell my flat for Rs.1 crore and give me only Rs.98 lacs. Balance Rs.2 lacs you can keep as commission. Even with 98 lacs I am not earning any profit or returns. I am barely breaking even. Do you want to know the break up? For my own money of Rs.20 lacs paid as down payment , I will not calculate any interest. What ever I earned as rent at the rate of Rs.15,000/- per month shall be considered as my interest. OK. If I get 98 lacs I can take back my 20 lacs. I need to pay 60 lacs to the Bank. So far I have paid an interest of Rs.18 lacs to the bank on the loan of Rs.60 lacs for three years. At a rate of 10% per annum. I am paying a monthly EMI of Rs.60,000/- to the Bank. Out of which Rs.50,000/- to Rs.60,000/- is adjusted towards interest. You know in the EMI system for the first five years, what ever EMI paid shall be only sufficient for the interest. Only after a few more years the principal amount get reduced and so interest also. So I need to get back 20 plus 60 plus 18 the interest paid by me. This amounts to 98 lacs. So if you pay me 98 lacs today, I shall not make any profit. I shall break even. I am satisfied. You can keep the balance Rs.2 lacs. Are you ready for the challenge?
If you stretch this three years to fifteen or twenty years, the calculation gets more complex. You are sure to lose a fortune if you sell it after 15 years. Taking in to account the depreciation, inflation, interest paid and devaluation of rupee after fifteen years.
In Kerala it is more complex. In Kerala nobody likes to purchase a flat that is used by somebody else for fifteen years. Everybody wants their own brand new house. So there will be no takers for your flat after fifteen years. Suppose I purchased a flat for Rs.20 lacs ten years ago. Even if I am ready to sell it for Rs.30 lacs today nobody will take it. They will go for a new flat of Rs.40 lacs of the same size. If you own a piece of land of even 10 cents on 'terra firma', there is some chance of you making a profit after ten years. Not on a piece of sky called a flat standing on the tenth or fifteenth floor of a building.
Remember the 'Pancha Tantra' story of the day dreams of a 'Malar Podikkaran'? His day dream was shattered when he jumped in joy and broke his pot containing 'Malarpody'. He dreamt that he will purchase ten eggs with the money he gets from selling the 'Malarpodi'. Then the ten eggs will hatch in to ten chicken. Soon he will have hundreds of chickens. Then he will buy a calf. It will multiply in to thousands of cows in due time. He will become a rich man. He then shall marry a beautiful girl. He will produce ten smart sons. He will carry the youngest one on his shoulder and jump up and down to entertain him. And actually he jumped with the Malarpodi pot on his head.
And you know the rest.