Buy a home on loan or rent?-1: Finance Trading Times

Buy a home on loan or rent?-1

This is the question that concerns majority of the people who have relocated to other cities following a job or business requirement – Should I buy the house NOW by taking a loan OR should I wait for some more time for the real estate prices to come down and interest rates to stabilize?

You will find different answers from different people whom you ask this question.

Call up the bank and home loan officer – his response – “We have excellent discounts available, the interest rates are just right to take a loan – in future it may appreciate further. Let me know your details and I’ll visit you and explain”

Call up the realtors selling apartments – their response – “Only 2 flats are left in this building, rest all are booked and this is the most upcoming and happening areas which will only appreciate in value. If you miss it now, it will become costlier day by day and unavailable”

Ask you friend who has already taken a house loan – “You MUST take a house loan as soon as possible. See, I took loan 1 year back. I got the possession 2 months back and the price of my house has increased to 1.5 times in just one year. There can be no better investment than house and house loan. So just go ahead and invest.”

Ask your friend who has NOT taken a house loan and is staying in rented apartment – “Yaar, rented apartment is the best. No long term commitment and freedom to relocate to any place and in any city. God knows how long can I keep up my job.”

Another friend who has bought a piece of land or plot – “Forget about house, a house depreciates in value. Some day or the other the fall will come in real estate. Land only appreciates in value, irrespective of the market situation. So invest in land, and later sell it at much-much higher price to buy apartment.”

Basically, all you will hear is the psychological biases of individuals trying to justify what they have done. Hardly anyone will know anything about the markets – all have taken random shots for their financial commitments and will be ready to shout at the top of their voice to claim that what they did was correct and you should soon follow them by taking their valuable advice.

Now, many-many articles are available on site like rediff, citing extreme end examples of people who should take loans and people who should not take loans. However, a general dilemma can never go away.

Unfortunately, no one can tell what you should do. It is you who has to take the call. It is you who will be responsible for your financial obligations if things go wrong and you get into a financial distress. Hence, take advice from others, but take decisions on your own.

As a finance professional, I know one thing for sure: No markets, No Industry, No country can continue to grow consistently with even a double digit growth. People who claim to make claims of even a mediocre 20% profit from their stock picking skills are again reminded of how the overall market has performed.
Now forget about the stock market and its overall fantastic returns. All of you must have already heard the “Indian Growth Rate ranging from 8% to 10%”. If it is so easy to make money, why is the government, the country still struggling to keep up the growth rate at mere 9% (not even touching the smallest double digit figure of 10%)?

The reason is same as cited above. Overall, the profits from one segment are nullified (to a major extent) by the losses in another segment. A high salary requires relocation, and the cost of living eats up majority of salary. If you can make and save more – you are just lucky.

So coming back to the real estate market – there has to be a saturation level –atleast in terms of the price rise. If today, the house prices are rising with annual 20-50% range, then there will definitely be a time when the prices will either fall nosedive, if the MNC start laying off people (the major customers of real-estate boom) OR atleast there will be a time when the price rise will be limited in a single digit range. When will it happen? No one knows. But my finance knowledge and historical data is sufficient to convince me for this.

Continue to Part II
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