Sunday, June 12, 2011

Don’t buy a house in Mumbai

1. INR 1 Crore is the erstwhile INR 30 lacs a few years back

You won’t find a house which costs less than INR 1 Crore (USD 230k or USD 0.23 Mn) – a modest 2 Bedroom Hall Kitchen (2 BHK) of size 1000 Square Feet (super built up, your carpet area or living area would only be 650 Square Feet) with one parking – Stilt / Open. This house is located not in the heart of the city, but spread across the suburbs on the outskirts.

2. The cost of your car parking lot would be 2-3 times the cost of your car!

You end up paying about INR 0.5 Mn (USD 12k) for buying a car parking space in your apartment. The cost of typical Indian small cars is almost less than this. A Tata Nano – the world’s cheapest car costs anywhere between INR 0.1 Mn – INR 0.2 Mn (USD 3k – 5k). It such a pity that the cost of parking your car in your apartment is more expensive than the cost of your car! Add to this – the fact that you spend more time on roads driving your car than in your apartment. Hence in your lifetime, you pay more money to have an empty square box called parking space for your car.

3. Maybe getting your dream girl is easy these days, but not your dream house!

The builder lobby is the real political nerve center in the city and probably in the country! These are the times when the Housing Loan rates from Banks are already at an all time high – to arrest inflation and curb house hoarding by the affluent. In the low interest regime, a lot of affluent folks ended up taking advantage of low rates and buying 2-3 houses and giving them on rent. To arrest this, the government increased the interest rates. At the same time, the builder lobby was still strong enough to hold on to the exorbitant rates for the properties they were developing. In between these two extremities of high interest regime and exorbitant rates charged by builders, the genuine home buyer still continues to dream about his dream house!

4. Builders escape any scrutiny or regulation that you, I or even the Telecom , Financial or Insurance sectors enjoy in our country.

To keep you in check in your personal life – you have your family, in your professional life you have your bosses – who ensure you don’t go overboard on any aspect that is not in line with them. Real Estate Companies / Builders are the only entities that are not yet regulated by any government body. They continue to get away with charging money for the views you may get from your apartment (even though you may be seeing some slums or greenery which will soon become extinct). For using the staircase and all common areas, you end up paying 30%+ more than what is mentioned in your agreement papers! This is the Super Built area! While buying your apartment, you pay the builder for the Super Built up area of the house, which is nowhere mentioned in any of the authorized legal papers, except for the brochures he prints to lure you into buying the house! The builders also charge money for parking lot – stilt as well as open! I have seen cases where most of the builders take this money in cash, don’t give you any receipt and just issue an allotment letter. What I mention here is not explosive truth that is being written for the first time! It just reflects that they can get away with what they want and no one can question / correct them. They have greased the government at the right levels and continue to go uncontrolled with a smile on their face and wiping their asses with the hard earned money that you and I earn after paying 30% tax to the government! Soon, the builders will only use INR 1000 currency notes as toilet paper!

5. Mumbai is sadistic enough to keep you out of your home:

The house that you buy for INR 1 Crore is the one that will serve you well for those 6-7 hours of sleep at night, when you enter your house exhausted after travel and office pressures! In a city like Mumbai, you can easily spend anywhere between 8 hours and 18 hours outside of your house each day – in Office, Roads, Traffic Jams, Restaurant Queues, Car Parking Queues or even waiting for your lift to take you down from your 24th floor apartment to the Ground Floor! This is true not only in the suburbs, but also in the heart of the city. INR 1 Crore is too high a cost to pay for a guest house where you spent 7 hours average per day over the weekdays and 48 hours in the weekend. Over the weekend, once can still debate the time one spends at home as it is usually loaded with shopping, socializing, meeting friends and relatives, watching movies etc.

6. Home Loan = Additional stress level + Limited resources for other expenses

The house you buy by taking a huge mortgage loan ensures that you are tensed for the next twenty years (the tenure of your home loan). It will ensure that you are on a shoe string budget and make you evaluate every dime you spend on other expenses like buying a better laptop or even getting that neat Jockey underpants you desired! In addition the cost of maintenance per month for your apartment would be anywhere between INR 10,000 – INR 15,000 (includes the maintenance towards society, modest electricity bill, water charges). The money would perhaps be the monthly gross income (including taxes) for atleast 40 % of the working age population! You may fear that seeing you smile, the builder may charge an extra “Happiness cost to you” as a line item on your Housing Payment papers!

The Final Diagnosis

If you now take a view of your house vs your car in Mumbai, you will see that immaterial of how many flyovers get built, how many metro’s are commissioned, you will always spend more time travelling throughout the city and in between traffic jams than anywhere else. You will end up having time for yourself - to think only during that time. Hence, it makes sense to have a decent car (probably with a chauffer), thus ensuring the comfort of your personal space that is used most of the time. The chartered accountant will argue that the car depreciates 20% each year and the house is a visible asset that appreciates and hence advise you to invest in the house. However, there is something beyond asset value, rate of returns and depreciation, which is - living the present comfortably, without frowns or worries about giving away 50-60% of your monthly take home salary towards your house to build a long term asset.

It makes sense to

A) Buy a decent car and employ a chauffer.

B) Rent a house in Mumbai and DON’t buy one (Rent in Mumbai has not increased at the rate at which housing costs have increased)

C) Invest 23-30% of the money you will spend in Mumbai to buy a house (around INR 25 lacs – INR 30 lacs) to buy a house in a Tier II non metropolitan city in India. It will be more spacious and give you decent monetary returns and better quality of life in the long term!

Obituary Note from the Builder to the Genuine Home Buyer

Genuine home buyer in Mumbai – may your soul rest in peace. It was a pity for you that Mumbai has gone down to the dogs. You as a genuine buyer were barking and bitching about it throughout your life. We, the Builders and real estate companies are unmoved by your whims and fancies. While the government is looking the other way, we can get away with what we want. We are the new Invincibles!

(PS: Ensure you deposit INR 10 lacs (INR 1 Mn)to our account, as your spirit may wander in the premises of my apartment complex! And yes, we can’t give you any receipt! If you want the graveyard view, we charge INR 5 lacs  (INR 0.5 Mn) extra !)

1 comment:

Ash said...

Nicely put Deepak!!!
You can add one more point to this and that is BLACK MONEY demanded by builders in many cases.
I dropped the idea of buying in Mulund east as most builders in Mulund east were asking 30% black money of total flat cost. so if my flat cost 70lacs on average in Mulund then 20 lacs I have to pay in cash rest 10 lacs cash to get a 50lac home loan so I as a salaried person should have 30lacs cash which when given away does not make any difference to me and my life!!!
Plus amenities promised and most of the times substandard and/or not delivered at all. sometimes you have to wait till eternity as those are completed at the end of the project when all buildings are ready!!!