Real estate purchase today has become a lifetime investment. Many people who buy overpriced homes on loans become bonded labours as they suffer almost 20 years (240 months) paying EMIs for their home loan.
India is making a transition from a largely rural society to urban community. From the past few years, urban population is increasing significantly. With the fast increase in urbanization, the demand for homes in urban areas has increased. The middle class people known for their ‘future thinking’ are actively participating in buying process of homes. In this process, they are getting sucked and becoming bonded labours paying back huge amounts due to overpricing of the realty sector.
Government is there for low class people, providing so-called housing to them. It is never a problem for the high-class people as they already own houses and there is no necessity for them to buy. Even if they buy some real estate property, it will be purely for the purpose of selling at higher prices. It is the middle class people who suffer a lot due to the overpricing of the housing.
A few years back, as the sales were strong, the developers felt that the prices must be hiked. Many people bought the land on very high prices a few years back as if there was shortage of land or as if there was no tomorrow. The developers kept on raising the prices and that went out of reach for a middle class person to buy. Now many of them are reluctant to sell as they thought that the prices would go up. This greed to make quick and more money is making them control the supply. However, high prices means less work and better compensation for them. With no real alternatives, the middle class people are forced to buy homes at higher prices.
There is another issue with home purchasing today for the middle class people. They will purchase a property at higher price, taking loans from the banks. This will make them pay more than double the amount they have taken as a loan, thanks to the interest rates. The person who sells the home will get the money upfront and he will be safe. Then the person who took loan has to pay equated monthly installments for a long period.
Suppose, you have purchased a house and took a loan of 10 lakhs from bank X. (Remember, you won’t get loan for the total amount of the property). The common rate of interest today is 9.75%. So, you should pay Rs.9,486 EMI if you want to repay in 20 years. After 20 years, you would end up paying Rs.22,76,640. This is excluding processing fee and other charges. It clearly shows that you will be paying 2.2 times the amount you have taken as a loan.
You can repay the loan amount in 10 years, but you have to pay Rs.13,078 per month. But many people cannot afford to pay such huge amount every month towards home loan alone. An average employee in a decent company today gets around 15,000 to Rs.20,000 per month. If he spends around 10,000 per month just to repay the loan amount for almost 20 years. He has to struggle with the remaining amount of his salary for next ‘twenty years’.
The case is much more worse when you take a flat in an apartment. By the time you finish your installments, your home will have significant cracks on it. Not even two generations can live in a same apartment that you have hard earned.
Today, home purchase suddenly became many times more expensive than kids education or marriage. Is it really a security? Is it really that expensive? Is it really worth purchasing and becoming a bonded labour? It is like a chain around your neck or a brick tied to your leg.