Buying your own property would put you on a path of safety and security. It also provides security and comfort for your family. Moreover, it is an asset. But does it really make sense to buy a property early in your career? Here’s a look at all the pros and cons of what seems to be an attractive proposition.
Advantages
Lower EMI, More Time: When you invest in a property early in your career, it can be beneficial as you can opt for a longer-duration home loan, which means smaller EMIs. If you avail of a loan in, say, your mid-20s, you could get a loan for 20-25 years. Also, you might get the loan easily at that age as there are many years to your working life ahead and you may not have other liabilities. If you are married, you could take the loan jointly, which will lead to higher loan eligibility. In a decade or so, when you are in your mid-30s, you could save up enough funds to increase the EMI amount and repay the loan faster. You could then invest in another property.
"The fact that people today are buying homes at a young age is nothing but positive for them, but (it) depends on where they are on the income graph. It may make sense to begin with a ‘starter’ home and eventually upgrade to a larger home when the borrower’s career has progressed, "says Prashant Thakur, senior director and head, research, Anarock group.
Another major advantage of starting early is that you will not have responsibilities like taking care of children, elderly parents, among others. These responsibilities usually come later in life. Meanwhile, you could use your time to invest in an asset that appreciates over time.
Saving On Rent: If you bought a house to live in, you would save on the high cost of rent. The money that would have gone as rent can instead be invested in an asset. Plus, if you rent out the house, you could earn a rental income.
Making Use Of Tax Breaks: A home loan is eligible for a tax deduction under Section 80C of the Income Tax Act of 1961. A home loan comes with multiple tax benefits that significantly reduce your tax outgo. For an under-construction property, the income-tax Act allows you to claim a deduction on interest, also called "pre-construction interest." A deduction in five equal instalments, starting from the year the property is acquired or construction is completed, is allowed. However, the maximum eligibility remains capped at Rs 2 lakh. If your home loan is eligible for a deduction under Section 80EEA, you could claim an additional deduction of Rs 1.5 lakh. The principal portion of the EMI paid for the year is allowed as a deduction under Section 80C. The maximum amount that can be claimed is up to Rs 1.5 lakh. "To promote the housing sector, Budget 2019 has introduced an additional deduction under Section 80EEA for homebuyers for a maximum of up to Rs 1.5 lakh. If the loan is taken jointly, each loan holder can claim a deduction for home loan interest up to Rs 2 lakh and on principal repayment under Section 80C up to Rs 1.5 lakh each in their respective tax returns, "says Archit Gupta, founder and CEO, ClearTax, a tax portal.
Acquiring An Asset: Buying a house means you are buying an asset. "Even if everything goes wrong, you have at least this one asset to fall back on. Also, if your financial goals are not being met, then investing in real estate can be a good option for diversification. But you have to make sure that your other basic goals are well taken care of. While investing in real estate, try and ensure that there are some rental yields attached to it," says Anant Ladha, founder, Invest Aaj for Kal, a financial planning firm.
Disadvantages And Risks
Job Uncertainty: People often take a plunge early in their career to invest in a property, thinking they would have stable jobs all through their life. But things get complicated when uncertainty strikes, and they lose their jobs suddenly or have to contend with paycuts. In such cases, you would have to continue to pay your EMI even as you look for another job or higher salary. If you are unable to pay your EMI for over three months, you loan will be classified as a non-performing asset (NPA). At this point, the lender has the right to initiate the loan recovery process through the means available to him, including auctioning your property. This would in turn lead to a bad credit score.
"Post the COVID-19 pandemic, we have been witnessing even millennials coming onto the housing market as determined buyers. This is notable, as millennials previously preferred renting. Today, young homebuyers are not knee-jerk purchasers; they do their homework and tend to know what they want, and how much they can afford. Lessons have certainly been learned. During the initial years of India’s IT boom, we saw young people buying expensive homes via home loans. When the dotcom bubble burst, a huge number of such loans became NPAs. There isn’t much of such rashness in evidence these days, "adds Thakur.
Ideally, you should plan and invest 25 per cent of your annual income in real estate, says Ladha. "As an investment, real estate is generally a good option only for those in the higher or middle salary brackets" , he adds.
Sacrificing Lifestyle, Peace Of Mind: At an early stage of one’s career, it is often difficult to put together the suitable downpayment needed to invest in a property. Taking care of the downpayment along with other costs can create an unnecessary burden on you. Money needed for other goals, such as building an emergency fund or paying for insurance, may take a hit, as would lifestyle expenses such as taking vacations.
Change In Location: If you need to move cities for work or any other reason, you might find it challenging to simultaneously deal with an EMI and rent. "Relocation in the interest of one's career can get hampered if one is tied down to a location too early," says Ladha.
