I do not know exactly since when the middle class Indian started dreaming about owning a house. It could be from time immemorial.
Or it could be a mindset shift over the last 60-odd years when families began to grow apart, joint family systems collapsed, ancestral properties were no longer substantial monetarily and rent expenses started inflating with the ever-growing population and rising demand for real estate.
So, it was a very common dream of the generation of the 40s and 50s to purchase a house in their lifetime, breathe their last in their own house, and leave the property to their son(s). The cost of purchasing a house and that of conducting a daughter’s wedding were equally expensive. It needed a lot of planning and saving. Housing loans started picking up from the early 80s but it was still not the sought after option for purchasing a house.
Around that time, people rather preferred to wait until their retirement so that they could pool together the money from their savings such as the Provident Fund and then buy a house. This was the practice also because people at that time did not prefer to take loans. It was not in the mental and societal makeup at the time. Anyone taking a loan was considered to be ‘poor’, ‘lavish’, irresponsible’ by the society and his immediate circle of family and friends. Thus, purchasing a house became a lifelong ambition and dream that many worked towards. Simply, they bought a house at the end of their work life, retired to their own home and lived peacefully until their death leaving the property to their heir(s).
By the 80s, a wave of unemployment hit the country. Many were out of their jobs. Finding jobs were becoming increasingly difficult. People at this time preferred to save as much as they could and keep their jobs intact. But there was also a mindset shift happening. The concept of instalments was picking up. People were not probably considering instalments to be loans. So, they slowly started shedding their inhibitions about taking loans and did not consider it as a social stigma as they did before.
With the IT industry emerging in the 90s and people eventually finding new job opportunities, banks also found a sudden business opportunity in the real estate segment. More interesting and enticing propositions were put forth that was promptly lapped up by the common man. Increasing population, expansion in urbanization and increased IT infrastructure development led to a rise in real estate prices which made it a lucrative investment as well. People now started to purchase houses as an investment that they could always dispose off in dire straits. This however started to create a higher demand but lesser supply of property, thus further escalating the real estate prices. Soon cities started shrinking in size; agricultural lands turned into urban establishments soon resulting in inflation in other commodities as well. People started buying more property than they actually needed because they felt that it was their way towards prosperity and financial security.
But with the IT industry undergoing swings in boom and recession over the years, the inflated real estate prices were not brought down in tandem. The builders had pumped in a lot of money on the properties and thus were not willing to reduce it with the falling capacity of the buyers. This resulted in a decrease in the number of buyers as people were now suddenly very cautious with their money. They realized that the job scenario was unpredictable and they wanted every rupee for the rainy day. This resulted in a number of properties standing incomplete in various stages of construction because the buyers simply do not have the funds to complete the construction.
This situation resulted because, in our desperation to get hold of a ‘good’ property while our luck with the job continued and the prices were still affordable to us, we went ahead and purchased a property from a buyer who had not yet built the property! In fact, the builder was to build the property only using our money. And here we are only talking about flats or apartments. Independent houses were becoming scarce because many people sold their grounds to builders to make a lump sum amount of money. Purchasing a government approved plot within the city was simply too expensive to the common middle class man. So, the builder took our money and started building the flats and we were to get possession of the flat only after a year or two when the construction would be completed. And in this time, we would already be shelling out more money as well for various reasons such as government approvals, electricity and water supply connections, etc.
But on what confidence did we purchase this flat now?
1. On our assumed job security
2. Our savings in the form of equity investments and gold
But the more important reasons were – we planned that we could let the flat out for rent, and pay the EMI using the rent! Smart!
Or we could take up onsite assignments; earn a lot through foreign exchange, even though it meant that you would leave your family and aging parents behind and live the life of an alien in a foreign land, being submissive to whatever the white man says all because we just want the dollars. $$$$
But we forgot some crucial things in this planning –
1. The rent you get from a flat will never equal the EMI you need to pay. The rent will always be 50-75% lesser than the EMI you would have to pay monthly. So you still have to pay out of your pocket.
2. Almost none of the flats purchased are immediately available for possession. It may be available even a year or two later depending on the area and size of the construction and, of course, the builder. Even though you do not have the flat with you yet, your EMI starts from the time the loan is taken. So you are shelling out money but do not have a house in hand, and you just have the builder’s guarantee that he will complete the house for you in time and just as he explained how it would be to you when he sold you the flat!
3. If you do give your house on rent, then you will toil hard to repay the loan for the next 15-20 years while another guy will enjoy the benefit of your brand new house. By the time you are ready to occupy the house, not only you, but your house will also be old. It will then make you wonder that probably you should have saved up and bought an equally older house later when you needed it.
Think about it. Have we not put ourselves in this situation? Why? Because of the big house dream. Because we could not afford to wait till our retirement before we purchased a house, as we were worried that the houses would be too costly by then.
And because we could not stop with buying just one house sometimes.
We have increased the real estate values. We have led to the reduction in agricultural land. And yet we now complain of rising prices.
Ironic, isn’t it?
No comments:
Post a Comment